How Much Pipeline is Enough?

With the new selling year under way, we are all focused on the numbers. New goals and quotas are being assigned. New territories are being distributed. With all of this you may be looking at your pipeline and wondering “Is this enough? Do I have a chance to hit my numbers with this pipeline?” It’s a common question and the answer is really pretty simple, provided you have the data.

If you have pipeline reports from 2010, dig those out. Ideally you should have several reports to review. The goal is to get as much information as possible covering several reporting periods. To calculate what you need in pipeline, take a look at how many deals you closed from the population of all deals. Divide that number by the total number of opportunities to calculate the ratio. (If you’re a sales manager use the team totals.) If you closed one out of five opportunities, then your closing ratio is 20%. Now divide your goal by the closing ratio and you’ll have your pipeline number.

Here’s an example. Let’s say that your quarterly goal is $100,000. Here’s what your pipeline looked like at the beginning of Q3 and Q4:

Q3 Pipeline Report				Q4 Pipeline Report
Opportunity Name	Amount	Closed (Y/N)		Opportunity Name	Amount	Closed (Y/N)
Table, Inc.	$10,000	Y		Widgets R Us	$13,000	Y
Samco Services	$5,000	N		Chair, Inc.	$15,000	N
Chair, Inc.	$15,000	N		Corp Connect	$5,000	N
Servco	$20,000	N		Airplane, Inc.	$17,000	N
Typo Supreme	$7,500	Y		Converse	$12,500	Y
Airplane, Inc.	$17,000	N		The S Factor	$1,000	N
Car, Inc.	$10,000	N		eBook Sellers	$30,000	N
Industrial Svcs	$15,000	N		Allied	$25,000	N
Allied	$25,000	N		Printer, Inc.	$5,000	N
Printer, Inc.	$5,000	N		Discover Svcs	$15,000	N
Total Pipeline	$129,500			Total Pipeline	$138,500

Going in to each of these quarters you felt pretty good about your chances of hitting your goal. After all, with a goal of closing $100,000 in new business, you had more than enough opportunities. All of these deals felt pretty solid. Several of your Q3 deals simply pushed in to Q4. So why did you fall so short of hitting your goal? You didn’t have nearly enough pipeline coverage.

In this example you closed two out of ten opportunities in each quarter, so your closing ratio was 20%. Now divide your goal of $100,000 by 20% to get your pipeline requirement of $500,000. That’s well above the amount that you felt so good about going in to each quarter. Yikes! Now take a look at your current pipeline. Does it support your goal? If not, it’s time to start setting some appointments! (More about that in an upcoming post.)

It is also worth noting that you closed $17,500 in new business, representing 14% of the dollar value of your pipeline in Q3. In Q4 that value was 18%. So is the closing ratio 20%, 14% or 18%? Good question. I would suggest using the figure that is most consistent across reporting periods, so in this example I’d stick with 20%. Otherwise, use the smaller of the two figures to be conservative particularly if you don’t have a large sample size to work with (3-5 periods). In that case you would divide $100,000 by 14% to get a pipeline requirement of $714,000. Over time you’ll find that one of the ratios will be more consistent than the other.

When you find that you have a huge gap in your actual pipeline versus your pipeline goal you have two courses of action: first, start building new pipeline as quickly as possible; second, improve your closing ratio. Neither of these is simple, but both need to be addressed in order for you to achieve your goals.

Whether you are a sales leader or individual contributor, it is absolutely essential that you understand your closing ratio in order to build the pipeline necessary to achieve your goals. Otherwise you are just guessing.

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