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What is a Sales Pipeline?
Written by: Victoria Yu
Victoria Yu is a Business Writer with expertise in Business Organization, Marketing, and Sales, holding a Bachelor’s Degree in Business Administration from the University of California, Irvine’s Paul Merage School of Business.
Edited by: Sallie Middlebrook
Sallie, holding a Ph.D. from Walden University, is an experienced writing coach and editor with a background in marketing. She has served roles in corporate communications and taught at institutions like the University of Florida.
Updated on March 27, 2023
What is a Sales Pipeline?
Selling is simple in theory: you have a product, someone needs it and makes a payment, and boom! Sale complete. But sales have evolved, as has the terminology.
You may have heard the term sales pipeline, but do you know what it is, and how many stages it has? Whether you’re a business owner or sales manager, a firm understanding of sales pipelines and their stages provides a better sense of where you are with a customer and how to make that sale.
Lucky for you, this guide explains all the stages of the pipeline and the surest way to keep sales flowing.
What’s a Sales Pipeline?
Before we get into the stages, it’s important that we know what we’re talking about.
A sales pipeline is a sequential overview of the actions a sales rep takes to close a sale. It has multiple stages, starting with lead generation and tracking interactions, and sometimes even continuing beyond the sale.
Because it’s focused on actions that a sales rep takes, this means that sales pipelines are generally used for B2B companies – B2C firms tend to rely on marketing to thousands of people, rather than one-on-one connections. While both B2B and B2C companies have sales cycles and sales funnels, only B2B companies use sales pipelines.
But wait! What are sales cycles and sales funnels?
What’s the Difference Between a Sales Pipeline, Sales Cycle, and Sales Funnel?
The term sales pipeline is sometimes used interchangeably with sales cycle and sales funnel, but they are different entities, despite all having stages. A sales cycle refers to the process of selling to a single customer rather than a procedural overview.
For example, if you say “I’m at the initial contact stage with Bill’s T-shirts,” you’re referring to the sales cycle for your potential client Bill’s T-shirts. But if you say “I think we need to overhaul our lead qualification process,” you’re talking about a specific part of your company’s sales pipeline.
A sales funnel, on the other hand, is an aggregate view of all your current sales cycles, detailing how many customers are at each stage of the cycle at that time. Sales funnels are most useful for forecasting and reporting because they can provide reasonable projections of sales and revenue.
In short, a sales cycle or sales funnel focuses more on the customer and where they are in a sale, while a sales pipeline focuses on the sales rep and the company’s internal procedures.
Stages of a Sales Pipeline
A sales pipeline usually has seven stages: prospecting, lead qualification, meeting scheduling, proposal, negotiation, closing, and follow-up. Let’s take a look at each of them in turn.
Sales prospecting is the process of identifying new leads, or potential customers. Businesses look for leads that fit their buyer persona, or ideal customer profile. This might be wealthy seniors or small businesses in Pennsylvania.
Prospecting can be done through inbound lead generation tactics such as ads or outbound lead gen like cold calling. How you find and contact leads depends on your business and industry, but you should do your due diligence in researching the potential buyer and tailoring your message to their needs.
A high-ranking executive, for instance, would likely prefer a personal phone call over a bulk email.
2. Lead Qualification
Once you’ve identified a lead, the next step is to qualify it, or determine if it’s a good potential sales fit. This is generally done through research and direct conversation. The exact qualifications vary, but standard criteria include the lead’s demographics, geographic location, and purchasing power.
Beyond checking whether they match your buyer persona, see how qualified they are to make a purchase. The lead should have the budget to afford your product, the authority to make the purchase, and an appropriate need for it.
To gauge the level of need, send them a free article or webinar. If they click the link to view it, they’re interested in your product and you’ve got the green light to send more.
A lead doesn’t have to meet all of your rigorous standards before you contact them, but only pursuing leads with a fair chance of becoming clients is a good way to save resources. You can track lead qualification via “lead scoring,” which gives leads points for meeting various criteria.
3. Meeting Scheduling
If the potential buyer shows interest during the initial contact, the next step is to arrange a meeting, demonstration, or presentation to highlight your product and discuss a possible sale.
Your presentation should be personalized to highlight aspects of the product most likely to appeal to your lead. At the same time, be sure to ask questions to better understand their interest.
Present a clear sales proposal, highlighting its competitive advantages and how your product can satisfy their needs. You could also talk up its value and how it would be a worthwhile investment.
Again, your message should be tailored to the client and address the needs and interests found in previous stages. If you expect any issues or objections, take the initiative and address them before the client brings them up, providing assurances that they can be worked through.
It’s now clear that the lead is interested in making a purchase, so it’s time to negotiate. Start with your initial proposal and make your way to a compromise that works for both sides. You could change the scope of your offer, alter the price or payment plan, make concessions, or set expectations for the future.
You should have a handful of options in your negotiating toolkit and be willing to use them all as needed.
Once you’ve nailed down an agreement, it’s time to seal the deal. Draw up a contract and have both parties sign it to complete the sale. Congratulations!
The sale is complete but you’re not done quite yet. You still have to deliver a wonderful product and customer experience. Monitor the customer’s account and keep in close contact to ensure their order is fulfilled to their satisfaction.
