As a founder of the pipeline marketing movement, I’m obviously a big fan of the shift of focus from the top of the funnel to the entire funnel, and the entire buyer journey.
This shift provides a much better foundation for success for both marketing and the rest of the organization. When marketing is measured on the outcome of their efforts, instead of the activities, the team makes better decisions around optimizations, improves the relationship with sales, and ultimately drives more growth, i.e. more revenue.
However, revenue can’t be the only metric. It’s certainly the goal, but marketing teams need leading indicators, an early warning signal of marketing performance today and company performance tomorrow. That’s why I love sales pipeline coverage. Most VP of Sales know this well, but they are often focused on this month's or quarter’s performance. Marketing needs to be looking at the business further out, which is why I wish more marketing leaders understood the importance of pipeline coverage.
What Is Pipeline Coverage?
Pipeline is easy to understand. It’s just the sum of revenue for all deals in the sales process, usually defined as the Opportunity stage. It’s a great number to know by itself, especially if you combine it with attribution reporting to view pipeline generation by channel, campaign, etc. However, how do you know if the pipeline number is good or bad? In other words, is it enough to hit the goals or not? By itself pipeline won’t be able to tell you that, which is why understanding pipeline coverage is so important.
Pipeline coverage builds on the pipeline concept by incorporating your goal. It helps you understand if you have enough pipeline to meet your goal. Since your pipeline and goals are ever changing throughout time, it’s represented as an easy to understand ratio.
There are a few ways to do sales pipeline coverage, but I like this method:
To understand your goal, figure out the win rate for the period for which you are measuring. For example, if it’s the next 90 days, what is your expected win rate for that time? For this example, we’ll assume it’s 20 percent. With a win rate of 20 percent, you need your coverage to be 5x or better in order to hit goal.
Now, to calculate your coverage, simply divide your Pipeline amount by your Goal amount for the period. For example, if you have $5M in pipeline and the sales goal is $1M, then you have 5x coverage. Since your win rate is 20 percent, you should have (just) enough pipeline to meet your goal (20 percent of $5M is the $1M goal).
I like to look one and two sales cycles into the future. If coverage is low one sales cycle in the future, I know marketing needs to generate some new pipeline and should focus on opportunities that will have a quick marketing and sales cycle. I also know that we should focus on converting existing opportunities so we should conduct a marketing win rate analysis.
If coverage is low two sales cycles in the future, I know marketing can spend more time generating opportunities of all (or at least many) types and should focus there first.
When it comes to great signals that help B2B marketers decide on tactics and strategies, pipeline coverage is a great one.