Sales is a long-term marathon and not a short-term sprint. Your goal should be consistent small wins and not one magical unicorn.
And how do you focus on small wins and small goals? By breaking down any big task into smaller subtasks, quantifying the results for each subtask, and integrating it later to get back to the whole picture.
A sales pipeline is one such attempt to break down the mammoth tasks of your sales cycle into smaller tasks and events that can be individually monitored, managed, and even measured. You can’t improve what you can’t measure - and you need to keep this in mind when dealing with your sales pipeline.
After all, there’s one inherent problem with pipelines - a flaw by design, if you will. No matter whether they are the pipes under your sink, behind your shower, or just metaphorical, they WILL get clogged. If you don’t act soon enough, things won’t flow as you’d want them to - leading to sluggish progress and negligible output (not to mention really poor hygiene)
That is when you need to navigate out of this situation and make things smooth again so that your pipeline can go back to moving prospects along smoothly. For those situations, and also in general, it is important that you have some metrics that you benchmark and measure your sales pipeline performance against.
What are sales pipeline metrics?
Think of your sales metrics as pieces of individually existing data conveying the required information alone. It can be used to measure and assess the performance of your sales pipeline by diving deeper into how your sales teams are performing, how the customers are reacting, and so on. In doing so, sales metrics put you in a position where you can easily understand all the movement in your sales pipeline.
Knowing what the important metrics are, how they are measured, and how to comprehend them are all important aspects of improving your sales outcomes.
It is important to note that sales metrics are not the same as sales KPIs (Key Performance Indicators). All KPIs are metrics, but not the other way round. The main difference is the word “key” in KPIs. So, for any metric to be a KPI, it must reflect an important business objective. Think of KPI as a subset of overall metrics you should track.
As a result of this, unlike most sales metrics, KPIs are more closely tied to the company’s core objectives, goals, and strategies. This would make you think that KPIs matter more than sales metrics, buuut…
Sometimes you will find yourself in situations where you will be unable to meet certain KPIs. You will find it hard to diagnose the problem behind the falling KPI figure. You will know that something is wrong, but not exactly what.
In such a scenario, you will need to turn to sales metrics. That way, you would be diagnosing your KPI performance via the knowledge of sales metrics. That is what makes sales pipeline metrics an inseparable part of your entire sales strategy as well as marketing strategy.
Critical sales pipeline metrics to monitor
Here are some important sales metrics to know in order to properly monitor, manage, and measure your sales pipeline.
#1. Number of markets qualified leads (MQL)
If there’s garbage going in, garbage is going to come out (GIGO). Closing deals is impossible if you don’t have good leads to nurture down the funnel. So, the first important metric for managing sales pipelines is the total number of qualified leads. For this, you need to track the total inbound and outbound leads and ensure that you have a sufficient pool of qualified prospects required to generate revenue to grow the business.
If you are short on qualified leads for the coming month, you’re gonna have a bad time. You might want to drop all future plans and work on finding the solution to this first. You can consider spending more on marketing in order to bring more prospects, training sales reps and sales team on how to sell better, performing planned lead generation activities, and leveraging other lead scoring tools to get real-time updates about your prospects and find more qualified leads.
The idea is to have enough market-qualified leads that can be nudged towards being converted to sales-qualified leads (SQL).
#2. MQL to SQL conversion rate
Another important metric when it comes to an understanding of how your sales pipeline is performing is the MQL to SQL conversion rate. After all, you don’t want your leads to be just market-qualified, and you want them to be sales-qualified leads so that you can take them forward in your sales funnel. However, many-a-time a huge drop-off is witnessed when it comes from MQL to SQL.
This is often an indication of marketing and sales efforts not aligning properly. So, if your MQL to SQL ratio is such that MQL highly dominates SQL, you might want to stop and get your different efforts aligned. You could start by getting your sales managers, sales people, and marketing teams together. Sometimes marketing could be targeting the wrong persona, or qualifying them too early.
These challenges can mostly be resolved by simply having cross-department meetings and discussions to resolve both the issues and bring everyone on the same page.
#3. Total sales by customers
This sales pipeline metric is pretty straightforward, and it measures the total sales made by your business, broken down by different customer accounts. This gives you a good understanding of your different customer accounts and how each of them contributes to sales.
So, if you are targeting small, medium, and large-sized companies, and you notice all of your sales being driven by large-sized companies and not so much by small and medium-sized companies, it may be a sign for you to move upmarket and optimize your efforts and sales activities more towards enterprise accounts and larger firms.
Likewise, the information from this metric can be used to make informed future decisions, such as net growth of the total business. Depending on the positive or negative delta, leaders can forecast growth more accurately.
#4. Total sales by owner
Like the previous sales pipeline metric, this one, too, indicates your total sales. However, in this case, the sales are not broken down as per different customer accounts but as per different sales reps. So, this gives an insight into the total number of sales, and particularly which sales are being made by which sales reps.
