Understand Pipeline Management for Stronger Forecasts
By Tibor Shanto

Many people use the terms “pipeline” and “forecast” interchangeably when there are real differences between the two. Mixing them up has specific impact on your sales and selling.

Pipeline speaks to all the opportunities you are currently pursuing or have definitive plans to be engaged with. This often needs to be separated into an active pipeline and a "leads funnel." A leads funnel is where you manage and nurture your leads, either new leads that are not ready to be engaged by sales or those prospects that did not close but show potential of re-engagement.

The active pipeline reflects those opportunities that are moving through the sales process in a timely and predictable manner. All too many sales professionals don't create this separation and put everything into one pool they call the "pipeline." You can see the serious issues that arise if you use this common pool as a basis for forecasting. Forecasting based on active prospects can be difficult enough, but when you add leads (of all levels of qualification), it is a recipe for disaster.

There are a number of reasons people are reluctant to break their sales into three groups: what is ready to be forecasted; what is a prospect; and what is a lead. Active opportunities are prospects; anything else is either a lead or a client. As a result, by calling someone a prospect, it means it is active, progressing through the cycle in a timely way, while conforming to specific attributes; and there is a clear next step that both the rep and the prospect are aware of that is designed to move the sale forward. Anything else is a lead and is relegated to the leads funnel.

This still leaves the question of how much of your pipeline can or should be forecasted. Forecasts by nature have short-term visibility, with certainty declining the farther out the time frame is. As a result, the longer your sales cycle, the less precise it is to accurately predict or assess which opportunities may go through to close. So assuming you have a sales cycle longer than 60 days, the value of a forecast longer than 30 days becomes questionable, even while the same opportunity is active and viable from a pipeline perspective.

Despite a desire to have quarterly forecasts, anything more than a month out is there for decoration and ego rather than any practical utility. Just look at the experience of those companies that use the 90-60-30 day approach (or variations such as 180-90-30). First, how many times have members of your team committed to a prospect in the 30-day category before it actually closes? Usually it is at least three times. It shows up, then slips for any number of reasons. Then it is there, and then it stalls for some other reason before it actually does close.
 

Hope this Article is helpful.

Monica