Build your pipeline, and the sales will come…  

29th April 2003

This article covers a simple ‘litmus test’ to put in place for yourself, or your sales team, to ensure you have enough prospective business to meet your sales targets.  It works like this:

1. Set your budget for the business/business unit/yourself
   1. Revenue target
   2. Profit target
   3. Margins
   4. Costs/overheads
   5. Headcount

2. Put a mechanism in place to track the budget against actual performance on these key areas, for each month, and year to date.

3. Do regular forecasts:
   1. Known sales opportunities/prospects

                                                               i.      Annuity/ongoing revenue

                                                             ii.      Orders on hand

                                                            iii.      Invoiced work/jobs

2. Unknown sales

                                                               i.      Eg: estimates of revenue based on previous period

                                                             ii.      Proposals/tenders pending

4. Calculate your hit rate
   1. Eg: for every 10 proposals you do, you win 4 = 40% hit rate
   2. Eg: for every 10 tenders you respond to, you win 1 = 10% hit rate on tenders

5. Apply the hit rate to the ‘unknown’ estimates in your sales forecast, to determine the likely revenue outcome.  For example, if your hit rate were 30% on average, and you had $100,000 in your ‘pipeline’ of business opportunities, it is likely that you will realise about $300K in revenue.

6. Compare that final figure with the variance in your actual performance against your budget:  if you need to make $800K in revenue before year end, and you are likely to make about $300K, you actually need more business opportunities in your pipeline.  With a hit rate of 30%, you would need to have about $2.7M sitting in your pipeline in order to convert 30% of $2.7M to $800K in sales revenue.  If you, or your sales person, needs to convert 100% of your prospects into sales in order to achieve their budget, then they, or you, will not get there without more opportunities in the pipeline.

7. Hence, “Build your pipeline, and the sales will come…”