Pipeline Coverage

What is Pipeline Coverage?

Pipeline coverage is a sales metric businesses use to assess the health and potential success of their sales efforts. It looks at the ratio between the total value of opportunities in the sales pipeline and the revenue target for a specific period (such as a month, quarter, or year).

Essentially, pipeline coverage answers the question: “How much sales pipeline do we have relative to what we need to hit our revenue goals?”

A low pipeline coverage ratio means you need to generate more qualified leads or your sales team needs to focus on closing deals faster. A high ratio indicates strong performance but could also point to inefficiencies if opportunities aren’t converting to closed deals.

Synonyms

• Sales pipeline coverage
• Sales pipeline coverage ratio

Understanding Sales Pipeline Coverage

Fundamentally speaking, pipeline coverage is a measure of the quality and quantity of opportunities in your sales pipeline. It gives you an idea of how much potential revenue you’re working with and how likely you are to reach your sales goals.

Let’s say you have a sales target of $100,000 for the month and your pipeline has opportunities worth $300,000. This gives you a pipeline coverage ratio of 3:1 (or 300%), which means you have three times the potential revenue in your pipeline than your target for the month.

Assuming you can convert one-third of your pipeline into closed deals, you will hit your sales goal for the month.

Keep in mind that pipeline coverage is not the same thing as pipeline length. The length of your pipeline refers to the number of stages a lead goes through before becoming a customer. Pipeline coverage solely focuses on the value of opportunities in your pipeline, compared to target revenue.

Calculating Pipeline Coverage

Let’s dive into how you can calculate your sales pipeline coverage and make sense of it.

• Pipeline Value: This is the total value of all opportunities in the sales pipeline, including leads at various stages of the sales process.
• Revenue Target: The sales or revenue goal that the business aims to achieve within a given time period.
• Pipeline Coverage Ratio: This ratio is calculated by dividing the total pipeline value by the revenue target. A coverage ratio of 3:1, for example, means that the pipeline has three times the value needed to meet the sales target.

Key metrics in pipeline coverage

There are two main metrics you need to calculate pipeline coverage: pipeline value and your revenue target.

• Pipeline value is the total dollar amount of all opportunities in your sales pipeline (or forecasted amount).
• The revenue target is the specific sales or revenue goal your business has set out to achieve by the end of the month, quarter, or year.

If you’re calculating pipeline coverage on a per-rep basis, you’ll use each rep’s individual pipeline value and sales quota.

Calculating your pipeline coverage ratio

The formula for calculating pipeline coverage is:

Pipeline Coverage Ratio = Total Pipeline Value ÷ Revenue Target

You can also express the ratio as a percentage by multiplying it by 100.

As an example, let’s say your business has set a target of $500,000 for the quarter and your total pipeline value is $1,250,000. Your coverage ratio would be:

$1,250,000 ÷ $500,000 = 2.5:1

So, your pipeline coverage is either 2.5 or 250%, depending on how you want to report it.

Interpreting pipeline coverage

Now, pipeline coverage is really just a part of the overall sales performance equation. It’s a tool to help you understand if your pipeline has enough potential revenue in it to meet your sales goals. But it misses two critical factors:

• Sales cycle length. Deals can be worth a lot but if they’re taking too long to close, you may miss your revenue target.
• Win rate. Just because you have deals in the pipeline doesn’t mean they’ll actually close. Understanding your win rate can give you a better picture of how much potential revenue in your pipeline is likely to convert into actual sales.

To approximate your chances of actually hitting quota with your current pipeline, you also have to know these two numbers.

You can compare your pipeline coverage ratio to your conversion rate to forecast potential revenue. For instance, if you have a ratio of 4:1, you’d need to convert 25% of those deals (by $ value) to hit quota.

Note: This isn’t a perfect science, as not all opportunities are created equal. Some deals are worth more than others, and some will have a higher win probability. The best estimate you’ll get is by taking the average deal size and average win rate.

What’s the ideal pipeline coverage ratio?

The ideal ratio depends on your company’s sales cycle, industry, and conversion rates. Most often, companies aim for a 3:1 or 4:1 ratio, meaning the value of their pipeline should be 3-4x their target revenue to account for deals that might fall through.

Importance of Sales Pipeline Coverage

Understanding the value of your pipeline in comparison to your sales target is crucial, both on a macro level and for each of your sales reps.

• For sales reps, it’s a way for them to estimate how close they are to hitting quota and how much more effort they need to put in to meet or exceed their targets.
• For your organization, sales managers and execs can use pipeline coverage to forecast revenue, communicate with investors, and build a successful sales process.

Really, it’s one of the most important aspects of pipeline visibility. Let’s dive more in-depth into why pipeline coverage is so crucial for sales success.

Early warning system

By regularly monitoring pipeline coverage, you can predict future revenue and identify any potential issues early on. For instance, if your pipeline coverage ratio is low, your sales team probably needs to work on finding more qualified leads.

You can take corrective action right away, by having them focus their efforts on the top of the funnel. This can help you prevent a potential revenue shortfall.

Accurate sales forecasting

When you make sales forecasts, you’re effectively estimating your performance over that period. Pipeline forecasting is a huge part of that equation because your pipeline includes leads you’ve already brought into your funnel.

It’s more definitive than a simple analysis based on past trends. Now, instead of taking a look at historical data, you can point to potential deals for near-term forecasts and add a percentage of this value (adjusted for conversions) for future periods’ forecasts.

Resource allocation and planning

The reason you’re forecasting sales in the first place is so you know how much money you can spend in different areas of your business, and what the potential impact of those expenditures will be on sales performance.

