What is pipeline really?
Sales pipeline, also known as pipeline, is an organized, visual way of tracking potential buyers as they progress through different stages in the purchasing process. The phrase pipeline gets thrown around a lot. “How big is your pipeline?”, “What’s your pipeline to OTE ratio?”, and “We’ve got to increase pipeline” are all very common phrases you’ll hear in the world of go-to-market.
It's easy to forget that pipeline is more than just a buzzword. When it comes down to it, the stages of a sales pipeline can help you and your team visualize your sales process. This visual representation portrays where in the sales funnel your deals are, where deals are stalling, and which sales activities are contributing to reps closing deals and bringing in the most revenue. If you don’t have a clear definition of what is considered pipeline or you aren’t tracking or measuring your pipeline, you may lack valuable insights about where your deals are at any given time.
Pro-tip: 3-1 and 5-1 are the most common ratios for pipeline-to-revenue targets. This means if you have a quarterly target of one million then you’ll want to make sure you have at least three to five million in active pipeline. This is based on the fact that early-stage companies typically close about 30% of active deals in their pipeline.
How should you think about pipeline?
In any economy—bull or bear—your existing customers are the single best source of new pipeline. If you need to add pipeline to help you get to your revenue targets, start by identifying which existing customers might be best suited for an upgrade, expansion, or renewal. Renewals are a great opportunity for an upsell especially if you’ve been delivering on your value promise.
There are many strategic and tactical approaches to generating pipeline. I’m sharing a sales leader's perspective with you, which differs slightly from a marketing leader's perspective. I don’t agree with measuring your marketing leader on pipeline or leads or even lead conversion.
The fact is that your marketing, sales, and customer success leaders should all be measured on the same two metrics: revenue and net dollar retention (NDR). When you measure your marketing leader on pipeline created you’ll be amazed how much ‘pipe’ gets created, really quickly. Sadly, much of this pipeline generated is not real and won’t turn into revenue.
At the end of the day, as a founder, you should care more about the quality of pipeline than the amount generated. Why? Because higher quality pipeline closes at a higher rate, which means more top-line revenue and likely happier customers who expand and renew.
The "four horsemen" of pipeline sources
Pipeline needs to be tracked and measured by source. Source helps us to identify where pipeline is coming from. It’s common to think about pipeline source as identified by the four horsemen:
- Marketing. Pipeline from marketing activities includes things like campaigns, webinars, conferences, ads, etc.
- Outbound. Usually, outbound SDRs / BDRs / ADRs focus on reaching out to target accounts or geographic territories and try to generate interest from contacts through cold/warm prospecting activities.
- AEs. Your direct sellers must be responsible for generating some of their own pipeline.
- Partners. Partners who can refer you business can be a great source of pipeline and typically partner sourced prospects convert at a much higher rate than most activities by the three other horsemen.
How marketing can help generate pipeline for the sales organization
I believe there are three buckets of activities that your marketing organization should use to organize its campaigns. Understanding these buckets will help you as the founder or CEO better measure the impact of your marketing leader and organization.
- Brand awareness. Things like Google, LinkedIn, and Facebook ads, billboards, articles in digital magazines, and event sponsorships with swag are common activities that marketers do to raise brand awareness. The important step here is to make sure that you’re allocating brand activities in the markets where you have sales coverage and where you’ve identified the bulk of your ICP and buyer personas live and work. The more you can do to share with the world who you are, what you stand for, why you exist, and the problems you solve, the easier it will be for your sales team to engage in meaningful conversations.
- Nurture campaigns. This is the most common bucket when we think about traditional marketing activities. This bucket includes activities like webinars with industry leaders, chatbots on your website, website tracking, persona-specific messaging, email templates for the SDRs or sales organization, conference attendance (and booth creation and design), sponsorships, and partnerships with leading industry organizations. This bucket is much easier to measure for you’ll get webinar attendee lists, or conference attendee lists that can be scoured, vetted, and then shared within your CRM to your SDRs to call upon. Remember at this stage these folks are just contacts. They are not leads yet because no one has talked to them yet to determine if there really is a fit/problem we can solve here. Far too often people who engage with your marketing content or events are treated as leads but if you haven’t filtered those contacts out then you’ll waste your SDRs time by doing list building instead of having real conversations with prospects. Pro-tip: hire an UpWorker or a junior SDR to be a list builder/contact validator. This will save your outbound SDR’s a tremendous amount of time.
- Opportunity. This bucket is almost always forgotten about. Why? Because traditionally marketing leaders have focused purely on top of funnel activities, aka ‘leads’ which are supposed to equal pipeline. The problem is when a deal is converted from a contact to a lead to an opportunity, the deal is not done yet, nor should marketing support that deal. A great marketing team will develop a strategy to help support the prospects that are in a buying cycle. When a prospect is in the ‘demo’ stage what could marketing be doing to support the narrative shared by the AE’s or SE? Perhaps they can share a customer story on the value of change since after most demos a buyer usually is worried about changing the behavior of their team(s) with a new solution. What about when a rep is in a negotiation. Are there things that marketing can to do help support that negotiation? Sure, how about creating an ROI toolkit that helps the reps share what the real value of leveraging your platform might be? Pro-tip: The more stories a marketing team can create for the reps for each persona they typically engage with by stage in the buying cycle the better the experience will be for the prospect.
How to think about conversion rates as a founder or CEO
Conversion rates are where many companies get stuck and where battles between sales and marketing leaders start. Usually, misalignment is anchored around the definition of a lead. More often than not, marketing leaders are measured (and compensated) on leads usually in terms of quantity. But as a founder, you should care more about leads that convert into real opportunities. So how can we ensure higher conversion rates?
- Get very clear on what a lead is. Everyone needs to agree on the definition of a lead. I don’t believe that marketing creates leads. Marketing lives and works in the world of contacts. And with every account, they need to be targeting at least six to eight contacts per account to engage with because that’s how many people are typically involved in a buying decision. If you agree that marketing works in a world of contacts, the first question is how many contacts (aka personas) is marketing able to add to our CRM on a regular basis? Once a contact has been added, marketing needs to focus its efforts on activities that raise the awareness of the company, brand, and value proposition.
- Outreach. Once a contact has engaged, either by downloading a white paper, attending a webinar, or even visiting your website, then it’s time to have a rep (usually an SDR) reach out to this person. Of course, an SDR doesn’t need to wait until the contact has engaged, but the conversion rates are usually much higher if they have actively shown some level of curiosity about the market that you are serving. Pro-tip: Solutions such as 6Sense and Zoominfo will tell you if your prospect is ‘searching’ for a solution like yours.
- Conversion. Once a rep has had a conversation with a prospect and they can confirm that there is interest in learning more then and only then should they convert that contact to a lead.
- Validate. The next step is for the AE to have a conversation with the lead to validate the hypothesis and information shared by the SDR. If the AE can validate that there's a fit, then it’s appropriate to convert the lead to an opportunity. Note: only AEs should convert leads to opportunities. SDRs should never do so for it creates an overly inflated pipeline.
Now that you have an understanding of pipeline and the levers available to you as a founder, head to part II on how to assess your pipeline in a downturn.
Please don't hesitate to reach out to me if you have any questions: email@example.com.
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