Defining Sales Stages Imperative for Reliable Pipelines and Sales Forecasts
Reliable sales pipelines only happen when all the phases your prospects go through are well defined AND your sales team applies those stages consistently in your CRM. We have been reminded the importance of this fundamental element of sales process management as we’ve worked through a couple recent live client situations.
Company One has relatively short sales cycles (weeks or a few months) and fairly small average deals sizes ($12 to $30 thousand average annual value). They have ten sales opportunity stages.
Company Two has long sales cycles (nine to eighteen months) and large average deal sizes ($1 million average annual value). They have four sales stages.
As we have helped each organization work through both current sales pipeline analysis and creating sales forecast models, it became clear to us that each could benefit by realigning their sales stage definitions.
Aligning Sales Pipeline Stages to Customer Buy Cycles
Company One could reduce the number of stages they use since many of their prospects move very rapidly through the sales process. They could also consider increasing the frequency of pipeline reviews to develop a better feel for how deals are moving through their sales pipeline and spot gaps more quickly. Fewer stages would make it more clear for the reps where to place opportunities and this would create more accuracy at all pipeline stages.
Company Two actually needs more pipeline stages because of their longer sales cycles. More stages would improve their measurement of sales pipeline velocity (the time it takes opportunities to progress from stage to stage). Too few stages means opportunities can stay in one stage for a very long time. This makes it hard for sales management to identify those opportunities that are taking longer than average in any one particular stage. Pipeline velocity is a very important measurement in projecting sales revenues.
Along with aligning sales stages to customer buy-cycles, another best practice to improve accuracy is tightly defining each stage by the activities that must occur for a deal to progress. Following is a template we have recommended in the past for companies with medium to long, complex sales cycles. You can reduce the number of stages if your sales cycles are shorter by combining some of the phases.
|Potential opportunity identified / Lead promoted from marketing|
|Sales speaks with prospect; Contact confirms issues, challenges, need…|
|Concept Solution Delivered|
|Written concept submitted to prospect|
|Solution Meeting Complete|
|Concept reviewed; including how and when to begin|
|Formal proposal submitted, including outcomes, timeline & pricing|
|Proposal modified if necessary / Resubmitted|
|Client decision maker accepts proposal|
|Negotiation of Terms|
|Contract and SOW in review / negotiation|
|Contract and SOW signed|
|Autopsy / Return to Nurturing|
|Deal Dead or Delayed|
|Return to Nurturing|
A final important practice for creating accurate sales pipelines is defining “Qualified Sales Pipeline” values versus “Full Pipeline”. The example above considers opportunities to be qualified only after a priced proposal has been delivered to the prospect. Until a prospect is willing to accept a priced proposal it’s premature for most sales teams to begin projecting potential revenue.
Take the time to evaluate your current sales pipeline stages and look for opportunities to improve stage alignment and definitions. These are best practices that can greatly improve pipeline accuracy and create more reliable sales revenue forecasting.