How to Use Your Sales Pipeline Coverage to Influence and Drive Business GrowthMar 20, 2022
Use your sales pipeline coverage as a strategic marketing tool
Marketing and sales are two interdependent business functions that drive revenue for businesses. Marketing generates leads, and sales convert them into revenue. In this process, sales personnel rely on the sales pipeline to determine the quantity and quality of where opportunities are in the buying journey to focus their efforts on the right accounts and contacts in the buying group.
The sales pipeline details the steps needed to move a lead from a prospect to a paying customer. Through the sales pipeline, sales and marketing personnel can calculate the average sales cycle, the available open opportunities that could result in a sale, and the steps needed to close a deal.
As part of the sales pipeline, sales personnel calculate the sales pipeline coverage, which helps them determine how close their efforts are to achieving revenue goals.
Let's start by defining sales pipeline coverage and why it's essential for businesses.
What is Sales Pipeline Coverage and How It Helps Businesses Growth
Sales Pipeline Coverage Ratio Formula Explained
Sales pipeline coverage measures the ratio between the dollar value of your funnel compared to your revenue targets. The sales pipeline coverage ratio is a number sales teams use to determine if they’ll meet their revenue targets for the quarter or year.
The pipeline coverage is calculated from potential buyers who have demonstrated that they are actively pursuing your product or services to purchase. The sales pipeline begins when the business becomes an opportunity – it doesn’t matter what stage of the buying process the opportunity is at or their likelihood to close.
This is an important distinction so as not to confuse sales pipeline coverage with sales forecasts. A sales forecast predicts the opportunities likely to close in a given period.
A major part of business growth is increasing revenue, which means improving marketing and sales efforts. Understanding your sales pipeline coverage ratio tells you where your efforts are working or where you need more effort.
If you have a low pipeline coverage ratio, it means that you need to improve your lead generation efforts. With high pipeline coverage ratios, you can look at your data and see what efforts led to these results so that you can repeat them in the future.
How to Calculate Your Sales Pipeline Coverage Ratios
The sales pipeline coverage calculated the amount of opportunity compared to your quota for a given period. To calculate the sales pipeline coverage ratio, divide your total pipeline by the total quota you need to close by a given period.
Here is the formula:
Total Pipeline for a given period / Total Quota Needed for the same period= Sales Pipeline Coverage Ratio
Let’s use the formula in a practical example. Say your quota for Q1 is $1,000,000. You already have $2,000,000 of the pipeline for Q1. Therefore, your sales ratio is $2,000,000 ÷ $1,000,000 = 2X pipeline coverage.
The best practice is always to aim for a 3X sales pipeline ratio as not all prospects will end up as customers. Some will disqualify you while some you will disqualify; others will convert faster than some.
Ultimately, whether a 3X sales pipeline is ideal for your business will depend on other factors such as:
- Your conversion ratios
- Your win rates
- Your close rates
The Benefits of High Sales Pipeline Coverage Ratios
What's your ideal sales pipeline coverage ratio?
You've probably heard the 3X sales coverage rule that sales teams have to target a sales pipeline coverage three times their revenue to be safe. However, this is not a one-size-fits-all solution for businesses.
Thanks to the diversity in business needs, reputation, products, business growth, and even market segment, businesses might have a sales pipeline higher or lower than the 3X ratio. We can take from this rule that having a higher sales pipeline coverage ratio increases the chances that your business succeeds in meeting its revenue goals.
Businesses are always scaling up their revenue goals, and salespeople have to catch up by bringing in more leads. Having a higher sales pipeline coverage ratio means you have better chances of meeting your sales goals every month/ quarter or year.
Here’s a detailed list of the benefits of high sales pipeline coverage ratios:
Sales forecasting comes after you have calculated your sales pipeline coverage ratios. For instance, if you have a sales coverage ratio of 3X, you have three times the opportunity amount required to meet your revenue goals.
However, all these opportunities will not close simultaneously or within the same revenue period. This is where you evaluate your sales pipeline for where each opportunity is currently at and their likelihood to close.
When you have a strong sales pipeline, you have more prospects you can convert into customers. Combine this with a strong sales forecasting model and make better predictions of your company revenues.
