Securing the Bag: Analyzing your sales pipeline
Running a marketing agency is an adventurous journey filled with exhilarating peaks and daunting valleys. One of your essential tools for navigating this journey is your sales pipeline, as it offers vital insights into the health of your business. While many metrics can monitor the health of your sales pipeline, this article focuses on calculating your total pipeline value. Why this one? Because it tells a compelling story about the health of your business in the near future.
Measuring Your Pipeline
There are generally two ways you can calculate the value of your sales pipeline: (1) Gut Feel and (2) Win Rate. Whichever method you choose, what matters most is that it helps you make better business decisions to drive future sales.
Let’s look at an example of a sales pipeline (Table 1) for the past year to understand how prospects might move through a pipeline.
TABLE 1: Sample Pipeline Results for One Year
The big takeaway from Table 1 is your win rate. This agency, for instance, converts one out of every six leads. This doesn’t speak to the value of each lead but it shows the conversation rate. Notice that this agency sent nine proposals but only had eight sales qualified leads? Maybe the dollar amount was enticing to make them look past any red flags or a referral made it look like easy money. Whatever the case, this scenario is common in many agencies.
TABLE 2: Calculating Pipeline Value Based on “Gut Feel”
Using a random sample of five new leads from Table 1, we can illustrate how to calculate pipeline value based on gut feel. Many agencies I’ve collaborated with have relied on their gut instincts — a sixth sense honed through experience. The challenge with gut feel is our inherent optimism. While optimism helps to inspire and sell people on a vision, it must be balanced with data for accurate financial forecasting.
Let’s take a look at the story told by Table 2. As Meek Mill would say, “there’s levels to this.”
First Level: At a glance, many people would assign a valuation of $89,000 to their pipeline by simply adding up the dollar amount of all prospects. It’s a quick back-of-the-envelope calculation.
Second Level: However, agency vets understand that different prospects and their potential projects have varying probabilities of turning into actual work. As a result, vets rely on their “gut feel” to estimate the likelihood of a project being sold. Based on this intuition, your pipeline would be valued at a little over $68,000.
Third Level: Now, let’s take a closer look at the weighted pipeline amount for each prospect. By identifying the prospects with the highest weighted value, you can allocate your attention accordingly. In this case, Prospect D deserves more focus than Prospect E although the initial dollar amount was higher.
TABLE 3: Calculating Pipeline Value Based on “Win Rate”
My preferred way to measure pipeline value is to look at your historical win rate. While past success doesn’t guarantee future success, the historical win rate serves as a reliable predictor of what lies ahead. To better understand our chances of success at each stage of the sales process, let’s refer back to Table 1 and review our data. For example, we know that around 29% of the individuals we meet end up becoming clients. In other words, when we consider Prospect D from Table 3, our historical win rate suggests a 29% probability, rather than the overly optimistic 80% based solely on our gut.
The true dollar value of your pipeline is $46,390. If that amount isn’t enough to sustain your journey ahead, then it’s time to refocus your sales efforts. Compare your agency to my example to check the value of your sales pipeline.
Key Takeaway
Knowing the total value of your pipeline is essential for understanding the state of your business. Whether you trust your gut or rely on win rates, the value of your pipeline represents your future. Either of these methods will provide insight, enabling you to steer your agency toward continued growth and success.