Sales projection via the sales pipeline analysis method

What is the sales pipeline?

First of all, it is essential to take a moment to define the sales pipeline. To summarize this concept simply, we could characterize it as the illustration of the different stages of the process of research, qualification and conversion of future customers. It can be broken down into 5 major stages, representing the 5 statuses of the company's actual or potential buyers:

• lead generation;
• qualification of leads into prospects;
• converting leads into business opportunities;
• closing the deal, making the prospect a new customer;
• Customer retention.

How to use the pipeline to forecast sales?

As you can see, the sales pipeline is primarily a prospecting and management tool for sales representatives and a decision-making tool for managers. However, it can also be used as a model for sales forecasts.

Thanks to all the past data and the current pipeline, the company can determine the probability of future sales. How does it work in practice? The idea is actually to use a multitude of data to estimate how many leads will reach the final stage of purchase. The calculations seem relatively simple to make, since it is mainly a matter of determining how many individuals or companies are at each stage of the sales channel and what percentage of them successfully move on to the next stage.

But this alone may not be enough to get an accurate sales forecast, since it may be more relevant to estimate sales in value rather than volume. In this case, indicators such as the average transaction amount or the total value of the current pipeline should be calculated.

To correctly estimate future sales, it is also important to look at the duration of each stage within the pipeline and the overall sales cycle. In other words, you need to know how long it takes a visitor to become a lead, then a lead to become a prospect, and finally a prospect to become a customer. Thanks to this analysis at each stage, we can determine when each sale is likely to occur, and thus obtain accurate forecasts for the weeks and months to come.

What are the advantages of this forecasting method?

Forecasting sales results for a later period using the pipeline allows you to focus on hard data, as you would when you focus on the forecasting model using historical data. But here, forecasting has the advantage of also focusing on information about current sales prospecting and real opportunities, producing more reliable forecasts a priori. This is especially true since it is possible to apply a wide variety of precise criteria to define lead/prospect categories and refine probabilities.

Moreover, by breaking down the buying process into several steps and estimating the probability that each step will result in a transaction, you get more insight into the actions that are essential to get more sales, faster. The pipeline helps to determine at which stage each sales person could produce better results, ultimately increasing the number of transactions made.

The pipeline is therefore not only a forecasting tool, but also a tool for managing and improving sales efficiency, which makes it almost indispensable in companies.

What precautions should be taken when using the sales pipeline as a forecasting model?

When used properly, the sales pipeline provides valuable information about future sales, but this cannot be done without accurate and regularly updated data. Indeed, since probabilities are based on evolving transformation steps, it is not possible to generate reliable forecasts with information that does not reflect the current state of the sales process. Teams need to record every conversion, every contact, every opportunity that doesn't go through, etc.

The use of a CRM software is then essential to guarantee sales forecasts via the pipeline. A well-designed tool can capture progress and aborted transactions in a few clicks and automatically update the resulting sales probabilities. This is why companies need to equip themselves with high-performance software that combines the day-to-day management of sales prospecting with the calculation of pipeline indicators. It must then be able to automatically generate graphs and forecast tables, which can be customized according to relevant criteria.

This method is therefore very appealing as soon as the sales or marketing team understands how important diligence and constant analysis are. However, it should not be forgotten that the sales pipeline provides results that are based solely on internal information from the company's sales department. It therefore seems appropriate to combine it with methods and tools that allow you to learn more about market opportunities and constraints and to weight the forecasts according to external factors (e.g., weather, sales seasonality, etc.).

We recommend these other pages:

• Sales forecasting method: sales cycles
• Sales forecasting method: intuition
• The impact of sales forecast optimization on cash flow
• Sales forecasting method: historical data
• Sales forecasting method: analysis of several variables
• Sales forecasting method: the mix of other methods