The Ideal Sales Pipeline Value – solution selling expert’s view

What is the ideal number of opportunities that we should have in our sales pipeline? If there are too many, we run the risk of not having enough time to devote to them all, and if we have too few, we may not achieve achieve our sales targets.

CJ Warstler, Director – Sr. Consultant, Sales Performance International Inc. helps answer this question very effectively in his post titled: “What does an ideal sales pipeline look like?” on their Solution Selling™ Blog.

He identifies the following three factors that determine the ideal pipeline:

  • Sales Cycle Complexity (Quality)
    Complex sales cycles have more number of milestones in the sales cycle. When calculating the ideal pipeline, one needs to know the ideal number of opportunities at each stage or milestone in the sales cycle.
  • Days in Stage (Speed)
    The longer it takes to close opportunities, the more the number of opportunities you need in your pipeline to achieve the target sales in a given period. The estimated average time taken at each milestone in the sales cycle is used to calculate the ideal pipeline.
  • Yield Probability (Volume)
    As an opportunity moves from one milestone to another, the probability of closure keeps improving. The probability at each stage is used to calculate the ideal pipeline.

The following table illustrates the sample buyer’s process and the corresponding sales process, along with the two process parameters – the time required, and the probability of closure at each milestone:

Buyer’s Milestone Seller’s Milestone Average time
required (days)
Probability
of closure
Develop Business Strategy Create Opportunity 0 (start) 0%
Determine Needs Qualify Sponsor 15 days 25%
Evaluate Alternatives Develop Power Sponsor 25 days 50%
Select Solution / Evaluate Risk Prove Capabilities 45 days 75%
Negotiate and Close Negotiate and Close 35 days 100%
Average Sales Cycle: 120 days

The sum of the time required at each milestone then gives us the average sales cycle time, which in the above example is 120 days.

In addition to the sales process, the following information is used in the calculation:

  • The sales target or Goal – for example, suppose this is 1.8 million
  • The time remaining to achieve the goal – for example, suppose we are at the beginning of the year, so we have 365 days left

Then the ideal pipeline value at each stage is calculated using the following formula:

(Goal x (Average Sales Cycle / Time Remaining to Goal) x (Average Days in Stage / Total Days in Average Cycle)) / %Yield in Stage = Ideal Amount for Stage

So for the above example, we would get the following ideal pipeline:

Buyer’s Milestone Seller’s Milestone Average time
required (days)
Probability
of closure
Ideal Pipeline
Develop Business Strategy Create Opportunity 0 (start) 0%
Determine Needs Qualify Sponsor 15 days 25% 2,95,890
Evaluate Alternatives Develop Power Sponsor 25 days 50% 2,46,575
Select Solution / Evaluate Risk Prove Capabilities 45 days 75% 2,95,890
Negotiate and Close Negotiate and Close 35 days 100% 1,72,603
Average Sales Cycle: 120 days Total Pipeline Value: 10,10,959

The total pipeline value here is less than the total goal, because this is the pipeline at the beginning of the year. Assuming that new opportunities keep entering the pipeline as older opportunities flow out of the pipeline at the same rate, the pipeline over the entire year will achieve the required goal.

See the excellent explanation of this provided by Tim Sullivan in the comments on the blog.

All in all, a very well explained and simple way to ensure that the pipeline is kept at the optimal size.

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