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What is a Pipeline?

The concept of a Pipeline in the context of business finance, particularly for small and medium-sized businesses (SMBs), is integral to understanding how companies manage and track their potential sales or deals. In simple terms, a pipeline is a visual representation of where prospects are in the sales process. It is a systematic approach to selling a product or service.

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Features of a Pipeline in Business:

  • Stages: Sales pipelines operate in stages, beginning from generating potential leads, qualifying them based on set parameters, presenting a tailored proposal to match their needs, negotiating terms and prices, and finally, closure which either results in conversion or lost leads.
  • Tracking Progress: A sales pipeline presents a visualization of the sales process, tracking the progress of each deal. It allows teams to monitor where each deal stands, facilitating timely interventions if a deal seems stagnant.
  • Management Tools: Sales pipelines act as crucial management tools. They enable sales team to estimate future revenues by analyzing the pipeline's current status and pace, and identify bottlenecks to pinpoint areas of improvement within the sales process.
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Purpose of a Pipeline:

  • Forecasting Sales: Sales pipelines can help predict how many sales will be made in the future. This is done by looking at how many possible customers currently exist at each stage of the selling process, and how often these possibilities turn into real sales based on past data. This way, plans can be made and goals set based on realistic expectations.
  • Resource Allocation: Sales pipelines are handy when deciding how to use our resources best. Because they show very clearly, how many potential customers are at each step of the sales cycle, it's easy to know where to put resources. If a step is jammed up (for example if we have lots of leads but they aren't becoming customers), we can put more resources there to get it unstuck. This helps us make sure we're using everything effectively to make the most sales possible.
  • Performance Measurement: Sales pipelines are also great for seeing how well the sales team is doing. Things like how many potential sales are moving to the next step, how fast they are moving, and how many are ending up in actual sales, can be seen. This makes it easy to evaluate each salesperson's performance, see what areas need training, and can even help shape rewards. It gives a real-time way to provide feedback to the team, which can help them improve and make more sales.
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Pipeline vs. Funnel

Pipeline and funnel are two concepts often used interchangeably in business, but they have distinct differences:

  • Structure: When we talk about a pipeline in sales, we're talking about the steps a sale goes through from beginning to end. For example, first, we find a potential customer (a "lead"), then we reach out to them, make them an offer, negotiate the terms, and finally, we close the deal. Now, a funnel is a bit different. Imagine a wide funnel used for pouring. Lots of leads can enter from the top, but as we go further down, fewer and fewer make it through. That's because each stage of the funnel represents a step in the sales process. At every step, like initial contact or proposal, some leads drop out and don't make it to the next stage. So, the funnel helps us think about how many leads we start with at the top and how many end up as actual sales at the bottom.
  • Focus: A pipeline is all about the actions - what we do - at each step of a sale. It's about the strategies and tactics we use to move a lead from one stage to another, like how we turn an interested person into an actual paying customer. On the other hand, the funnel is all about the 'shrinking' number of leads. As we go from step to step in the sales process, some leads drop out and don't turn into sales. The funnel helps us see this process and understand where and why we lose potential customers.
  • Purpose: We mainly use a sales pipeline to handle and keep tabs on our sales processes. It's like a map for the journey of turning a lead into a sale, helping us stay organized and know where every potential sale is on that journey. On the other hand, a funnel is a tool for understanding how our customers behave. Through a sales funnel, we get to know how and at what rate our potential customers are turning into real customers. It mainly focuses on conversion rates - the percentage of our leads that end up buying from us. It helps us to identify problem areas and opportunities for improvement in our sales process.
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Why is Pipeline Important?

  • Visibility: In simple terms, a sales pipeline helps us see clearly where each potential sale is in the selling process. Imagine having a map that shows where all your potential customers are on the path to buying, from just being interested to finally making a purchase. This way, a sales pipeline helps to keep track of every possible deal and lets us know when to take the right action.
  • Strategic Planning: A sales pipeline is also a great tool for making plans for the future. By looking at all the potential deals at each stage of our sales process, we can guess how much money we might make from these sales. Knowing our possible future earnings helps us set realistic goals, plan future activities, and manage our resources better.
  • Efficiency: A sales pipeline helps us become more efficient at selling. By looking at the pipeline, we can spot where we may be getting stuck or losing potential customers. For instance, if we see many leads not moving beyond a certain stage, it indicates we need to fix something there. By highlighting these problem areas, the sales pipeline encourages us to find ways to improve, making our entire sales process smoother and more successful.
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Summary: Pipeline in Simple Terms

Imagine your business is like a garden hose. The water flowing through it represents the potential deals and sales. The pipeline is like knowing which part of the hose the water is in: is it at the beginning, in the middle, or about to come out? This knowledge helps you understand how many deals might turn into actual sales and what you need to do to help more water (deals) flow smoothly through the hose. It’s a tool to keep your business’s sales flowing just right.

Fernando, J. (2021c, September 22). Pipeline in Finance: Overview and examples. Investopedia. https://www.investopedia.com/terms/p/pipeline.asp

Sales Pipeline: Guide for Sales Leaders | LinkedIn Sales Solutions. (n.d.). Sales Pipeline: Guide for Sales Leaders | LinkedIn Sales Solutions. https://business.linkedin.com/sales-solutions/resources/sales-pipeline-definition-and-stages

Lusha. (2022, July 25). Sales Pipeline vs. Sales Funnel: What’s the Difference? https://www.linkedin.com/pulse/sales-pipeline-vs-funnel-whats-difference-lushadata

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