This information is also extremely handy for sales pipeline management as it helps you identify bottlenecks and nip any problems from the bud. If you find particular sales reps performing below their potential, you can approach them for a discussion and identify opportunities for sales training and coaching. Accordingly, if a sales rep is consistently outperforming others, it might help to look at his tactics and consider replicating them for other reps.
#5. Customer acquisition cost (CAC)
Customer Acquisition Cost is simply the cost it takes you to acquire a new customer from scratch - capture them in the top of the funnel, nurture them through your sales funnel and convert into a closed deal. In a mathematical sense, you can divide all the costs incurred on getting customers during a certain period (this includes all the sales and marketing expenses) by the number of customers acquired. That will give you a rough approximation of your CAC for that period.
CAC is an indication of how much, on average, you have to shell out in order to get one new customer. So, ideally, you’d want this figure to be as low as possible.
#6. Customer lifetime value
This is one of the more important sales pipeline metrics that help you understand your customers by giving you a better idea of:
- The cost required to acquire a new customer
- The cost required to service a retain the acquired customer
- Time spent trying to acquire customers
In that sense, lifetime value (LTV) measures and quantifies how valuable different customers are over the course of their relationship with your business. This metric is extremely important for businesses that rely on recurring purchases from the same customers - like e-commerce companies.
Mathematically, customer lifetime value is the average total revenue generated over customer lifetime subtracted by the average associated costs per customer.
In order to improve your performance on this metric, spend time analyzing low- and high-performing audiences and tweak your marketing and sales efforts accordingly in order to ensure that you are getting your buck’s worth.
#7. LTV to CAC ratio
The LTV to CAC ratio gives an indication of your accuracy and efficiency in acquiring customers. So, if you have the LTV to CAC ratio as 6:1, it means that for every $1 that you spend, you get $5 back during your customer’s lifetime with your business.
The industry standard for LTV to CAC ratio, especially for SaaS businesses, is often 3:1. If you’re currently at 1:1, you are not on a profitable route. On the other hand, if you have a ratio that is highly skewed towards LTV, it means you have a flourishing business, and it’s time to put more effort in the form of time and money into marketing and foster your business growth even more!
#8. Annual recurring revenue
This sales pipeline metric is often useful for SaaS models or subscription-based businesses. It reflects the revenue per customer for each year of a multi-year contract. You can track this metric year on year in order to perform forecasts and evaluate revenue and growth prospects. You can also analyze annual recurring revenue for specific segments, regions, and so on to understand specific performances as opposed to generic ones.
Annual recurring revenue considers all the contract costs and upgrades, minus all the cancellations and downgrades. This excludes one-time fees, subscription consumption fees, and variable fees. Mathematically, you can calculate annual recurring revenue by dividing the contract's total value by the total number of contract years. So, if a contract is worth $30,000 and it is for a six-year period, the annual recurring revenue would be $5,000.
#9. The average revenue per user (ARPU)
ARPU, or average revenue per user, is the revenue that you generate per user in a given period. Similar to annual recurring revenue, ARPU, too, can be segmented and broken down for more granular insights to find out which regions or customer groups contribute more towards revenue generation and which needs to be nudged more.
Over time, a steadily increasing ARPU figure shows that customers are willing to pay money and engage with your services and products. On the other hand, if you see this figure decreasing, you might consider offering higher-priced premium add-ons or services to complement the current service.
Mathematically, ARPU is calculated by dividing the total revenue by the average number of users. So, if you had $600,000 in total Q2 revenue and an average of 6,000 customers, your ARPU for the quarter is $100.
#10. Quota attainment
This metric is important to get insights into how different sales reps are performing to meet their sales quotas and goals. In other words, this helps you measure how many sales reps were able to meet their goals, how many failed to meet the goals, how closely they missed, and so on.
Apart from monitoring different sales reps and teams, this sales pipeline metric is extremely useful for scenarios where you need to adjust your sales forecasts, sales process, evaluate and award top performers, and improve sales approaches to reach business goals. Quota attainment can be calculated by dividing the sales from actual bookings by the total sales quota and multiplying by 100. So, if your sales rep closes $40,000 in a month, for which the target was $50,000, their quota attainment is 80%.
Are you ready to measure and improve?
The best thing about metrics is that they help you find out precisely where you are lacking so you can plan what steps you need to take to improve your situation. The sales pipeline metrics discussed above are extremely important. A consistent overview of these metrics will put you in a position to make better sales decisions and draw detailed forecasts and conclusions. It will also help you reduce your sales cycle length, increase customer win rate, and deliver marketing campaigns and marketing efforts that get you qualified leads - all the while achieving stable revenue growth and sales growth!
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Being data-driven is a boon in today’s world. You get a factual ground on which to base your decisions and actions and can be sure of most of the results. That eliminates a lot of uncertainty and brings much peace of mind. Let us help you achieve that with our sales intelligence platform that uses AI and automation to go through all of your business data - from CRM to call recordings and more - to find patterns that can be converted into actionable insights for your business. Book a demo with us and experience the Wingman change!