The Australian Small Business Blog

Monday, March 22, 2021

The Mathematics of a Sales Pipeline

                     by Dr Greg Chapman

There are two key components to a sale: the technique and the numbers. In this article, we will discuss the second of these components, the numbers.

“Using the Five Profit Drivers to Double Your Business’ Profit” referred to the second Profit Driver as “Increasing your conversions to sales”. That is, we took the number of sales and divided it by the number of enquiries to calculate the conversion factor. This is a very blunt instrument to analyze your sales effectiveness.

The simple sales conversion factor measure assumes a single sales step. Someone calls you and after a conversation, they buy, or they don’t. Most sales processes are far more complex. Consider an example of a typical sales pipeline:


This pipeline starts with an initial enquiry in response to an add, a phone call for instance. Then an appointment is made for an initial consultation and needs assessment. The business then provides a quote for the requested work and then calls back to close the sale. At each stage the sale could be lost. To see where the weak points in the sales process occur, we must add some numbers. 
When the business tracks each stage of the sales pipeline, a much clearer picture appears. 

In this example, over the course of a year, there have been 1000 leads, but after an initial conversation half are lost. Another ten percent are lost after the initial consultation and a further 20 percent are lost when the prospect receives the quote. Only one out of the five original leads is converted to sales. Most businesses don’t track their sales success this way. They might know they have a 20 percent conversion rate, but have no idea why it is so low.

Mathematical analysis to understand your sales

So, how do you use this mathematical analysis to understand what is working? The ratios force us to ask important questions. For example, they lose half their leads on first contact. What is happening? There are two possibilities. Firstly, the way they handle initial enquires may be driving people away. The second option is that lead generation is poorly focused and is generating the wrong kind of enquiries. For example, are they advertising in the wrong place? The owner of this business should analyze the quality of the leads they are losing at this step.

At the other end of the pipeline, we notice that they lose half the people they quote. Is that because they are too expensive, or that they have dragged the wrong kind of prospects through the sales pipeline? A further question might be, if the price was ok, were their closing techniques poor?

When examining the prospect quality, the business should ask: “Are these prospects our preferred buyers?” If the answer to this question is no, it indicates that the business should have filtered out these prospects earlier. If, however, the answer to this question is yes, it may still not be an issue of price. Rather it may be that the buyer had not been prepared for the sale earlier on in the pipeline. Often the sale is actually lost at the initial consultation phase where expectations are set.

The mathematics of your sales pipeline don’t give you a precise answer, but they tell you where to look and indicate the type of advice you should be seeking. This is a tool you can use to continuously improve the effectiveness of each stage of your pipeline and will give you confidence to make the necessary changes. 

May Your Business Be –As You Plan it!

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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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