Sales Pipeline and Forecast Management

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What is Sales Pipeline & Forecast Management?

A sales pipeline is a snapshot or representation of where current prospects are in the sales process and in which stages. A sales pipeline also shows the number of deals that salespeople expect to close within a certain designated time period (week, month, quarter, year). This pipeline may also indicate where representatives stand in relation to sales quotas.

Sales pipeline and forecast management ostensibly contains accountability to track and manage each sales opportunity through defined stages.

Sample Sales Forecast Categories

Organizations can have different definitions of their sales forecast categories depending on preferences and/or their CRM systems. Here are some helpful generic forecast categories.

Prospect

Forecast Category #1

Entries in the CRM

Prospect names that are in the CRM system and are to be contacted by sales or nurtured through marketing automation initiatives and campaigns.

Pipeline

Forecast Category #2

MQLs & SQLs

All Marketing Qualified Leads (MQL), Sales Qualified Leads (SQL), and Discovery prospects currently being worked and have been updated in CRM in past 45 days.

Best Case

Forecast Category #3

Amounts Likely to Close

  • Includes amounts you are likely to close (and turn into revenue) and amounts in the commit category.
  • Amounts you are working with potential to close in the current reporting period but, have not advance far enough through sales process
  • Back up to Commit

Commit

Forecast Category #4

Revenue Achieved & Scheduled Backlog

  • Revenue already achieved during the reporting period.
  • All backlog scheduled for delivery in the reporting period.
  • Amounts you are confident about closing and closed/won opportunity amounts.

Sales Forecast Definition

The most serious, promising and far-progressed opportunities live in the forecast stage. The close dates for these opportunities live in the current quarter.

Two distinctions that can be drawn are for commit opportunities and upside opportunities.

Commit Opportunities

Commit represents the conviction and commitment that the deals that make up the forecasted revenue amount will close this quarter.

Upside Opportunities

Upside represent opportunities in the pipeline that are far enough along that if everything works out they could close.  Strategies and actions will be identified to drive upside opportunities to close or delivery

sales pipeline forecast graphic

Why is Sales Pipeline and Forecast Management Important?

The effectiveness of a sales pipeline and accuracy of forecast management results in more accurate management reporting, the ability to apply changes in pricing, sales and promotional incentives, review the effectiveness of products, features, markets and pricing, and ultimately, an increase in income.

Sale Pipeline Increases Accuracy of the Sales Forecast

The sales pipeline provides snapshots of sales representative’s activity. It provides data with regards to achieving quotas. The information generated by the product, region, team etc. will quickly contribute to providing monthly, quarterly, or annual revenue forecasts. The knowledge of when deals close is essential and affects other departments like finance, operations, production, manufacturing and the reporting of management results.

Sales Pipeline Helps Target Resource Allocation

Understanding the status of every prospect within sales stages from opportunity to customer more accurately helps designate the allocation of resources. The sales management function is also enhanced to highlight critical deals, requirements of time and oversight.

Sales Pipeline Provides Effective Sales Team Management

Within the sales process, defined stages have specific actions required for completion. With each successful completion of a stage, business opportunities continue to move through the pipeline. The tracking of key metrics often means that sales managers have the ability to identify challenges. Similarly representative can recognize challenges before sales are obstructed or in peril.

It Increases Deal Speed or Velocity

When opportunities take longer to convert or be resolved from different levels or stages, data tracking within the sales pipeline makes those scenarios and contingencies visible. For instance, the annual sales target per salesperson is $5,000,000. When half of the sales team reached $1,000,000 in half a year, that means the business should will be alerted to potential problems in individual and collective performance.

That situation may create more urgency, strategic pivots or other actions to improve situations presented in the data.

Insight into the Overall Revenue and Profitability Picture

The size and frequency of opportunities open and closed obviously affect growth. The sales pipeline illustrates when is the appropriate to spend more or less energy, effort or resources on particular types of business opportunities.

A well-managed and closely monitored sales pipeline improves the pipeline itself. A reliable pipeline solidifies creates faster, better forecasts and sales activity overall.

Pipeline Velocity

Pipeline velocity is a measurement of how well or poorly deals are moving through the pipeline vs. established goals.

For instance, if a pipeline has $100,000 worth of contract value, with a conversion rate of lead to a sale of 10%, then a $10,000 worth of new business is expected to be closed. Some software and applications may include scoring mechanisms, likelihood to close metrics and graphics, etc.
A favorite equation is pipeline velocity. This equation is:

(# of open opps) x (win rate) x (average deal size)  average sales cycle

An improvement in any of the components within pipeline velocity can lead to sales growth.

