What is Pipeline Revenue?
Pipeline Revenue refers to the estimated future revenue a business expects to earn from sales from leads that are currently in the sales pipeline. This revenue has not been realized yet, as sales still have to close, but it is considered a strong indicator of future performance.
To estimate Pipeline Revenue, we basically need to answer 2 questions:
How many sales should be closed considering the volume and quality of leads opened in the sales funnel?
What is the expected average selling price?
Why is measuring Pipeline Revenue important?
Measuring pipeline revenue is important for several reasons:
1. Clarity of qualified leads
It requires the company to be clear about which characteristics distinguish qualified leads from unqualified ones. Knowing the characteristics of a lead that has the greatest chance of generating a sale is essential for the marketing team to allocate its resources efficiently. This also impacts the size of the sales team and expenses. 1.000 leads with a 5% chance of generating sales needs twice as many salespeople to serve than 500 leads with a 10% chance of generating sales, even though the result is exactly the same.
2. Contribution of the marketing team to the result
It brings visibility to how much the marketing team is performing. Teams usually look at lead volume metrics or qualified leads for this, but both are not sufficient or simple to reach a conclusion. Generating 2.000 leads with a goal of 1.000 may sound great, but it's no use if the quality of those leads is terrible. What if you generate 1.000 qualified leads with a goal of 1.000? If the company has only one classification of what a qualified lead is, it may work, but the reality is that it is unlikely that a set of leads will have the same conversion rate into sales. It's more likely worth separating different groups of qualified leads.
3. Contribution of the sales team to the result
Brings visibility into the efficiency of the sales team. If marketing generates US$ 100,000 in Pipeline Revenue and revenue at the end of the month was US$ 120,000, it means that the sales team was more efficient than expected. If only US$ 80,000 in revenue was generated, it means that sales performed below expectations.
4. Revenue forecasts and planning
It allows a business to forecast future revenue and plan accordingly. This is important for budgeting and forecasting, as well as determining the resources that will be needed to achieve the forecasted revenue.
5. Identification of problems and causes in advance
It helps a company identify potential problems early on. For example, if a company notices a decrease in Pipeline Revenue, it can investigate the cause and take steps to correct the problem before it becomes a serious problem. This can help a company avoid missing its revenue targets.
6. Assists in defining the growth strategy
Helps identify potential areas for growth. If a company has a strong pipeline, it can confidently invest in additional resources to capitalize on the opportunity. On the other hand, if a company has a weak pipeline, they may need to focus on generating more sales leads or improving their sales process.
Example of how to apply Pipeline Revenue
Imagine that your company has 100 qualified leads in the Sales Pipeline and that they are distributed in the following groups:
After raising the number of leads for each of the groups, we need to multiply these volumes by the expected sales rate to find the sales projection.
After that, just multiply this sales expectation by the expected average price to calculate the Pipeline Revenue.
In the example, we see that the total Pipeline Revenue was US$ 20,000, which means that the company expects to generate US$ 20,000 in revenue with these leads already present in the sales pipeline.