Creating an accurate sales pipeline is extremely important for any business that wants to grow. However, this knowledge alone is not sufficient to ensure consistent sales growth. There are other metrics that businesses should become familiar with in order to truly win the sales game.
One of these is the sales pipeline coverage ratio that you can find out more about with Revenue Grid. Your sales pipeline coverage ratio is a critical tool that will help guide you through your whole sales process. In order to utilize it correctly, you need to understand how it is calculated. This article will examine this important concept and provide an overview of some of the ways that it can be used.
As we will illustrate below, developing proper methods for data collection is critical. If you can sync Outlook calendar with salesforce, you will be able to receive the information you want in a timely manner.
What is a sales pipeline coverage ratio?
Simply put, a sales pipeline coverage ratio is a ratio of the percentage of a company’s total sales that meets previously established sales goals. It is the ratio of the total value of a company’s sales funnel and its revenue targets.
Let’s say that a given company has an annual sales goal of a million dollars. If that company manages to make $1.5 million in profits over the course of the year, it will have a sales pipeline ratio of 1.5. Setting this goal allows companies to determine when exactly their initial goals are met and how they can calculate future sales goals accordingly.
New tools to calculate sales pipeline coverage are available to help you through the process. Data collection and analysis can be hard, painstaking work, and it can be easy to make mistakes if you do it manually. Sophisticated software can make the process much easier and lay everything out for you clearly.
What is a good pipeline ratio?
Every company who creates a sales pipeline ratio has a specific goal in mind. The goal could be 2X pipeline coverage, 5X pipeline coverage, or something more specific. It is up to each individual company to decide for themselves.
Some of the factors you should keep in mind when creating a ratio include the following:
- The length of your average sales cycle. The ratio that you aim for should take into consideration the average amount of time that it takes for you to convert a lead into a customer.
- The customer acquisition cost. This number is a calculation of the total of your marketing and sales costs divided by the number of deals that you close within a given period.
- The size of the average deal that you close. In other words, the total revenue that you make per quarter or per annum divided by the number of deals that you make during that period.
- The number of qualified leads that you have. Qualified leads are distinctly different from initial leads. A relatively small percentage of initial leads turn into qualified leads, so you should create precise standards for your company and determine how many qualified leads you get during a given period. This will help you better forecast your sales numbers.
- Determine the number of deals that you manage to create and close within a specific time period. In other words, your win rate.
All of these factors should play a role in how you calculate your sales pipeline coverage ratio.
What is a good frequency for a given ratio?
It might take some time to figure out what the best frequency is to establish for your sales pipeline ratio, but you can start by establishing specific time periods to review your coverage. If, for example, you review your pipeline achievements and goals on a weekly basis, it will help you determine trends and how you need to make adjustments to reach your goals more easily.
Doing this on a regular basis during the early stages of your operations will help you gain a better overall picture of your coverage and determine what you want the frequency of your coverage ratio to be. There are online tools that you can use to help you gather and track your data if necessary.
Managing your pipeline coverage
As mentioned above, one of the advantages of tracking your pipeline coverage is the ability to make adjustments to your sales strategy based upon how well your projected versus closed deals are going. In fine-tuning your strategy as you go along, you can create much more realistic sales goals, and therefore manage your pipeline coverage more effectively.
Managing pipeline coverage effectively depends on having access to data as frequently as possible. In fact, the majority of businesses are not able to do this well enough, and therefore learning how to manage your data correctly will put you at a distinct advantage vis-a-vis the competition.
If you have more than one sales pipeline, it is particularly important to create effective coverage. It is very easy to lose sight of important details even with one pipeline, but if you have a large company with different directions, it is especially critical that you develop tools to create accurate forecasts. Having a strong CRM is also an important component of this.
Beware of similar terms
Remember that pipeline coverage is specific. Don’t allow yourself to confuse the concept with forecast coverage, which looks at individual sales leads. Pipeline coverage is just what the name implies: the whole pipeline. And while you can also determine forecast coverage in a similar manner to your pipeline coverage, you don’t want to think of them as being interchangeable because they are not.
As mentioned above, deciding on a sales pipeline coverage ratio is one of the key elements of managing the larger sales process effectively. It requires a lot of very careful data collection and analysis – particularly at the beginning – so that you can decide on the right ratio and time period for your measurements. Once you do, you should be in a much better position to create winning sales plans.