Better info + Time to Plan = Better Business Decisions
A sales pipeline is a revenue forecasting tool: it is a constantly updated list of prospective projects or clients that you hope to close or win in the coming months, but more than that, it should also give you an honest assessment of the probability or likelihood of winning them. So what does this tool look like and what information do I want to track? You could keep it all in your head as some business owners do, but our preference is a rather simple and straightforward spreadsheet.
Check out our Tools section to download our Pipeline Tool: HERE
1. List out all prospective projects or clients and total the $ value of the all these projects.
2. For each project, give it realistic probability of winning, (ie. 40% for Project A, 90% for Project B, etc)
3. Multiplying each individual project $ value times its probability gives you a “weighted probability” of each project.
4. Add up all the weighted probabilities from Step 3.
5. For each project, give it a “time to close”, ie. the how long it will take to close or win the project, in months then take an average of all projects listed.
6. For each project, give it a “project duration”, ie. how long the project will take to complete, in months then take an average of all projects listed.
The information from Steps 4, 5, 6 will give you the following information: The total $ value of projects you realistically hope to close over an average “time to close” in months and how long your Sales Pipeline will sustain your business (project duration).
You’ll win some and lose others but if you’ve been honest with assigning realistic probabilities of winning each project, you will find yourself netting out to a remarkably realistic assessment of your total upcoming projects. This is crucial on two fronts. One: it allows you to calibrate your financial forecast ie. assess if your revenue forecast is reasonable or out to lunch. Two: it gives you a head start on properly resourcing for your upcoming projects.
Side pitch for focused positioning. You might say “if I don’t know which specific projects we’re going to win, I won’t know how to plan my resources because the projects are so different”. Well, in a world of focused positioning, where your business process is repeatable and becomes your intellectual property, you’re less concerned about which projects you win and you can focus on the size and timing required to deliver awesome work.
Let’s get back to the two principle reasons this information is so powerful.
CALIBRATE YOUR FORECAST:
Part of the planning for your upcoming year involves setting up a financial forecast. Setting challenging but realistic targets for revenue has a big impact on your target net income and bank balance. See our article “How To: Financial Modelling”, HERE, and our Tools sections, HERE, to get more info on this process. Your financial forecast is not a document set in stone for the year. Far from it; it’s a dynamic tool that changes as you gather information from your performance and feedback from your customers and market. A Sales Pipeline gives you info on what you can expect in terms of revenue from new projects, and the average time it will take to bring in this work. Comparing this against your financial forecast will help you analyze whether your forecasted revenue and associated costs need to be adjusted up or down. If your Sales Pipeline makes it appear like your financial forecast is wishful thinking, what should you do? Time is a precious thing to any entrepreneur and having some vision on incoming projects will help you make strategic, and not reactionary, decisions to address any gaps. Should you dedicate more time and resources towards business development to grow your Sales Pipeline or trim your costs to match what the Sales Pipeline is telling you. Only you can make that call with a pulse for your business but equipping yourself with as much relevant info along with some notice will help you make better decisions for your business.
RESOURCING YOUR UPCOMING PROJECTS
The other reason Sales Pipelines are so awesome and important is that it can be a tremendous help in planning how you set up resources to tackle upcoming projects. When discussing resources, we’re referring to the people, in house and out (freelancers and partnerships) and their availability along with any project specific software etc. needed to deliver an awesome output to your client. Under or over resourced projects are a source of seemingly endless frustration for both you, your business and your clients. Having to constantly resource projects on short notice adds stress to this delicate mix and inevitably results in reactionary decision making…ie. not the best kind. Also, if you find that your pipeline is boom and bust – up and down on a consistent basis, this fact alone provides insight that you should rely more heavily on freelance contractors per project rather than fixed cost employees. Overall, referring to a Sales Pipeline to understand the size and timing of expected projects will help you:
– Review and adjust your full time employee mix
– Decide to extend or end contractor agreements
– Whether you should reach out to a larger group of freelancers with specific skills to build your pool of resources
– Review the mix of tools/software/equipment required
Decisions made by gut instinct are a fact of life for entrepreneurs. If you can bolster your gut feeling or pulse you have on your business with good information provided by a Sales Pipeline, combined with the extra runway it gives you in terms of time to plan, you’ve put yourself in a position to make strategic decisions for your business that will move it towards the best version of itself.
Make sure to add a Sales Pipeline to your toolkit.