5 Key Reports to Measure Pipeline Health

A healthy sales pipeline is one of the best indicators of sales team performance, not to mention the lifeblood of a growing company. However, pipeline metrics are often misconstrued to suggest that the bigger the pipeline the better. When it comes to pipeline health, quality is much more important than quantity.

According to research conducted by the Altify Group, the cost of lost opportunity pursuit is $218,000 a year per AE with a $1 million quota. The inefficiency of chasing bad deals incurs a huge opportunity cost on the sales team. It also prevents the business from accurately forecasting, managing cash flow and planning for the next phase of growth.

So how should sales managers measure the health of their pipeline?

The following reports peel back the layers of your pipeline to ensure that the sales team focuses on the opportunities with the highest probability to close. Using these reports, when your Head of Sales tells you the forecast for next quarter is $1.5M you can have faith in the integrity of that number.

COVERAGE RATIO

Coverage ratio, the value of your pipeline at the start of the period divided by your realized bookings at the end of the period, has been the tried and true metric of sales managers for years. By calculating your trailing coverage ratio, you can then divide your next month or quarters pipeline by that value to calculate your forecast. For example, if last month you started with $180,000 in the pipeline and booked $60,000 your coverage ratio would be 3x (180,000/60,000). Now, if your pipeline is $140,000 going into this month, using your coverage ratio you would forecast $46,600 in bookings (140,000/3). It is the fifty-thousand-foot view into your forecast over the next month or sales cycle. As a rule of thumb, your coverage ratio should be between 3-4x.

The key to a measuring an accurate coverage ratio is training your sales team to accurately forecast the Close Date of all the opportunities in their pipeline, and close out opportunities that are no longer in an active sales cycle. A good way to track how well your team is forecasting is to track the opportunity push rate, the number of times the Close Date has been moved. If you’re using Salesforce, you can do so by installing this simple AppExchange application.

Here is what that report should look like:

SALES CYCLE OF WON/LOST OPPORTUNITIES

Pipeline coverage won’t tell you the whole story. The next step to judge the health of your pipeline is to compare the age your open opportunities to those that you win and lose.

The key here is to note the delta between the average age of your wins vs. your losses. Often, you’ll see that the age of lost opportunities is much greater than your wins. This means your sales team needs training on knowing when to close out opportunities so they can focus on those that they’re most likely to win. From there, compare your open pipeline to these benchmarks. If your open pipeline looks more like your losses than your wins, the pipeline isn’t as strong as you thought. Time to dig in and determine which opportunities should be closed.

Here is what that report should look like:

TIME IN STAGE

The next step is to dig into your open opportunities and compare the time in stage across open and won deals. Use these results to identify stuck opportunities. Ask your sales leader to bring these deals up in their next 1:1 or weekly sales meeting and to challenge the AEs on why the opportunity is stuck and what steps need to be taken to re-engage the prospect. If the AE doesn’t have a good answer, this opportunity should be closed out so that it’s no longer inflating the pipeline.

WIN RATE BY DEAL SIZE

Enterprise and SMB companies have very different sales cycles. If you sell into both these segments of the market and your average sales price (ASP) varies, then the opportunity stage and age alone won’t be enough to gauge the true health of your pipeline. For example, you might have a total opportunity win rate of 30%. However, your win rate for deals under $20K is 40% but for deals over $20K it’s only 20%. It’s important to understand the composition in your pipeline by deal size so that you can weight each segment accordingly in your forecast.

STRIKE ZONE

As we’ve seen, gauging the health of your pipeline looking only at age or amount isn’t enough, since there are nuances to these metrics and outliers that can skew the data. To put these pieces of the puzzle together, create a scatter plot that can help you visualize the outliers and see the health of your pipeline across both variables:

This report will help you identify areas in your “sweet spot” where you have the highest win rates and reps should be focusing their time. For example, in the chart below, you can see the very high win rate for opportunities that are 10-30 days old and under $15K. On the flip side, opportunities that are under $10K and older than 40 days have a very low win rate.

Here is what that report should look like:

IMPROVE THE HEALTH OF YOUR PIPELINE

As you can see, there are nuances to the health of your pipeline and it’s important that your team is trained and your pipeline is accurate not only for forecasting accuracy but also because of the steep opportunity cost of your sales team spending time on opportunities that are unlikely to close.

While some of these reports can be created in Salesforce, and all can be created in Excel you may also consider implementing a business analytics software, such as InsightSquared, to help give you visibility into ongoing performance and historical trends of your pipeline in real-time.

Whether these numbers are pulled from Excel, your CRM or a BI tool, we recommend working with your VP of Sales or Sales Manager to ensure that there are well defined criteria in place for when an opportunity is created, when it can enter and exit each opportunity stage and how to accurately maintain the expected close date. In addition to this, your marketing team should create Closed/Lost nurture campaigns, so that as prospects drop out of an active sales process you can stay in touch with them over time so that when they are ready to buy, your company is top of mind. With these changes in place, your pipeline will be healthy, your forecast accurate and your sales team will be using their time as efficiently as possible.

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