How Much Pipeline Do You Need to Hit Your Revenue Goal?
Having a revenue goal is a great guiding light … but how do you know if you have enough pipeline to support your goal?
The secret is developing a weighted pipeline.
Below, we detail what a weighted pipeline is and how you can use it to determine how much pipeline you need to hit your revenue goal.
What is a weighted pipeline?
A weighted pipeline is a revenue projection technique. It works by assuming a certain percentage of deals will close based on current progression and historic performance.
Before you get started
Before you can create a weighted pipeline, you have to segment your deal pipeline into stages that represent points where you overcome friction in the client journey.
For example, when you get a prospect to listen to your pitch, you’ve overcome one source of friction. When the prospect is ready to see a proposal, you’ve overcome another source of friction.
For a buyer rep, the stages might look something like this:
- Escrow/Due Diligence
For a more in-depth look at how to define the stages of your pipeline, download the pipeline management guide.
Creating a weighted pipeline and forecasting revenue
Once you’ve properly defined and segmented your deal pipeline, you can analyze trends to determine how likely deals are to close.
For example, you may determine you close 20% of deals that reach the proposal stage, 30% of deals that reach the listing stage, and so forth.
Armed with that information, calculating how much revenue you’re on track to generate is a simple three-step process:
- Determine the total potential revenue available at each stage.
- Identify the percentage of the potential revenue you expect to close at each stage.
- Add together the projected revenue of each stage.
So, let’s say you have $8,000,000 in potential revenue available in the proposal stage, and you close 20% of deals that reach the proposal.
That means you can expect to generate $1,600,000 (or 20% of $8,000,000) worth of revenue from deals that have currently reached the proposal stage.
Then, if you have $2,000,000 in potential revenue at the listing stage, and you close 30% of deals that reach the listing, you can expect to generate $600,000 worth of revenue from that stage.
When you add the expected $1,600,000 of revenue from the proposal stage to the expected $600,000 worth of revenue from the listing stage, you end up with a combined $2,200,000 worth of expected revenue from both stages.
And you simply repeat that process until you’ve determined the expected revenue for your entire pipeline.
Identify how much pipeline you need to build
Now that you’ve forecasted your revenue, determining how much pipeline you need to hit your revenue goal is simple.
Start by taking your revenue goal and subtracting your projected revenue to determine if you have a gap.
For example, if you want to close $10,000,000 in revenue, and you’re projected to close $8,000,000 in revenue, you have a gap of $2,000,000 (or $10,000,000 – $8,000,000).
Next, you’ll calculate how much opportunity you need to add to the front of your pipeline.
In the example of the buyer rep we used earlier, the prospect stage represented the front of the deal pipeline. So, you’d want to determine how much opportunity you need to add to that stage.
Now, let’s say you’ve determined that you close 10% of deals that reach the prospect stage. In that case, you’d need to add ten times as much revenue as you intend to close.
With a $2,000,000 revenue gap, that means you’d need to add $20,000,000 (or 10 times $2,000,000) in opportunity to the prospect stage to close the gap.