During sales department meetings, reps typically review their pipelines and sales forecasts. Problems occur because reps, managers and executives often refer to these reports interchangeably. The definition matters. There's a big difference between the pipeline and the sales forecast. Understanding what each means and using them correctly carries a lot of importance for a number of reasons.
The sales pipeline consists of all prospects at all stages in the sales cycle, whether the sales person is in the beginning phase of introducing your company, discussing the product or service, qualifying a prospect, conducting a Webinar or product demonstration, or formally presenting a pricing proposal. Though all future sales begin as leads from some source (cold calling, referrals, or trade shows), no unqualified or uncontacted lead should be in the sales pipeline. All unclosed sales, however, belong in the sales pipeline.
The phrase “pipeline management” refers to the salesperson’s ability to juggle all of their prospects in differing points in the sales cycle. “Balancing” the sales pipeline refers to their ability to cold call, follow-up on existing leads and close sales simultaneously so that they have a continuous flow of opportunities and will not have huge period-to-period swings in closed sales.
The Sales Forecast
The sales forecast is the salesperson’s best estimate of which sales will close in a given time frame. Most companies produce 30-60-90 day forecasts: opportunities more than 90 days into the future are considered less reliable and are generally not forecast. The main difference between the pipeline and the sales forecast is that the prospective customer must meet certain pre-defined objective criteria to qualify for the sales forecast in the first place (e.g.: the proposal has been reviewed with the decision maker; the budget process is clearly understood; the prospect has made a verbal commitment to buy). Prospects in the sales forecast are not at various points in the sales cycle; they are nearing the end of it.
Another significant difference between the two is that the sales forecast is used to estimate a company’s short term revenue and cash flow. In other words, sales forecasts help a company determine whether or not they can pay their bills, pipelines do not.
The Long Range Sales Forecast
Prospects in the long range forecast have told the sales representative that they are budgeted for and will be purchasing a product or service at some point in the future. For the prospect, the reason that the purchase is being put off into the future usually involves an expiring contract or a purchase that needs to go through the formal budgeting process. Sales representatives use the long range forecast to keep track of prospects who will be buying anywhere from 4 months to 2 years from the time of their initial contact with them.
Once a prospect is on the long range forecast, the salesperson can put them on the company mailing list and keep them informed about new product developments and promotions. By giving the prospect a call from time to time, the sales representative will be in the know if they change their mind and decide to buy in 7 months instead of 1 year.
A wise sales manager looks out for the following scenarios:
- Salespeople with a full pipeline can turn in a weak sales forecast because of an inability to close sales.
- Those with a strong sales forecast can have a weak pipeline because they have put the bulk of their effort into getting sales closed, while neglecting to prospect or conduct enough product demonstrations.
- Salespeople with a strong pipeline and strong sales forecast may be spending little time with those prospects that might be purchasing many months in the future.
Sales is a balancing act. Managers need to understand and communicate the difference between the two reports. Their success managing the sales effort depends on it.