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How to Create A Sales Pipeline

I’ve been teaching someone on our team recently about how a sales pipeline works — and so I thought I’d summarize my sales approach here for you (I’ve used this for straight up sales as well as for partner sales).

Note: I’m going to refer to the party I’m selling to as a “customer” but it could easily be a partner in the case of partnership sales.

There are any number of sales pipeline stages you can use: I’m going to use Leads, 10% Opportunities, 50% Opportunities, 90% Opportunities and Closed Won/Lost. I first adopted this methodology when I began using Salesforce.com which mapped well to how my mind works.

Stage 1: Leads

First you have to get leads in the door.  What is a lead?

A lead is a potential customer at its earliest stage.

Some people call this a sales “prospect.” So, what is a prospect and what’s the difference between lead and prospect?

I think using either “lead” or “prospect” is fine, though in sales I tend to prefer to use lead to define my earliest stage potential customer. I then use prospect more as a verb as what I have to do to find leads (e.g. when I read about a potential customer in the newspaper or on a Web site I am “prospecting.”).

For example, here are the criteria I used for qualifying sales leads (qualifying leads may be quite different based on what industry you are in):

  • I have their first and last name
  • I have their company name
  • I have a quantity metric helping me to understand that they have enough value to merit me working for them (examples of a quantity metric might include the number of employees they have, the amount of revenue they generate or their Web site’s traffic ranking).
  • I have a quality metric helping me understand if they are the type of lead I’m looking for (examples include: the vertical market they are in or the title of the individual)

Prospecting sales leads is a full-time job. There are two main types of leads:

1) Inbound Leads

To generate inbound leads, you can simply run advertisements (leaving your phone number, email or Web site information) or it may be as simple as you have a Web site with a “Contact Us” link that leads to a sales lead form (which of course would ask for the type of information (such as their size, type of business, etc.) that helps you define whether someone is a good lead.

2) Outbound Leads

Outbound lead generation consists primarily of having an outbound marketing program or outbound sales (such as outbound telesales). The point is that generating outbound leads consists of proactively making a day to day effort to find leads.

The next stage after qualifying a lead is turning it into what I call an “opportunity.” I have three stages of opportunities: 10%, 50% and 90% — let me explain each.

Stage 2: Opportunity (10%) (“We have connected with the right people at the right business”)

I define a 10% Opportunity as having the following qualifications:

  • I have made contact with them
  • I have confirmed that the quantity is there for my type of customer (for example, they have a top 1,000 Web site if I’m looking to sell to the largest Web sites in the world).
  • I have confirmed a quality metric such as they are in a vertical market that has worked for me in the past or another example is that the person I’m talking to is the proper decision-maker for closing a deal with me).
  • Finally, and this sounds obvious, but I define a 10% Opportunity as one that has a 1 in 10 chance of closing — duh!

Stage 3: Opportunity (50%) (“We’re in the ballpark on this deal”)

I define a 50% Opportunity as having the following qualifications:

  • The details of the product or partnership have been discussed and it’s agreed it’s a good fit for both sides
  • The pricing of the deal is in the ballpark (within 20%)
  • The rough timing of the close of the deal has been discussed

Stage 4: Opportunity (90%) (“Negotiations are complete”)

I define a 90% Opportunity as meeting the following criteria:

  • Agreement on pricing
  • Agreement on product specs
  • Agreement on closing date
  • Agreement on delivery date of product
  • Contract has been reviewed (just not signed  yet)

Stage 5: Closed Won (or Lost)

Finally, when you close a deal you have two scenarios:

1) You closed the deal meaning you won it. That means that you have the contract in hand and you’re off to the races!

2) You closed the deal because you lost it. This is ok. Think about the old story of the vacuum cleaner salesman who sold vacuums for $100 but had to knock on 50 doors to get a sale. Well, each “Closed Lost” deal of his was worth $2 each, right!?

Salesforce Automation

Finally, there are plenty of customer relationship manager software prorams (aka CRM software) available to help you with the stages above. Most include the basics of:

  • Sales pipeline management
  • Sales pipeline templates
  • Sales pipeline reports

I happen to use Salesforce.com and I’m quite happy with it…but there’s plenty of other good sales software out there (see A Quick Evaluation Of 9 CRM Tools).

And don’t forget to check out my favorite book on Selling — read my article on it here: SPIN Selling.


7 Comments

  • http://www.boecker.com nassim ghaddar

    I would like to have sample sales pipe line reports.

  • http://George.com George

    Thanks for the explanation of a sales pipeline. I’ve always wondered how the sales guys and gals did it!

  • Rob Kelly
  • Gro-tesk

    This method is highly boring. No drive, no fun, no wits. In two words, it sucks.

  • http://www.robdkelly.com Rob Kelly

    Your welcome, Grotesk. ;)

  • http://robdkelly.com/blog/fundraising/how-to-raise-money/ The 7 Unusual Fundraising Lessons I Learned While Raising $1 Million + | Rob Kelly

    [...] money and some will turn you down and some will actually invest (if you work hard!).Note: Check on How To Create A Sales Pipeline if you want to dig deeper into pipelines. The key with the pipeline is to make your best guess as [...]

  • Daniel Comp

    Thanks for a new ‘story’ to pass on to my team:

    “Think about the old story of the vacuum cleaner salesman who sold vacuums for $100 but had to knock on 50 doors to get a sale. Well, each “Closed Lost” deal of his was worth $2 each, right!?” 

    Nice.