Why is a Sales Pipeline Vital to Your Cash Flow?

August 16, 2011

August 16, 2011

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When many small business owners hear the word sales, or come across a discussion of how to increase their conversion rates, they automatically tune out. But the truth is that sales are what allow a small business to keep operating, and unless owners master the art, they’ll never be able to take their businesses to the […]

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When many small business owners hear the word sales, or come across a discussion of how to increase their conversion rates, they automatically tune out.

But the truth is that sales are what allow a small business to keep operating, and unless owners master the art, they’ll never be able to take their businesses to the next level.  One of the best ways to get a grip on sales is with a sales pipeline.  If you don’t have one up and running in your business, here’s the information you need to know.

What is It?

Many business owners—and even salespeople themselves—base their sales projections on feelings.  But in order for an owner to be able to rely on the data and predict their future cash flow, the projections must be based on real data.  That’s where a sales pipeline comes in.  A sales pipeline is a picture of the amount of sales that are ‘waiting in the wings.”  It’s created on a spreadsheet, and shows all of the leads that you or your sales people are pursuing, and in what stages they are.  If you diligently track this information, you will begin to get a picture of what’s going on with your sales.  For instance, you can see how many leads you actively pursue, and how many of those leads become customers.  That’s called your conversion rate.  In addition, you’ll be able to tell if you’re focusing your sales efforts on customers who send you a great deal of business, or if you’re wasting your time pursuing customers who only give you a small portion of their business.

Once you have this information, you’ll be better able to predict your future cash flow because you’ll have a true record to rely on.  What’s more, you’ll be able to make small tweaks here and there and increase your business because you’ll have a clear picture of what needs to be improved.  Here are the things you need to be aware of when you create your sales pipeline.

Establish a Base

In order to understand how each potential customer will fit into your future cash flow projections, you have to have an idea of who they are, what their needs are, as well as their financial limits.  Do this by asking them three important questions: What the length is their sales cycle, what is their budget for your product or service, and what is the procedure they use to make purchasing decisions.  It’s impossible to estimate a lead’s potential business without understanding these three key elements.  But remember that salespeople can’t get away with the brash tactics that they could in times past.  Form the questions in a way that the buyer understands that you need the information in order to best service them.

Use Industry Data

Every industry has different metrics that determine sales.  For instance, for some the rate at which a salesperson gets back to an interested party has a great impact on whether or not the sale is closed.  For others, price is the number one determining factor.  It’s important that you understand the push points of your potential customers so you’ll be able to spot the inconsistencies and short-sightedness of your attempts.

Constantly Analyze

A sales pipeline isn’t something that you set up once, and then leave to do its work.  It must be constantly analyzed—that’s how you’ll better be able to improve your conversion rate.  On a monthly basis, take a good look at those leads in the pipeline that didn’t convert to customers and try to figure out why.  Some companies go as far as calling for a follow up interview or sending them a survey and asking them to return it.  In addition, it’s important to understand what drove those leads that did turn into customers.  Was it your stellar customer service?  Your understanding of their needs, or your price point?

Can you see how collecting all of this data can greatly enhance your ability to close sales?  And those additional sales will add to your cash flow, which will allow you a greater ease in operating your business.

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