The identification of improvements in the pipeline is helpful for the adoption and conversion of more prospects or to take remedial action. From different stages and prospects, the business can make more accurate pipeline analyses.

Notably, a well-structured sales pipeline allows the business to business sales to:

  • Improve the sales process.
  • Forecast future business outcomes.
  • Analyze the varying sales techniques and tools.
  • Manage and provide resources for closing business deals.
  • Review the progress of the current annual finances.
  • Know the extent of business targets.

Sales Forecast Health

A series of questions can quantify and qualify the health of your sales pipeline and forecast health.

Health Analysis
Quantity Do I have enough opportunities (X dollars) to meet my quota (3X)?
Quality Have I entered early into the buying process? Do I/we clearly understand the customers’ business needs?
Velocity How quickly are the deals moving through the pipeline? Are they getting stuck in any one step? Do we have the solution/product available?
Balance Is there a good balance between early, mid and late-stage deals?

Sales Forecast Accuracy

Here are four criteria to judge the accuracy of sales forecasts:

  1. Forecast is the cumulative value of deals that are far enough along in the sales process to be labeled “committed”.
  2. “Commit” is the revenue amount that is rolled into the region or company forecast.
  3. Confidence in the forecast comes from the number of transactions close enough to close in the reporting period.
  4. Forecast accuracy should be +/- 10%.

Sales Reporting Cadence

An overlooked element of accurate sales reporting and and forecast accuracy is a consistent, repeatable sales reporting cadence.

All sales organizations are different but a sample weekly reporting cadence that increases transparency, clearly defines roles and tasks to be performed can look like this:

How to Conduct Sales Pipeline Reviews

Sales pipeline reviews and monitoring allow sales managers and salespeople to track deals by knowing exactly what happens in each of the business stages. This is of particular importance when sales managers and sales teams have the discipline to focus not on the top of the funnel (that is, the volume of leads) but rather on the quality of opportunities within the sales pipeline.

The steps below will help companies to conduct pipeline reviews.

Being knowledgeable about the sales metrics

Being knowledgeable up to the point of mastery of the sales pipeline has a higher probability of generating predictable revenue. For example, if a sales organization can increase the rate in which they convert two funnel stages – say converted leads and qualified opportunities – there is a potential increase of 50% in won deals.

The understanding of the numbers and measurements and components to consider are:

  • Monthly lead resourcing
  • Opportunities lead by conversion rates
  • Closed deals from conversion rates
  • Successful deal size
  • Win rates
  • Average sales cycle period
  • Total number of open and possible opportunities

Consistent pipeline reviews

An effective way to increase pipeline speed and velocity is to increase the number of qualified opportunities further down in the sales funnel.

Sales managers conduct forecast meetings regularly. But unfortunately, like other aspects of sales, forecast meetings are notoriously short-term in perspective. Though forecast meetings can be helpful, pipeline reviews provide greater benefits by offering more information about the opportunities at the top and middle of the sales funnel.

Pipeline reviews involve:

  • Sales team reviewing the quality of opportunities currently input to the funnel.
  • Managers showing greater discretion in terms of eliminating weak sales opportunities that should not be in the sales pipeline.
  • Sales representatives and managers are having better comprehension and view of the whole pipeline system.

Being focused on stage by stage improvements in sales

It’s often said sales is a numbers game and the inclination is to pour more opportunities into the top of the funnel. However, more frequently, quality, not quantity, of opportunity wins the right results. Pipeline reviews offer better opportunities to each stage of the sales process. So, stage by stage and small improvements in pipeline and forecast management can lead to favorable results.

Being organized and clear within the pipeline system

Pipeline reviews can sometimes turn into an interrogation by the sales manager. With solid CRM systems and thoroughness of information in notes, for example, sales managers can focus on how they can help reps win deals and focus on buyer needs.

Be creative in formalizing pipeline management and operations

There are a number of things both reps and managers can do. Reps can provide some context in terms of where a deal or deals stand in relation to the buyer’s journey. Reps should know that the closer a deal gets to closing, the greater scrutiny they might face.

Managers can make pipeline review meetings more productive by reviewing reports in advance to identify strategic themes and red flags. If they can identify these things in advance and communicate it with reps, the rep can prepare greater insight on status of deals and how to move them forward.

Also, creating a library of case studies of opportunities from opening to close is recommended for effective sales management.

Arming representatives with scripts and specific activities for stages has positive benefits.

Sales Pipeline & Forecast Management Experts

Matt Oess
Matt OessPartner
Brad Milner
Brad MilnerPartner
Rick Nichols
Rick NicholsManaging Partner, Revenue Growth

Case Study

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