The sales pipeline is the lifeblood of any sales organization. It is a visual representation of all the opportunities currently in play and is essential for tracking progress and making sure you are on track to meet your goals. – HubSpot
So, your sales pipeline ratio represents how quickly or slowly your customers move through the sales process to become a closed deal. When your sales pipeline ratio is high, it means your company is maintaining and closing plenty of deals at every stage of your pipeline.
That said, the sales pipeline coverage ratio is a metric that measures the number of sales opportunities (deals) a sales team has in their pipeline relative to their sales target. It is calculated by dividing the total value of all deals in the pipeline by the sales target.
For example, if a sales team has a pipeline with a total value of $1 million and a sales target of $500,000, their sales pipeline coverage ratio would be 2:1. This means that they have twice as many deals in their pipeline as they need to hit their sales target.
The ideal formula to calculate the sales pipeline ratio is:
Sales Pipeline Coverage Ratio = Total Value of Deals in Pipeline / Sales Target
Why is Sales Pipeline Coverage Ratio Important?
The Sales pipeline coverage ratio is essential to calculate because it helps the sales team forecast revenue and manage their sales pipeline effectively. By tracking their sales pipeline coverage ratio, sales teams can see how many deals they need to close to hit their sales target. Let us see the benefits of calculating the sales pipeline ratio in the following points:
- Predictable revenue: As companies maintain high sales pipeline ratio, they can predict their annual revenues as they can hit their targets easily. On the other hand, when the sales pipeline ratio is low, companies can improve their tactics, eventually trying to achieve predictable revenues in the meantime.
- Resource optimization: As companies calculate the sales pipeline ratio regularly, they will get insights into where they allocate the resources. Simply put, a high ratio would mean the company needs to focus on conversion and a low ratio means putting more emphasis on lead generation.
- Prioritizing leads: Calculating the sales pipeline ratio allows companies to prioritize leads with the highest potential and value. Gradually, the flexibility can increase critical long-term metrics like customer retention, revenue earned, and customer lifetime value.
How to Improve Sales Pipeline Coverage Ratio
1. Analyzing your Sales Pipeline
Analyzing your sales pipeline will give you a clear picture of how your deals are moving through the sales pipeline. Such an analysis helps you get an aerial view as well as a stage-by-stage view of the pipeline. With these views, you can find out the health of your pipeline and identify individual tactics, processes, and approaches that need improvement.
A regular check on the sales pipeline helps you operate continuously, optimizing things proactively in real-time.
2. Optimizing Lead Generation Strategy
Your lead generation strategy is the bedrock of your sales pipeline. For your sales pipeline to work well, it is essential to generate a healthy number of leads at the top of the funnel. If you are falling behind in generating sufficient leads for your company, you should re-examine your lead generation strategy and find new ways to generate more leads.
3. Define your Sales Process
Before you can close some deals, it is important to define your sales processes. Defining the sales process in your company will outline people, processes, and tools needed to move leads from initial awareness to converted customers. Each company will have its own sales process, which can vary due to factors like sales teams, sales reps, and others.
That said, companies with a well-defined sales processes are likely to create a higher level of predictability and a better ability to pivot the process as desired to improve the sales pipeline coverage.
4. Equip your Sales Process
Finally, you can improve your sales pipeline ratio when you equip yourself with the tools and resources, they need to execute your sales process effectively. A combination of training, onboarding, and strong sales enablement tactics contributes to more confident and effective sales professionals.
When companies see more leads entering the sales pipeline but the conversion rate is not as good as it should be, this is an absolute area they must focus on to enhance the sales pipeline coverage.
A transparent and visible sales pipeline allows you to boost revenues, and most importantly, you enjoy control over your revenue generation. With the ratio in hand, you create more intentional sales strategies at every stage of your buyer’s journey. Over time, it will help you achieve more predictable revenues leading to higher growth for the business.