If you have any salespeople in your life, you’ve probably often heard this word: targets.
Targets, or sales targets, are how salespeople make their bonuses and get promotions, and are the ultimate goal of a sales organization. But how do organizations set—and meet—their targets? That starts with the sales pipeline.
When sales teams need to understand how they’re doing relative to their targets, they refer to the sales pipeline. The pipeline—sometimes referenced just as much as the targets themselves—is an important tool for understanding sales team performance.
What is a sales pipeline?
A sales pipeline is a method of organizing sales prospects as they move through the purchasing process or sales funnel. This sales process is defined by seven different sales stages. The sales pipeline has two main purposes:
- Provide a visual, actionable way for sales teams to move prospects toward a purchase.
- Support in the forecasting of a sales team’s future revenue generated.
A sales pipeline is specific to each stage where a customer communicates directly with a sales rep. For stages where the customer isn’t in direct contact with a sales rep, their experience is considered part of the marketing funnel, a parallel concept used by marketing teams.
What are the stages of a sales pipeline?
The stages of a sales pipeline are not one size fits all. They should reflect the business’s own sales processes, practices, and customer experiences. For example, if your business has an outbound sales strategy, your prospecting stage might be more robust. Or, if you have a self-serve demo video like Shopify, your demo phase may be in a different order.
Still, most business’s sales pipeline stages or sales funnel can be classified into seven stages:
- Lead qualification
- Demo or full meeting
- Negotiation and commitment
- Opportunity won
In prospecting, also known as the lead generation stage, leads haven’t yet confirmed their interest in the company’s product or service. While identified by the sales team as a qualified lead to reach out to, they may or may not actually be in the business’s CRM at this stage. Many sales teams start putting their leads into their CRM at the next stage.
2. Lead qualification
At this stage, the sales rep and the lead are evaluating whether there is a fit between the product and lead. If a lead is pre-qualified from the prospecting stage, they can skip this stage. Otherwise, depending on the business, the sales rep will ask a series of questions. These could be about location, budget, decision-making power, and fit for need. The goal is to understand not only the potential fit as a customer but also what the next best step is for them. Sometimes, this includes identifying the ideal person for them to speak to next. For example, sales organizations often have different salespeople for large, enterprise customers and small businesses.
3. Demo or full meeting
If both parties see an opportunity for a fit, they move on to a more in-depth meeting. For tech product-based companies, this often involves a product demo. The salesperson might share their screen and log into a demo version of the product to show their lead how it works firsthand.
For service-based companies, like agencies, the meeting might take the form of a needs assessment or capabilities overview. The salesperson might ask in-depth questions about the lead’s needs and goals: “What type of cost per acquisition do you expect?” or “Who on your team would we work with on this project?” The salesperson may then introduce members of their leadership team or present case studies of their work.
The end goal of this meeting is for both parties to agree on pricing and other parameters, which the salesperson can then use to create a proposal.
Next, the salesperson presents pricing (or pricing options) to the lead. Although a proposal can be presented live, it always includes a written component. The written component can be a contract, or a shorter, easier-to-read document slide, quote sheet, or slide deck. What’s important is offering official pricing and scope that a lead can agree to in principle. The salesperson’s goal in this stage is to have their lead indicate their commitment.
5. Negotiation and commitment
At this stage, the final contract is defined. This means fleshing out the proposal document and confirming various terms, such as payment. Typically at this point, stakeholders beyond the main buyer and salesperson get involved. From both the main buyer’s organization and the organization making the sale, other teams in vendor management, finance, and company leadership, will have their say. Their shared goal: To create a final contract to which all stakeholders agree.
6. Opportunity won
This stage, sometimes called “closed won” or simply “won,” is when the deal is done—the contract is signed and the salesperson’s job is nearly complete. When sales teams talk about their “average win rate,” they are typically referring to the percentage of leads that passed lead qualification and made it to opportunity won.
Once the contract is signed, the sales team’s last job is ensuring a smooth, positive transition into the product or service. This can mean connecting the new customer to the customer success team or providing onboarding documentation. Many sales teams set a post-purchase customer satisfaction check-in as well, often one month or one quarter after the contract starts.
How to build a sales pipeline
To build an effective sales pipeline, you’ll need to define the parameters that indicate how you’ll move prospects between your pipeline stages. Specifically, to build a sales pipeline review that your sales organization has clearly defined the following areas:
To effectively prospect and qualify leads, you’ll need to identify your prospective buyers. This helps inform the sales team how to approach the first two stages of the sales pipeline. Start by defining all the qualities that make an ideal customer, like the number of employees their company has, job titles, and industry. This informs who you reach out to—or disqualify—in the prospecting stage.
For example, you might determine that the ideal company size for your product has a workforce of 50 to 100, and any company with less than 10 employees (or more than 1,000) is not a good fit.
The entire sales process can be broken down into a series of sequential actions a salesperson takes in moving a prospective buyer toward a sale: reaching out to a prospect, conducting a discovery call, presenting a proposal, and so forth. The sales pipeline stages should mirror these actions, and map clearly to a single action your sales team takes: so if the lead is in the proposal stage, then the next step is to present them with a proposal. The goal of the action in each respective stage is to complete that sales activity and get agreement for the next action.
Each stage should also reflect a prospect moving closer to closing, and have an associated likelihood of closing (such as 10% at the qualification stage, and 70% at the negotiation stage). This helps inform the sales pipeline value, which is the projected revenue value of the deals in your pipeline.
Setting clear revenue targets helps make the sales pipeline more concrete for the sales team. A business will typically set monthly, quarterly, and annual revenue targets, then compare its sales pipeline value to those targets.
The simplest way to calculate pipeline value is to add up the project deal amount of all leads in your pipeline. For example, if you have two leads in your pipeline for the quarter, and you expect each one’s deal to be worth $50,000, your total pipeline value is $100,000. Sales leaders can then compare this to their sales forecast to understand how they’re tracking toward revenue targets.
An even more accurate predictor of future revenue is weighted pipeline value, which takes into consideration the likelihood of each deal closing. To calculate, multiply the projected deal value by the deal’s likelihood to close, based on its stage. For example, if those same two leads each are expected to be $50,000, and the first lead is 10% likely to close and the second is 50% likely, the total pipeline value would be: ($50,000 x 10%) + ($50,000 x 50%) = $30,000.
Sales pipeline FAQ
What makes a good sales pipeline?
A good sales pipeline helps a sales team organize their actions and set the right goals to forecast accurately. Ultimately, this leads to more closed deals and more targets hit. Sales pipelines achieve this when they do the following:
- Accurately capture the actions of the sales process from prospecting to close.
- Use realistic numbers for likelihoods to close at each stage—not best-case scenario numbers.
Why is the sales pipeline important?
A sales pipeline is important for two reasons:
- It keeps the sales teams organized and informed.
- It helps sales managers forecast future revenue generated relative to targets.
What does a healthy sales pipeline look like?
When a salesperson says their pipeline is “healthy,” they mean they have enough leads, are far enough along in the process, and are confident they will hit their revenue targets. A good rule of thumb is a healthy sales pipeline has at least as much weighted pipeline value as the total revenue that it’s targeting.
A healthy pipeline also has high sales velocity. Also known as the average sales cycle length, this is the speed in which leads move from the first to last stage of the pipeline. What is considered a healthy number is unique to every business—but generally, faster is better.