Sales pipeline – analyzing your company’s sales motions, statuses of potential deals, and tracking them religiously is absolutely essential to the success of every B2B company, particularly those selling into the enterprise segment. This is because understanding your sales pipeline provides a view into how much potential revenue can be generated by the company in future.
Knowing what pipeline metrics to track will not only help you determine where your company stands in terms of hitting your revenue targets, but it will also help identify where in the process you can speed up the sales velocity, uncover hidden pitfalls, and provide clarity on what to do next.
If you’re new to B2B sales motions or to the revenue operations function, you may be wondering what you should be tracking in your dashboards and reports. Well, as a rev ops leader at several high growth startups in the past, here’s how I approach pipeline reporting.
A great analogy to help you understand your pipeline is to think of it like a highway...you know, the kind that you drive your car on. Here’s an illustration:
A potential sales deal or opportunity can be represented by a car (I’ll be using terminology commonly found in Salesforce such as “Opportunity” for this post, but many of these have similar terms in other CRMs such as “Deals” in HubSpot). You can think of the size of that deal or Opportunity Amount as how big that car is.
Whenever a potential deal has been identified by Sales, an Opportunity record for that deal is created in Salesforce, and the overall pipeline is increased – i.e., new pipeline from newly created sales Opportunities. So, new Opps are cars going on the on-ramp to the highway.
The key metrics that I’d want to track here within a particular time period include:
Optional, but very insightful data points that I typically like to track here are:
Tracking pipeline additions is critical to know if you’re able to hit your future targets and whether or not you have a demand generation problem. If you’re starting to see a decline in new pipeline additions (i.e., new cars getting on the on-ramp) over time, you’ll begin to hear complaints such as “our sales pipeline is drying up”. Getting early indications on this will give you and your team a heads up on whether or not you’ll be able to hit your revenue targets two, three, four quarters from now depending on how long your typical sales cycles are.
At any given point in time, the total number of cars moving along on the highway represents all the open sales opportunities or deals that are still in play. The highway lanes can represent Opportunity Stages or sales forecast categories, such as “pipeline”, “best case” or “upside”, and “commit” or “in-blood”. If you’re unfamiliar with sales forecast categories, here is a good definition from Dana Thierren, who was formerly an analyst at SiriusDecisions/Forrester Research:
The key metrics that I’d track to understand current pipeline at a particular point in time are as follows:
Optional, but a couple of very insightful data points that I also like to track here are:
Many consider it a rule of thumb to have Total Pipeline Amount equal to 7-8X of your target bookings at any point in time...i.e., if you are planning on booking $1M in ARR this quarter, you should have $8M in total pipeline now. Personally, I prefer to look at the historical win rate percentage for deals in each forecast category and use that as the basis for any sort of coverage ratio to hit your target bookings number. For example, if you find from your historical data that you typically see a 33% win rate for deals that are later stages then you’ll want to have 3X the number of opportunities or pipeline amount for deals in these stages at any given time to ensure enough coverage to hit your targets. I find that it’s more accurate this way.
Brett Queener from Bonfire Ventures also gives an awesome breakdown of the forecast categories in part 2 of a 3-part article series on enterprise sales forecasting. In fact, all three parts of his post should be required reading for anyone in rev ops.
Cars that exit off of the highway represent deals or opportunities that become closed – both won and lost. These deals are no longer part of pipeline. In order to achieve revenue (or more accurately, bookings), the goal therefore is to get as many cars (deals) moving across the lanes to the off-ramp as closed won customers as quickly as possible.
The key metrics I like to track here for a time period that occurred in the past (such as last quarter or year-to-date) are as follows:
Now, you can (and should) dig deeper into a whole set of additional metrics to track for closed out deals. A few of these optional data points that I like to track here are:
Tracking and understanding the metrics above is super helpful for reporting on past performance. I’ve generally had to pull these data points when preparing for quarterly business reviews (QBRs) or board meetings. I’ll go more in-depth in a future post on how I structure my dashboards and reports – be sure to subscribe to this blog if you’re interested in reading it when it gets published.
In addition to tracking historical performance, the highway analogy helps you think about how to accurately forecast future revenue. Take a look at the image below:
Let’s say that today you are about a month away from your fiscal quarter end. You’ve pulled all the above data to help you understand how you’ve performed in the past few quarters and quarter-to-date. Now, the metrics you want to examine to help you forecast the likelihood of hitting your revenue/bookings goals are as follows:
To know how likely you are to hit your end of quarter bookings targets, you’ll want to look at all open opportunities that have Close Date set to this quarter. These are the cars in the final lane before going down the off-ramp within the near future. Obviously this is heavily reliant on accurate inputs for this field – I’ll cover automation/validation rules that can be set up to address this in a later post. Assuming that close date is within quarter and is in a final stage, the opp is probably categorized as Commit and thus is very likely to be booked as Closed Won soon.
For any late stage opps closing within quarter that are categorized as Upside/Best Case, you’ll want to figure out what the outstanding requirements or risk factors are to understand why the rep considered the deal as Upside/Best Case for the quarter rather than Commit.
If there are opps set to close this quarter but are in an earlier stage, check with the rep and sales leader to see if the opp is actually deeper in the sales cycle and just hasn’t been updated to the correct stage. I’d recommend setting up automation/validation rules to address this.
Exclude the opps that have close dates within quarter but are in an earlier stage and/or categorized as Pipeline. You can’t expect these cars to get off the highway in the near term if they are still in the farthest lanes from the off-ramp. Unless you have extremely short sales cycles, these clearly will not close within quarter. Again, this is also dependent on categorizing opps to the appropriate stage – for opps that had an unrealistic close date within the quarter but are in the correct stage, you’ll have to work with your sales leader and the rep on updating the close date appropriately (“hey, you’re not going to be able to exit off this next ramp, so think about the next few off-ramps you’ll be able to safely get off from”). As previously mentioned, understanding the amount of time the deals typically stay in each stage and the overall velocity of your deals will help you gauge how realistic the inputted Close Date really is.
Of course, your CRO or SVP of Sales should be managing all opps closely with her team to ensure no unexpected delays occur – having these metrics handy will help them tremendously.
Next Few Quarters:
As you start to look further out, really understanding how your overall pipeline looks and behaves (i.e., the flow of traffic on the highway) will help you do a more accurate job of forecasting. More specifically, you’ll want to:
As you can see, understanding your sales pipeline is essential to maximizing your revenue potential and meeting your forecasts. The more you know about what’s going on within your sales funnel and company as a whole, the greater the insights you’ll have to make smarter decisions about how to move forward with your strategy or business.
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