Why Sales Pipeline Is a Lagging Indicator
Current pipeline is a sales metric that is widely viewed as a leading indicator, and as a predictor of revenue, it is. But when used as a tool to measure and forecast the probability of meeting your sales targets over the course of a month or a quarter, it’s a lagging indicator. If your current pipeline indicates you will potentially miss your target for a near-term timeframe it’s already too late.
When pipeline numbers are lower than what is typically required to meet your target, you’re relying on a deviation from the norm to make up the difference. This could be a larger than normal deal closing, a higher percentage of qualified opportunities closing, or opportunities that are in the earlier stages of the funnel closing faster than usual. Sure, this can and does occur from time to time and you may hit your target. But more often than not, it won’t.
TRUE LEADING INDICATORS
Activities and resources are the true leading indicators of your ability to meet revenue targets. More specifically, they are the activities that drive pipeline growth and ensure effective management of existing opportunities within your pipeline.
First and foremost, you must assess whether or not the required resources are in place to meet your numbers. Resource planning should take into consideration both the number of resources needed to generate enough qualified opportunities, as well as the number of resources required to manage and close those opportunities.
The moment your resources drop below full capacity you have a gap in output, and this is a leading indicator of sales production. Whether you address this temporary gap by increasing the time and output of your existing sales resources or by making an immediate hire, it must be addressed as soon as possible.
The quality and quantity of prospect data that your sales team has access to is critical to their success. And while data quality and quantity can’t be as easily tracked in the form of a simple metric, it is a strong leading indicator of pipeline growth.
The development of account and prospect data must be an ongoing process in order for sales development volume to remain constant, and for the quality of those efforts to stay consistent, clean, and thorough.
NUMBER OF PROSPECTS TARGETED
To a large degree sales is still a numbers game. That said, the outbound prospecting activity of your team every month and every quarter is a leading indicator of pipeline growth and absolutely must be measured.
Emails sent or phone calls made should not be tracked. Instead, what should be tracked is the total number of prospects targeted in a given timeframe with multiple touches (emails, calls, InMails, etc.) Once you’ve established metrics around how many prospects must be targeted to generate a single sales accepted lead, or even a qualified opportunity, you have enough data to understand whether or not your team’s outbound volume will build your required pipeline.
CONTENT AND INSIGHT CREATION
Outbound prospecting efforts must deliver insights and value to prospects. It’s what will improve engagement and increase the number of qualified opportunities. And those insights are of course typically delivered in the form of content.
Delivering fresh insights and content across multiple buyer personas requires a sustained level of content creation. As is the case with metrics such as resource capacity and the number of prospects being targeted, the moment content creation falls below the required volume, outbound efforts and pipeline development will begin to suffer.
Are content and insight creation as strong a predictor of pipeline growth as resource capacity and outbound volume? No. However it is a very important piece of the puzzle and will affect your team’s ability to effectively engage prospects and grow your pipeline.
The ability to implement and monitor leading indicators relies heavily on the accuracy of several conversion and efficiency metrics.
1. Number of prospects targeted > leads: As previously mentioned, tracking outreach activity and more specifically, the number of prospects being targeted, serve as a strong leading indicator of pipeline growth. However, if the conversion rate of prospects targeted to sales accepted leads or sales qualified leads has not been established, you obviously have no way of knowing whether or not outbound volume is high enough to meet your pipeline requirements.
In order for this metric to be statistically significant you will typically need three to fourth months’ worth of data, and to have targeted at least several hundred prospects.
2. Average Contract Value (ACV): Your average contract value will of course have an impact on your pipeline. Barring any outliers, a relatively accurate pipeline can usually be calculated simply by multiplying the number of open opportunities by your ACV.
So with simple math you can assume that a target pipeline of $1M with an ACV of $50,000 will, on average, require 20 open opportunities.
3. Content Engagement Metrics: Providing insights and producing content is great, but in order to deliver results it must engage your prospects. By measuring not only what content your prospects are consuming, but also how engaged they are (time spent reading a whitepaper, watching a video, etc.), you will have a good understanding of the effectiveness of your content generation efforts.
Resources and activities are the most accurate leading indicators of revenue and sales success. For sales leaders to be truly effective it’s important that a shift in mindset occurs; this means that traditional sales metrics like pipeline and forecasts are viewed as lagging indicators, and more attention is paid to the volume and effectiveness of activities that drive pipeline growth.