Better Resource Allocation
A lot goes into a sales pipeline coverage, including lead generation and attribution. By calculating your sales pipeline coverage, you can determine what activities you should be focusing on at the moment to meet revenue goals.
If you have a 1X coverage ratio, there’s a higher probability that you won’t meet your revenue goal. Therefore, you can focus your resources on lead generation activities.
How to Increase Your Sales Pipeline Coverage Ratios
Sales pipelines are different for every business. But the best ones have enough prospects so that you can make a sale.
Before you calculate your sales pipeline coverage ratios, you must have a sales pipeline. The sales pipeline visually represents the stages of your business's sales cycle. With the sales pipeline, you can map out where each prospect is along the sales pipeline, thus targeting them with the right messaging and activity to generate the best results.
Sales pipelines vary from one business to the next, and sometimes, with various products within the same business. Despite these differences, the best sales pipeline are the ones capable of ensuring you have enough prospects in your pipeline to meet your quotas (or a high sales pipeline coverage ratio).
Here are some tips to help you increase your sales pipeline coverage ratios:
Build a strong sales pipeline
A sales pipeline is the first step in building better sales pipeline coverage ratios. Creating a sales pipeline might take time, but it can significantly affect your revenues. To make a strong sales pipeline, start by defining the various stages in the pipeline.
The best sales pipeline is designed based on your prospect's buying journey. With a CRM like Salesforce, you can track your previous conversions to determine your sales pipeline stages. The typical process starts with awareness, consideration, and decision. After that, the sales pipeline stages might include activities such as setting an appointment, offering the solution, and accepting the solution.
Once you have your sales pipeline set, the next step is to identify the opportunities that go through each sales pipeline stage. This gives you your conversion rates.
Improve your lead generation
Calculating the pipeline coverage ratio starts with the leads you already have in your business. These leads have to come from somewhere, thus the need for a robust lead generation system. Unfortunately, lead generation is one area B2B sales teams struggle with despite it being a critical part of business growth.
Thankfully, you can take some steps to increase your lead generation results. The first step is by aligning sales and marketing efforts. By aligning sales and marketing efforts, you can agree on:
- What constitutes a quality lead
- The point at which a lead passes over from marketing to sales team
- Lead scoring to qualify and prioritize the best leads
- Collaborate on marketing campaigns and sales initiatives to increase the success
Another step in improving your lead generation efforts is researching what your target prospects are interested in. Research gives you insights into what challenges prospects face and the type of solutions they are looking for.
Optimize your sales team
The impact of a sales pipeline coverage ratio depends not on how many people you have on your pipeline but on your sales team's efficiency at closing leads. Optimizing your sales team is an ongoing process that includes the following steps:
- Track and analyze sales data and results. This gives your sales team insights into who their prospects are, their interests, and the messages they respond to.
- Align sales and marketing efforts
- Optimize lead management, including tracking each lead by type and source.
- Motivate and empower your sales team by providing them with the right tools and rewards for their performance. Encouraging ideas from the team also allows you to tap into each salesperson's knowledge and expertise.
Monitor the health of your sales pipeline
Once you have a strong pipeline, the next step is to maintain your pipeline to ensure consistency as much as possible. This means ensuring that your pipeline remains short in the short- and long-term by focusing on always feeding every stage of the sales pipeline.
Here’s how that would work.
It’s Q1, and you have a pipeline coverage ratio of 3X and a potential of closing enough opportunities to meet Q1 revenue goals. The goal is to build the momentum for Q2 success by focusing on mid-funnel activities to drive more prospects closer to buying. At the same time, you continue to generate leads to ensure your sales pipeline is always giving.
Know how close you are to your revenue goals and the steps you can take to improve them.
Once you've set your revenue goals, the next step is to implement strategies to meet these goals. The sales pipeline coverage ratio is a metric that tells you how much opportunity amount your marketing and sales strategy is expected to generate, and the likelihood of meeting revenue goals. It’s important to track this metric to know how close you are to your goals, and the steps you can take to improve your revenues. What is your target sales pipeline coverage ratio?
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