If we could hit our sales goals every time, wouldn’t that be beautiful?
Sales target completion for a SaaS company is a complicated process with many moving parts. It needs a fail-safe mechanism that allows you to adjust your sales strategy if reaching the revenue target seems unlikely. Thankfully there is such a fail-safe mechanism – Pipeline Coverage.
In this article, we’ll provide you with everything you need to know about Pipeline Coverage, the importance of using this metric, the formula, the method of calculation, and more.
Before we get to Pipeline Coverage, it’s essential to know what is a sales pipeline. A sales pipeline (or a sales funnel) is essentially a visual representation of the customer journey. It shows the position of each potential client in the sales cycle as they move from being a prospect to a qualified lead and, finally, a customer.
Pipeline coverage represents the total value of all your leads in the sales pipeline with your revenue and sales targets. Most sales managers use pipeline coverage in sales forecasts and pipeline management. They use this metric to determine the amount of pipeline they have compared to the sales quota they need to close.
Sales pipeline coverage ratio is an important metric that allows you to determine the efficiency of your sales operations. Equipped with this simple value, you’ll be able to make the necessary changes in your sales process, allowing you to increase your conversion rates and hit your sales targets every time. It tells you where your sales reps should spend their time and effort. This is why measuring the pipeline coverage ratio at least once a week is recommended.
As we’ve already explained, Pipeline Coverage is a ratio that measures how much of your sales pipeline has been covered and how many leads are still remaining to meet your sales targets.
Here is the formula –
Pipeline Coverage = Total Pipeline Size / Sales Target
Here, the Total Pipeline Size refers to the total value of opportunities or leads that have to be closed in a specific period. The Sales Target is simply the sales target for that period.
From the formula and example given above, you already have some idea about calculating the pipeline coverage ratio. All you have to do is divide the total pipeline value by the value of the target sales.
Let us consider another example to understand this better. Suppose the total value of the sales pipeline for the current month is $2,000,000, and the value of target sales is $500,000. Substituting these values in the formula given above will yield –
Total Pipeline Value / Target Sales Value = 2000000 / 500000 = 4x
The pipeline coverage ratio will be 4:1.
So, now you know how to calculate the pipeline coverage ratio. But what should you be aiming for? Ideally, you would want to have enough pipeline to hit your target quota. If you ask the sales leaders, they would recommend that you aim for at least 3x or 4x pipeline coverage. A 1x pipeline coverage is not ideal because it would mean that you would have to close every single deal in your sales pipeline to achieve that number. A pipeline ratio of 3x or 4x works because most companies are able to close 25-33% of the deals.