Take The Guesswork Out Of Your Sales Pipeline
It is common to hear salespeople and sales leaders say that they need 3 times their outstanding quota in their pipeline in order to assume they can make their number. This is a widely used rule-of-thumb that seems reasonable on the surface. It gives you a benchmark and it is pretty conservative in that it assumes you will win 33% of the deals in your sales pipeline. Is this the best way to assess your pipeline? No.
Since CRM systems allow you to set percentages for each stage of your sales cycle, use those percentages to produce a weighted pipeline value that more accurately reflects the condition of your pipeline. To calculate the weighted pipeline value, multiply the deal amount and the pipeline stage percentage:
weighted Sales pipeline value = deal amount x pipeline stage percentage
Unlike the 3X rule, which is 3 times the outstanding quota, the weighted pipeline value formula takes into account the stage of each deal relative to the likelihood of closing. The major flaw of the 3X rule is that it treats all deals the same regardless of their probability of closing.
If your pipeline stage percentages accurately map your sales process to your typical buyer’s purchasing process, then your pipeline is in good shape as long as your weighted pipeline value equals your outstanding quota. A weighted pipeline value above your outstanding quota is just extra peace of mind.
Spend the time to truly understand your sales cycle and how it fits with your typical prospect’s buying process and you will be able to set the right stage percentages, eliminating the guesswork and improving your ability to forecast and plan. That’s a better way to go than just guessing at a 3X number.