What is a Sales Pipeline?

Sales 101: What is a Sales Pipeline?

What is a Sales Pipeline?

A sales pipeline is a way of tracking the progress of deals that your sales team is currently working on and expect to close within a reasonable amount of time. The term pipeline comes from the concept of deals traveling along a predefined path from initial contact with your salespeople, to consideration, to close. This predefined path is known as the sales process, and is a prerequisite for building and tracking a sales pipeline.

The Sales Pipeline

Stages of the Sales Pipeline

The first step to building and running a successful sales pipeline is to define a sales process. The best sales processes match the journey your buyers go on from research, to evaluation, to decision making.

While every company will have a unique sales process, the fundamentals of B2B buying and selling are the same across many industries and product types. Below is a general outline of a sales process that most companies use when getting started.

Stage One: Prospecting

The first step in any sales process is to identify the companies and people worth selling to. These contacts are typically identified using your Ideal Customer Profile (ICP). The ICP is built by looking at the characteristics of the companies that you have successfully sold to in the past. Once you have a list, your sales team goes about trying to bring them into the sales process. This will be easier or more difficult depending on the level of awareness your target buyer has of you and the problem you solve.

Stage Two:  Qualification

Don’t waste your time and energy chasing the wrong prospects.

Once a new prospect has been introduced to your company and made their way into your sales pipeline, it’s time to decide whether or not they are a prospective buyer. This stage of the sales process is referred to as the qualification stage.

Typical qualifying questions to ask include: How big is the company? What industry are they in? Where is the prospect located? Which tools have they used in the past? What problem are they out to solve? How urgent is it that they solve the problem?

If the answers to these questions don’t match that of your ideal customer, it’s most likely in your team’s best interest to move on.

Stage Three: Consideration

In this stage, your prospect is aware of your offering and has been qualified by your sales team. They may now be starting to evaluate their options by looking at similar products and determining if it is a viable option to do nothing at all.

During this stage, your sales team is often engaged in demonstrating your product, providing the case studies and technical information, building a business case, navigating the internal politics, and engaging the ultimate decision maker within the organization.

Getting to the end of this stage successfully does not mean that the deal is over the line. It can sometimes be just the start of the battle.

Stage Four: Decision

At this stage in the process, the buyer has decided that you have the best solution for the problem they need to solve. You may think the next step is to negotiate a price and get a contract approved, but the best salespeople get to work now on identifying the final barriers to a deal.

Does the buyer need to get budget approval from somebody else? Are there competing projects that could get prioritized at the last minute? Do you need sign-off from IT or compliance? Has the prospect fully ruled out the competition?

These are just a sample of the issues that can crop up in the final stages of the deal. They can often be a reason for late deal slippage.

Stage Five: Close

The last step in the sales process is always reserved for closed-won business. The only deals which should enter this final stage are ones who have a signed deal or contract and who do not require any more contact from sales in order to become a paying customer.  

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Summary of the Sales Pipeline

Now that you understand the typical steps in a sales process, it should be clearer how you build a sales pipeline. The pipeline is simply a list of all the deals your salespeople are working on, grouped by the stage they are at in the sales process.

Terms Similar to “Sales Pipeline”

While the term “sales pipeline” is frequently used as described above, there are in fact a number of other terms that are sometimes used interchangeably. While it might be okay in a colloquial sense to fluctuate between these terms, the reality is that they actually have different meanings.

Here are a few examples:

Sales Pipeline vs. Sales Funnel

The term “sales funnel” is perhaps the one most commonly associated with a sales pipeline. While it is true that they are similar in some ways, they are absolutely worth distinguishing.

A Sales Funnel is a visualization of the pipeline. It is often V-shaped, because it assumes that a significant percentage of prospects will be lost at each step of the sales process.

The mentality of a sales funnel, while accurate some of the time, builds in an unhealthy expectation. It assumes that a high volume of deals will be worked at any given time and a set percentage will naturally drop out of the pipeline.

In fact, in many cases, the salespeople who work the fewest deals, but do so effectively can often be the most successful in an organization.

Sales Pipeline vs. Sales Forecast

Sales forecasts are also sometimes used as a synonym for sales pipelines. In fact, this is another term that should be clearly distinguished.

While a sales pipeline generally refers to the sum total of deals a salesperson or sales team is working on, a sales forecast is a prediction of how many of these deals will be closed successfully at the end of a quarter. Companies that sell a high volume of low-value deals are able to predict the forecast using sales pipeline metrics. Companies with medium-complexity or high-complexity deals need to assess the health of each of the deals in the pipeline to generate an accurate forecast.

Sales Pipeline vs. Revenue Forecast

The Sales Pipeline and Sales Forecast have a lot in common. They are both generated from the deals that your salespeople are working on. The Revenue Forecast takes other things into consideration, such as the time period over which revenue from a contract can be recognized and the renewal rate for subscription deals.

However, maintaining a healthy and predictable sales pipeline is usually greatly appreciated by the finance people who create your revenue forecast.

Sales Stage vs. Forecast Category

There is a lot of confusion around the use of the sales stage terms and how they relate to forecast categories. As described, sales stages commonly include prospecting, qualification, consideration etc., while you may recognize forecast categories as commit, best case, and pipeline.

While sales stages track the progress of your deals through the sales pipeline, the forecast category determines whether individual deals should be included in the sales forecast. Some organizations enforce a strict coupling of sales stages and forecast categories. Others provide more flexibility, as a well progressed deal may still need to be omitted from the forecast due to hiccups or cold feet on the buyer’s side.

Three Golden Rules for Managing Your Sales Pipeline

Great! Now that we have our process and sales pipeline defined, how do we track what’s working and keep the leads coming?

Well, here are a few steps that should always be taken to keep leads flowing through the sales pipeline:

Always look for new deals to add to the pipeline

Your sales pipeline should always be growing, or, at the very least, should maintain the same number of deals. That means that any attrition — or closed deals — that occur should prompt you to replenish the pipeline as quickly as possible.

Follow up at regular intervals with something of value

Nurturing deals is essential to prevent them from “going cold.” However, it is preferable to have some reason for contacting the prospect. Instead of simply calling them to check in or hit them with another pitch, try to tie your follow-ups with something relevant to them.

Pay attention to the metrics and act accordingly

You only have so many hours in the day, which is why it is imperative that you prioritize. Put the bulk of your focus and attention on the prospects that flow naturally through your sales pipeline. If you have a prospect that should — based on your internal data — close 80% of the time, you should focus your efforts on closing that deal, rather than wasting time on an edge case deal.