If they’re satisfied with your service, they might make a repeat purchase or recommend you to a friend, and you’ll be able to skip the initial steps of the pipeline with your next sale.
How to Build a Sales Pipeline
Now that you’re familiar with the stages of a sales pipeline, the next natural question is how to build one yourself. But first, you might wonder: do I need all those stages?
Not really. Your sales pipeline should be customized to your business and represent your standard sales process. You can add, remove, or move around the pipeline stages to best fit the usual progression of your sales teams.
For example, if you have no shortage of inbound leads, then the prospecting stage might be less than essential. But if you’re struggling to find high-quality leads, writing out your sales prospecting tactics could help you see where your best leads come from and how you can widen that part of the pipe.
It’s also important to note that not every sale will travel the same pipeline journey. Some clients may agree to your initial proposal right off the bat, skipping the negotiation phase.
Now let’s look at how to build a strong sales pipeline that shapes an effective sales strategy.
1. Create Your Pipeline Stages
Again, the first step is determining which stages are right for your business. If you’re not sure where to start, consult your sales team on how sales and customer interactions usually progress.
Hone in on the most effective strategies and record them in your pipeline. If you have buyers and open deals at the moment, place them in your pipeline accordingly.
2. Qualify Each Pipeline Stage
Now that you have a general outline of your pipeline, it’s time to add specifics to each stage.
For example, if you use lead scoring in your lead qualification process, determine the exact score a lead should reach to become qualified. This will prevent reps from wasting time pursuing cold leads.
You might also prepare guidance materials, such as a sales script for the initial contact, set a baseline for proposals, and establish the concessions reps can make during negotiations.
Be specific when describing your pipeline stages. Rather than “leads come in,” for instance, you might write “Our website generates qualified leads by requesting contact info in order to view an article about choosing a good lawyer.”
The information provided in the second example helps identify areas of impact along your pipeline, as well as areas that could be improved. Depending on the size of your sales team, you could also delegate reps to each pipeline stage or function.
3. Set the Metrics for Each Stage
How will you measure whether your pipeline is flowing smoothly? A good start would be to set an ideal length for each pipeline stage and sales cycle, estimate the cost per lead, and specify your average deal size.
Recording and remembering these figures will help allocate appropriate resources to each sale. Another key metric is gauging when to disqualify a lead and remove them from the pipeline. How long do you give potential customers “time to think”?
If a sales cycle is taking too long, you could prioritize their case and follow up or remove them from your pipeline. This will keep your pipeline from getting clogged up with stagnant deals. The question is how long is too long? That depends on what you’re selling.
If you’re selling multi-million dollar homes, obviously you might be willing to wait a year or longer. If you’re selling vacuum cleaners, on the other hand, you might wait a week and no more.
4. Set Goals for Your Pipeline
Now that you’ve established the details of your pipeline, put it to the test by setting goals for how many potential customers you expect at each stage, and sales targets (number of sales and total revenue) for each period.
Remember that the number of leads will decrease at each successive stage, so you’ll want to start with an exponentially larger target for initial leads than for sales.
Different stages of your pipeline are managed by different business functions: the marketing team organizes inbound lead generation, the sales team converts leads into customers, and the customer service team handles follow-up support.
Adjust the size and activities of each group depending on the goals you set. If your pipeline can’t keep up with demand and keep your business rolling, it may need restructuring.
Uses of a Sales Pipeline
Though not legally required, a sales pipeline can be an invaluable tool for improving inefficiencies in your sales process, communicating with other departments, and standardizing your sales strategy.
You might learn from your sales pipeline that you tend to lose sales opportunities during the negotiation stage. This signals that your negotiating approach might need improving to boost sales.
A solid sales pipeline also makes it easier to communicate with your sales team, giving them clear steps and states to understand how deals progress and reach close. Though some reps might be naturals at moving through the pipeline, having clear definitions of actions and metrics at each stage will help guide new reps and prevent inefficiencies or actions that conflict with company goals.
Tools for Sales Pipeline Management
A sales pipeline and the information in each stage is a lot to keep track of – even more so once you have to start tracking customers moving through it!
As the name implies, sales pipeline management is the organization and management of your pipeline. It involves tracking prospects, monitoring where customers are within each stage, expected sales and income, and sales targets for the period.
It’s a ton of work, and sales CRM (customer relationship management) software tools can be a huge help. Some of the top options are Pipedrive, HubSpot, and Salesforce. Beyond sales pipeline management, CRM tools can also track customer data and manage marketing campaigns.
As your company grows, we recommend embracing a sales CRM tool to manage your increasing customer numbers, complex sales, and the flood of relevant data. The better you’re able to get a handle on all this, the better you’ll be able to examine it, analyze it, and improve.
Sales pipelines usually follow a certain series of steps, but each pipeline should be customized to its business and its particular sales process. That’s the best way to ensure a lasting relationship with clients and deliver more sales.
Of course, some leads won’t make it to the end of the pipeline, and that’s OK. The silver lining is that every failed sale offers a lesson to learn from and improve and strengthen your sales pipeline. Soon enough you’ll have a well-oiled process you can scale up to achieve your business dreams.
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