A healthy pipeline is a precise and real representation of not only all the sales activity in every sales person's pipeline, but also the distribution of the revenue across each stage of the sales cycle. With pipeline data such as this, you'll have a higher degree of accuracy and you will be better able to run your business. As the reliability and predictability of the forecasts increase even more over time, so will your revenue streams.
So what is the key to a healthy pipeline?
It's very simple, really. A healthy pipeline has velocity, with sales deals always moving. They are either continuously moving down the funnel towards a predictable closing date, or if an opportunity has lost momentum, it's qualified out of the sales pipeline altogether.
In a pipeline with velocity, there is a pre-established and agreed-upon timetable for how long each stage of the sales cycle should take. This helps keep real opportunities moving toward closure, and unless there are valid reasons for an opportunity to remain in a certain stage beyond a pre-determined time limit; opportunities that are stagnating are qualified out.
This type of self-validation helps scrub a pipeline and results in one that can give you a truly predictable and reliable forecast.
The Self-Validating Ideal Pipeline Model
Customer Centric Selling (CCS) has developed an "Ideal Pipeline" model which is based on the concept of velocity. This model not only takes into account revenue volume, but also the distribution of revenue by milestone (or process step) within the sales cycle.
Unlike a formula which uses a multiplier based on past sales volume for its measurement, the Ideal Pipeline model includes the following parameters:
1. Annual Quota. This is the dollar revenue number for each sales person.
2. Average sales cycles per year. This is the number of consecutive sales cycles that could occur in a year. For instance, with a 6-month (26-week) sales cycle would have two turns per year.
3. Milestones for your product or service. Every sales cycle, depending on the product or service, has different milestones, or process steps, from the identification of a prospect to the final closing negotiation. For instance, a typical sales cycle may have these steps, when a prospect shares his or her goals, finding a qualified champion, product evaluation, cost/benefit analysis, and verbal commitment to buy.
4. Length of time spent at each pipeline milestone. Each milestone can be assigned an estimated allowance of time. For instance, the evaluation of a sophisticated product might typically take 90 days in a sales cycle that averages 6 months (180 days). This milestone would then be assigned 50% of the sales cycle's allotted time.
5. Probability of closure at each milestone. In the early stages of a sales cycle, this most likely would be 10%, whereas in the final stages of negotiation, the probability of an opportunity closing would be 90%.
Based on the above parameters, the Ideal Pipeline formula then calculates what the "ideal" volume should be at any given time in each step based on a sales person's annual quota. wlpipeline.com offer more pipeline information.