Some of the deals in your pipeline will turn into revenue, and that’s revenue you can use to invest into your business. The better you understand what’s likely to close, the smarter you’ll be making decisions about where to allocate resources.

Identifying potential sales gaps

If you notice that…

• Your sales funnel is top-heavy
• Your average deal is worth less than it should be
• There aren’t enough deals in your pipeline
• You have a low conversion rate

…there’s something wrong with your sales process.

Maybe it’s lead qualification. Maybe it’s a lack of sales enablement. Or maybe it’s something else entirely.

In any case, analyzing your pipeline is the starting point for getting to the bottom of these kinds of issues.

Measuring sales team performance

During sales QBRs and routine one-on-ones with your reps, looking at their pipeline and what they have going for them tells you which ones need more attention.

As a sales manager, you’ll always have a few reps who are well above the threshold for an ideal pipeline coverage ratio, and others who don’t have a healthy pipeline at all.

When you know who’s having trouble, you can dive more into their problems to find the root cause. From there, you can give them extra attention to help them bring in more leads and convert the deals they’re currently working.

Factors Affecting Sales Pipeline Coverage

As we’ve mentioned earlier, two of the main factors that affect sales pipeline coverage are sales cycle length and win rate.

However, other elements can also play a role in determining your coverage ratio.

• Average deal size. The larger the average deal size, the fewer deals you need in your pipeline to reach your sales target.
• Deal complexity. Complex deals have longer sales cycles. They require greater pipeline coverage to account for the fact that they’re slower to move through the sales funnel.
• Seasonality. Some businesses have fluctuations in demand throughout the year. If this is the case, your target ratio will need to be higher during peak season to offset periods of slow business.
• Lead quality. Higher-quality leads are more likely to convert. If you can consistently bring in solid MQLs, you’ll need less pipeline coverage to hit your targets.
• Sales/marketing alignment. To bring in high-quality leads, your sales and marketing teams need to be spot-on with their targeting.
• Market conditions. Changes in the market, such as a sudden increase in competition or a dip in demand for your product, can affect sales pipeline coverage and require adjustments to your target ratio.
• Sales team effectiveness. A well-trained, motivated, and efficient team will inherently close more deals.

Best Practices for Improving Sales Pipeline Coverage

Now, let’s take a look at a few essential best practices you can implement to improve your sales pipeline coverage and, ultimately, drive more revenue.

Standardize the lead qualification process.

You need to use a sales qualification framework like BANT or MEDDIC to identify the right leads and move them through the sales funnel. Without a structured approach that guarantees reps tick every box before passing them off to an AE for a demo, you’ll have a less efficient pipeline. By extension, your coverage ratio will suffer.

Implement sales enablement tools and processes.

A sales enablement strategy will help your reps deliver the right messages at each stage of the sales process, making it more likely that leads will convert.

Especially if your team works with multiple different types of buyers (e.g., large buying groups or a broad ICP), you need these kinds of tools to distribute content and streamline sales workflows.

Essential elements include:

• A deals library
• Sales playbooks
• Call scripts
• Email templates
• Case studies and customer testimonials

Sales efficiency is a huge part of the equation because it affects your conversion rate at every stage of the pipeline. These are the tools that keep prospects engaged and moving from one stage to the next.

Have a lead nurturing strategy in place.

Lead nurturing is the process of building relationships with buyers as they move through each stage of the sales funnel. This tactic is essential for keeping potential customers engaged until they’re ready to make a purchase.

This ties into sales enablement. By staying in touch with leads and presenting relevant content, you’ll increase their trust in your brand and move them from one pipeline stage to the next a lot faster.

Use data for accurate forecasts.

Sales data comes from several different sources, and it’s tough to make sense of it all. Your CRM, CPQ, and other tools have data that can give you visibility into your current and past performance as well as your current pipeline value. Combine this information to make more accurate forecasts and projections.

Monitor and adjust your sales pipeline.

Regularly review your conversion rates, win rates, and deal velocity to spot any trends or issues that may be affecting your coverage ratio. From there, you can take corrective action and get back on track toward reaching your sales goals.

Align your sales pipeline with your business goals.

Whether you’re targeting a new market, launching a new product, or trying to increase revenue from existing customers, you need to make sure your pipeline reflects these priorities.

For example, if you’re trying to expand into a new market, your sales pipeline should prioritize lead generation in that specific region or industry.

Tools and Technologies

Your CRM is the most important tool here. The sales dashboard in your CRM will give you a bird’s eye view of your pipeline. And CRM’s pipeline management features tell you the status and value of each deal at any given time.

You’ll also use your CRM to look at notes that add important context to each deal. A scoring algorithm might put certain deals over others in terms of win probability, but notes about buyer intent, levels of interest, or product fit can tell a different story.

Beyond this, you’ll need the following sales and analytics tools to effectively manage your sales pipeline:

• CPQ (configure, price, quote) software
• Sales engagement platform
• Business intelligence and analytics tools
• RevOps software

Your CPQ is the main system you’ll work with to build quotes and proposals and carry out sales transactions, so it has all the insights into individual deal value. Your sales engagement platform will help you track email opens, clicks, and replies. And BI/analytics tools are used for forecasts and projections.RevOps software gives you insights into things like conversion probabilities and pipeline bottlenecks, which you can use to determine whether your pipeline coverage is sufficient or not. For example, DealHub integrates with Gong’s revenue intelligence software to give insights into buyer engagement and potential deal closure.

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