Sales Pipeline vs. Sales Forecast: What's the Difference
Although the sales pipeline and sales forecast are closely related, they're not the same. In this Q&A, we explain the difference and best practices you can use to make the most of each.
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That’s a great question. The two are very related.
Pipeline management is a way to manage sales opportunity, and it serves two purposes. Both are related to the sales forecast.
The first purpose is to make sure that the pipeline is accurate and only includes active opportunities.
Unfortunately, salespeople are better at entering opportunities into a CRM than managing them. Then over time, you end up with all these opportunities that lead to a bloated pipeline. But there are three steps sales managers can take to ensure that the pipeline only includes active opportunities.
The first step is to develop objective criteria for each stage of the pipeline. The pipeline has different stages, and it's often called a sales funnel. At the top, you might have opportunity identification, and there may be lots of opportunities with a low probability. Down by the body, we may have an agreement, and the final stage being closed-won or closed-lost.
To make sure that you have objective criteria for each stage of the pipeline, all your sales people need to adhere to the same criteria. Otherwise, you're not going to have a very accurate forecast.
You're also going to want to have clear rules on when an opportunity advances. Customer actions should be the basis for an opportunity advancing from one stage to the next.
The second thing is to assign reasonable probabilities to each stage. Each stage, as you work down the funnel, should have a higher probability associated with it.
You should determine those probabilities by reverse engineering deals that you've won. Ask "Okay, what would be the probability based on those prior stages?"
To recap, the first thing we're going to do is to have objective criteria for each stage. Then we're going to assign reasonable probabilities for each stage.
The third factor is really important. You must track velocity to make sure there are only active opportunities in your pipeline. This gets to the idea of doormat opportunities.
When you track velocity, let's say, of a six-month sale cycle, a reasonable time and stage may be up to 60 days. But if you look at most pipelines, many opportunities are stalled out. To base your forecast only on active opportunities, remove these, or classify them as inactive.
The second area, it's associated with pipeline management and how it relates to the forecast.
When we have an accurate sales pipeline, we can create an accurate forecast. But it's also the manager's role to help salespeople advance those opportunities, because the more we can advance our opportunities, the more business we're going to close. That's the whole goal of pipeline management.
We also want to help our sales people better qualify each opportunity. There are five questions you can ask about each opportunity to facilitate coaching.
The first is, what’s the customer's business need? That may seem like a basic question, but the answer depends on asking the customers questions. We need to make sure we understand what problem they're trying to solve.
Unfortunately, many salespeople will give us somewhat of a circular response, "Oh, they're looking for a solution like ours." That's not good enough. Why are they looking for a solution from us?
Then we get to the second question, what's the unique value we bring? In other words, based on what their needs are, what’s unique about our solutions that are creating value for them?
The third question is, who are the decision makers and what's our relationship with them?
Are we selling too low within the organization? Is there someone above the people we're talking to? Who's really going to make that decision?
How will the competition try to beat us? So do we know who the competitors are? What their strengths are? What their weaknesses are?
Ultimately, why will we win?
By asking these five questions, we can determine if each opportunity is in fact at the right stage. Then we can help our salespeople think through the steps we need to take to keep the opportunity moving forward.
In conclusion, there are two aspects of pipeline management. What I call the science and art of pipeline management; and both are related to producing an accurate sales forecast.
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About Norman Behar
Norman Behar is Chairman and Managing Director of the Sales Readiness Group (SRG). He has over 25 years of senior sales management experience, and is recognized as a thought leader in the sales training industry. His blog posts and whitepapers are frequently featured in leading sales enablement publications including ATD, TrainingIndustry.com, and Selling Power.