Sales Pipeline vs. Sales Funnel
A sales pipeline describes the steps that your sales team takes while qualifying leads and closing deals whereas a sales funnel describes the customer journey as people go from learning about your company to becoming a customer. Both play a major role in sales, but they’re not the same thing.
Sales pipelines communicate the value, quantity, and stage of various open deals at any given time, on the other hand, sales funnels help sales teams understand the volume of deals in total and the percentage of those which have passed through each stage of the sales process.
So to summarize we can say a sales pipeline is the steps a person goes through and a sales funnel represents the number of people who make it through those steps.
Best Indicators To Measure Your Funnel
The analysis shows that on average, 13% of leads convert to opportunities and the average time for conversion is 84 days whereas the conversion rate from opportunity to deal is even lower — only 6% of opportunities convert to deals, but it takes only 18 days, on average, to convert. Also, webinars have only a 2.5% conversion rate from the opportunity to deal.
The following are Key Performance Indicators for your funnel:
At the top of the sales funnel, you need to be tracking the number of leads you’re receiving each month. Lead Velocity Rate (LVR) measures the month-over-month growth in qualified leads and you should typically set your LVR ~15% above your revenue growth target.
Example LVR calculation
A funnel naturally implies the numbers decrease as the sales process progresses and you should be tracking key conversions throughout the sales process, such as lead to opportunity conversion and opportunity to won deal conversion:
Lead to opportunity conversion % = (Opportunities created / Leads) * 100
Opportunity to won deal conversion % = (Won deals / Opportunities created) * 100
Sales velocity measures the amount of time it takes to turn your qualified sales leads to revenue and is expressed as dollars per time period.
Sales velocity = (Leads * Deal value * Conversion) / Sales cycle
Example sales velocity calculation
Example sales funnel calculation
Let’s assume you need to add 240k of annual recurring revenue (ARR) this month and one new customer adds $12k ARR. You’ll need to acquire 20 customers to hit your ARR goal and for simplicity, we’ll assume your sales cycle is less than one month. Given the below facts, you’ll need to provide the sales teams with 1,429 leads from channel 1 or 438 leads from channel 2 in order to hit revenue targets.
As these calculations show, improved conversion at each stage of the sales funnel makes a material difference to the top of the funnel costs of customer acquisition. In order to hit the desired revenue targets, the business should invest $79,716 to acquire the leads through channel 2 despite the higher cost per lead.
To conclude we say sales pipelines pose a lot of benefits to organizations but need to be effectively managed in order to get the best results. According to the Harvard Business Review, it was found that companies that practiced effective sales pipeline management experienced a significant increase in growth rate and revenue. Further, we notice the companies that adopted 3 specific pipeline practices were able to experience an over 28 percent increase in their revenue.
These three practices are:
- Adopting a well-defined sales process.
- Investing time in building and mastering that sales process.
- Educating sales managers in the techniques and principles of sales pipeline management.