When Walmart or Disney calls you to say they want to talk, which is the correct response?
It’s a kitty triple high five. It’s very exciting, but like our two participants, very early in its lifecycle. Too early to even have that champers on ice. And if your response was, hit the Audi dealership, let’s start again.
To plan your business operations based on revenue, you need a way to estimate how much money you’ll make. When it comes to your revenue, math > feelings. So, we write stuff down and apply some probability weights to what we know about our deals.
We use a weighted average approach called a sales pipeline. A sales pipeline summarizes all of your active prospects, where they are in the sales process, and how much you think the deal is worth.
At each stage, you apply a percentage to that prospect’s potential revenue. The summary of all the weighted averages for deals you expect to close, i.e., have signed contracts, in a certain period is called a forecast.
Over time, you’ll know how much potential deal value you need to reliably hit your goal. Established companies aim for 1.25x – 1.5x in their pipeline at any given time. Earlier stage companies or less experienced salespeople may need as high as 2x. In other words, if you’re new to sales and need to make $100 this quarter, you want to have $200 in your pipeline.
Confirmed interest is assigned a 20% likelihood. So if I expected a deal of $100 and it was at the confirmed interest stage, I would add $20 to my forecast. As you get more experienced, you can design a prospect journey. Until then, here’s a simple approach:
- Confirmed interest = 20%
- Qualifying = 40%
- Proposal = 60%
- Verbal agreement = 80%
- Signed contract = 100%
You do not have a deal until you have a signed contract. Companies that use GAAP accounting won’t even accept an invoice until they see a signed contract. Only then can you invoice and get paid.
Hubspot’s Comprehensive Guide to Sales Pipelines
My email from Week 2 on why you absolutely must have contracts for every deal
The Close.io blog with terrific tips improving your entrepreneurial sales skills, fast