In the realm of sales, there are two terms that are often used interchangeably but hold different meanings: the sales pipeline and the sales forecast. While salespeople may unintentionally mix up these terms, it is crucial to comprehend their differences and utilize them accurately.
In this article, we will delve into the distinction between a sales pipeline and a sales forecast and why it matters in the world of sales.
Sales pipeline
The sales pipeline encompasses all prospects at various stages of the sales cycle. It includes leads that have just been introduced to your company, discussions regarding products or services, prospect qualification, design consultations, and formal pricing proposals. It is important to note that all prospects in the sales pipeline should be qualified and contacted. However, unqualified or uncontacted leads should not be part of the sales pipeline. On the other hand, any sales that are yet to be closed belong in the pipeline.
Pipeline management refers to a salesperson's ability to juggle prospects at different points in the sales cycle. Balancing the sales pipeline involves effectively cold calling, following up on existing leads, and closing sales simultaneously to maintain a steady flow of opportunities. This prevents significant fluctuations in closed sales from one period to another.
Sales forecast
The sales forecast represents a salesperson's best estimate of which sales will close within a specific timeframe. Companies typically produce 30-60-90-day forecasts, excluding opportunities more than 90 days into the future as they are considered less reliable. The key distinction between the pipeline and the sales forecast lies in the criteria for prospects to qualify for the forecast.
Prospective customers must meet pre-defined objective criteria to be included in the sales forecast. This may include factors such as a reviewed proposal with the decision-maker, a clear understanding of the budget process, and a verbal commitment to make a purchase. Unlike prospects in the sales pipeline, those in the sales forecast are closer to the end of the sales cycle.
Moreover, the sales forecast plays a crucial role in estimating a company's short-term revenue and cash flow. It helps businesses determine whether they will be able to meet their financial obligations. On the other hand, the pipeline does not directly impact revenue and cash flow estimation.
The long-range sales forecast
The long-range sales forecast involves prospects who have indicated their intention to purchase a product or service at some point in the future. These prospects have typically mentioned that their purchase is delayed due to factors like an expiring contract or the need to go through a formal budgeting process. Sales representatives use the long-range forecast to keep track of prospects who are likely to buy within a timeframe ranging from four months to two years from their initial contact.
Once a prospect is included in the long-range forecast, sales representatives can add them to the company mailing list and keep them informed about new product developments and promotions. Regular communication allows sales reps to stay informed in case the prospect changes their mind and decides to make a purchase earlier than anticipated.
Achieving balance
Effective sales management involves striking a delicate balance between the pipeline, sales forecast, and long-range forecast. It is essential to be aware of potential scenarios that may arise:
- Salespeople with a full pipeline may present a weak sales forecast due to challenges in closing sales effectively.
- Those with a strong sales forecast may have a weak pipeline as their focus is primarily on closing sales, potentially neglecting prospecting or product demonstrations.
- Salespeople with both a strong pipeline and sales forecast may allocate less time to prospects who are likely to make a purchase several months down the line.
Finding the right balance and understanding the distinction between a pipeline, a forecast, and a long-range forecast is critical to achieving consistent success in sales.
Strategic sales management
In the dynamic world of sales, understanding the nuances between the sales pipeline and the sales forecast is essential for sales professionals and organizations. Recognizing the differences and leveraging them effectively can empower sales teams to drive revenue, enhance customer relationships, and achieve consistent success. By mastering the intricacies of the sales pipeline and sales forecast, you can position yourself and your organization for greater sales achievements and a prosperous future.
This article was written by Fred Haskett of TrueWinds Consulting.
