Ryan Williams (Sales Collider)
About a month ago, Ryan Williams of Sales Collider stumped me with a simple question:
“How much revenue do you expect to close next month?”
It was a straightforward question, to which I had no informed answer.
The reason why I couldn’t answer him?: We’ve been treating each stage of our sales pipeline with equal consideration.
In other words, if our entire sales pipeline from Discovery, to Demo, to Proposal, to Negotiation, and so on is $3M, we really have no idea how much of that is likely to close next month.
That’s where a Weighted Sales Pipeline comes into play.
As we did with Sales Efficiency, this post aims to explain Weighted Sales Pipeline in terms busy founders can understand.
Here’s what we’ll be covering in this post:
- What is Weighted Sales Pipeline?
- How is Weighted Sales Pipeline calculated?
- Why is Weighted Sales Pipeline important to Founders?
What is Weighted Sales Pipeline?
The Weighted Sales Pipeline recognizes that not every opportunity results in a sale. Instead, it’s a more detailed sales forecasting tool that assigns a value to each opportunity based on where it is in the sales funnel.
According to our sales ops data partner Greg Afong:
“A weighted sales pipeline is a forecasting tool that allows you to measure the expected revenue (in $$$) in your sales pipeline.”
In a nutshell, opportunities with higher likelihoods of closing (Negotiation stage, for example) are assigned higher weights in a Weighted Sales Pipeline report. The assumption is the further along a deal is in your pipeline, the more likely it will lead to a Closed Won (you win the deal).
A Weighted Sales Pipeline consists of:
- Stage: How far along a prospect is in the sales process
- Probability: The percentage likelihood of closing the deal
- Close Date: The expected date of winning the opportunity
How is Weighted Sales Pipeline calculated?
Stage & Probability
To begin calculating Weighted Sales Pipeline, each stage in a deal is given a percentage that represents its probability of closing.
For example, if deal stages in your CRM (i.e. Salesforce) look like this:
- Closed Won
- Closed Lost
Then you might assign closing percentages like this:
- Discovery: 10%
- Demo: 25%
- Proposal: 50%
- Negotiation: 80%
- Closed Won: 100%
- Closed Lost: 0%
The percentage is then multiplied by the value of the opportunities at each stage:
Probability of Closing x Deal Value = Weighted Value
Let’s dive into an example.
Let’s say you have deals in your sales pipeline that look like this:
- Discovery: $200,000
- Demo: $120,000
- Proposal: $75,000
- Negotiation: $50,000
Then your Weighted Sales Pipeline would be:
(200K x .10) + (120K x .25) + (75K x .5) + (50K x .8) = $127,500.00
You could then reasonably infer that your sales team will close approximately $127,500 in new bookings in the near term.
But wait, we still haven’t answered Ryan’s question.
In order to answer Ryan Williams’ original question to me, we need to calculate the Weighted Sales Pipeline for specifically next month, not just “in the near term.”
In other words, so far we’ve accounted for Stage and Probability in our Weighted Sales Pipeline, but not Close Date.
As a last step in the exercise, we need to go back into our CRM and filter our sales pipeline by expected close date so that it applies only to the month ahead. Once we’ve got that data, we then redo the calculation.
If we reference the above example, the filtered sales pipeline of only deals expected to close next month may look like this:
- Discovery: $70,000
- Demo: $40,000
- Proposal: $50,000
- Negotiation: $30,000
Then your Weighted Sales Pipeline for the month ahead would be:
(70K x .10) + (40K x .25) + (50K x .5) + (30K x .8) = $66,000.00
Why is Weighted Sales Pipeline important to Founders?
A Weighted Sales Pipeline helps SaaS founders in the following ways:
- It yields an accurate forecasting model of projected revenue for the month(s) ahead
- Helps sales teams escalate important opportunities
- Provides greater clarity into sales operations
To establish a Weighted Sales Pipeline report, we first had to audit our deal pipeline. A lot of deals in early stages (Demo, Discovery) were simply stale and had to be moved to Closed Lost.
After that, we cleaned up the expected Close Date fields in our CRM. As an aside, you never want to have expired close dates. Either push them out or move the deal to Closed Lost.
Mahalo to Ryan Williams, Greg Afong, and Blaine Kahoonei for helping us gain a deeper understanding of the opportunities in front of us.
“Don’t forget, I’m rooting for you. Tell me what the score is.” Ryan Williams