The sales pipeline coverage is a great tool to analyze data and determine the number of opportunities you have to reach to attain your intended target. Understanding what it is and knowing how to calculate your sales pipeline coverage can help improve your sales and ensure an accurate sales forecast.
Pipeline coverage refers to the ratio used to measure the pipeline the sales team has compared to the quota they have to close. Generally, sales teams need to have three to four times pipeline coverage. that means your pipeline must be three to four times more than your quota.
That said, there is more to sales pipeline coverage than that.
The formula for calculating sales pipeline coverage is simple. You just have to divide the amount of open pipeline you have or the total value of opportunities due to close during the period by the quota you need to attain for the period you are measuring. It is represented in the following equation:
Pipeline Coverage Ratio = Total Pipeline Size
For instance, your sales team’s target quota for the year is $1 million, and the amount of pipeline for all deals that are closing during the year is $4 million. That means the pipeline coverage ratio is 4.
In the simple method or the unweighted sales pipeline, you can get insight into the full potential value of the opportunities at each stage in the sales funnel. Every deal, however, is considered likely to close.
The weighted sales pipeline method will provide a better understanding of customer data. This method acknowledges that not all opportunities will result in sales. It is a better and more detailed sales forecasting method. It assigns value to every deal based on what stage of the sales funnel it is in.
The opportunities that are more likely to close are assigned with more weight. Generally, the further along the deal is in the pipeline, the greater the probability of closing.
Here is how it works:
1. You assign a percentage for each sales stage to represent the probability of closing. Let us say you have a six-stage pipeline. The deals at the third stage will have a 50% likelihood of closing.
2. Multiply the percentage by the value of the opportunities at the said stage. The result will help you forecast sales. It can be represented in the following equation:
Weighted Value = Probability of Closing x Deal Value
3. Repeat the process for each stage of your sales pipeline.
4. Add all totals. That will give you the weighted sales forecast.
Calculating your sales pipeline coverage will give you an idea of your potential sales and help you come up with plans to improve your sales.
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