In the B2B SaaS world, we are obsessed with pipeline.
But pipeline – what it is, why it’s important, how it works – is not something that has ever been taught in school, is not even an onboarding topic at most SaaS companies, and is rarely a topic that everyone within a single company has a shared understanding about.
What is Sales/Marketing Pipeline?
Sales/Marketing pipeline describes how much ‘juice’ you have in the tank to generate revenue and bookings for a particular time period, typically measured in a count of conversations/deals or estimated potential dollar revenue available.
In plain English, pipeline is literally “the tube that transport goods“.
Once goods are inside, they generally either progresses or drops off (i.e., leaks).
Therefore, Sales/Marketing pipeline is typically seen as progressing through a set of pre-defined stages.
Every business is unique and so when it comes to pipeline, expect to see the following variations:
- How pipeline is generally defined and measured
- How the different stages of pipeline are defined
- The business processes to progress pipeline through the stages and turn qualified prospects into customers
- The playbooks or principles that accompany those processes to progress pipeline
Philosophy of Pipeline
Pipeline is a company asset and resource in B2B SaaS business.
For marketing and sales teams, there is commonly a hand-off point for pipeline between those two go-to-market teams.
In broad strokes, marketing teams are responsible for generating a good portion of the business’ pipeline by efficiently and effectively attracting potential customers. Sales teams are focused on closing that pipeline.
Having said that, generating pipeline could be the job of the entire company. In mature B2B SaaS companies, there are commonly four dominant avenues to source pipeline:
- SDR Outbound
- AE Outbound
- Partner or Business Development
The percentage breakdown of pipeline by source will vary based on your business model, industry and market, and maturity of function.
However, it is a good idea to balance different sources over time to ensure that the entire business is growing as a whole.
The Four Avenues of Pipeline Sources
Each avenue requires strategic investment to start. As your business matures, and with the right team, the efficiency of pipeline will become an important topic.
For now let’s talk about the basics, starting with Marketing.
Marketing-sourced pipeline should, at a minimum, be further categorized by lead source. Lead source is typically broken down at the highest level into: organic, paid, trial, and downloadable assets.
We are not here to explore fancy multi-touch pipeline attribution models. Instead, the focus of the marketing should be answering: “How did we acquired that email address?”, and “Did that email address turn into an opportunity that Sales can work?”
For SDR Outbound-sourced pipeline, it all boils down to a capacity-driven model.
Assuming your SDR motion is fully-baked, your business should know roughly how much pipeline could one SDR generate in a one month/quarter.
Calculating that is based on how many meetings an SDR can set and how many activities (i.e, emails/calls) they need to make to set that meetings.
Even though SDR Outbound pipeline is human-driven, there should be coordination between marketing and those SDRs on what emails, accounts, messaging, assets, and timing are most effective to generate pipeline.
For AE Outbound-sourced pipeline, this is typically not an avenue that a business wants to bank on.
AEs should be predominantly focused on closing (as they are the only team in the organization uniquely qualified in this activity, unlike pipeline generation).
However, if AEs are not closing enough in the current period, they will need to build their own pipeline.
Partner / Business Development
For Partner or Business Development, often it’s more difficult to calculate the impact of certain partnerships or relationships on pipeline. It less mature companies, it can be highly a manual effort.
Not all conversations or prospects represent pipeline.
Therefore, it’s important to set a minimum threshold for whether a conversation or individual prospect, should be counted toward “pipeline”.
For instance, you could define pipeline as any prospect/conversation that meets the following three criteria:
- The prospect has been qualified by an SDR (maybe following the BANT framework);
- The prospect has agreed to evaluate your solution; and
- The opportunity with the prospect has been accepted by an AE as one that they will work on, with an estimated value (e.g., ACV or usage like # seats or API volume).
In other instances, some companies may define pipeline as simply needing the first of those three criteria.
Ultimately, it’s the existence of defined criteria and a shared understanding between marketing, SDRs and AEs that matters (rather than the definition itself).
What are the variables of pipeline?
Pipeline variables are the factors that influence the size and predictability of pipeline.
If pipeline can be calculated by a formula (which it can), think of the variables as the components of that formula.
Pipeline variables most commonly include:
- Number of deals or opportunities
- Average revenue size of those deals or opportunities
- Average conversion rate of those deals or opportunities (i.e., the percent of deals or opportunities that successfully become actual revenue)
- Average sales velocity (i.e., the amount of time it takes for a deal or opportunity to progress through the pipeline stages)
With the four variables above, you should be able to determine whether your business has a “healthy” pipeline trend.
If not, you have facts (not opinions) to adjust your business activities.
If your solution sells to customers across a wide spectrum of employee sizes, the mechanics and what the pipeline variables should look like will vary between SMB to Enterprise.
|# deals||Avg $ per deal||Avg Conv. Rate||Avg Sales Cycle|
Pipeline 102 – Pipeline Coverage
After having the basics on pipeline covered, pipeline coverage is what matters next.
Pipeline coverage measures how much pipeline you have, relative to your revenue targets as a business.
It is the expectations for the amount of pipeline reps should have at different points in time to set them up for success in future quarters.
Higher coverage allows more room for error in progressing that pipeline; lower coverage means less room for error.
Coverage is normally calculated by multiple, and must be tied to a time period.
Here is an example of how we could look at it at the whole business level.
Then, you may ask what is a healthy coverage?
That depends on the average conversion rate of deals from pipeline to close-won and length of sales cycle, and every business is different.
Similar to attainment targets, you can also use pipeline coverage to go down one level to compare horizontally across teams.
For example, even if the VP of America has a healthy pipeline coverage of 2x for next quarter, but it may not be there across the board within their teams.
The numbers could look like: East – 3x, Central – 1.5x, West – 1.5x. In this case, you may want to spend more time working with Central and West and obtain any learning from East.
Pipeline is complicated. But it’s also very important!
For mature companies, pipeline is almost the most common driver of growth in a company (assuming your closing motion is solid and your total address market is large).
Operationally, pipeline is also a truly cross-functional effort with split responsibilities across sales, marketing, channel, BD and more. Having a shared understanding, set of definitions, and processes around pipeline are very important.
Breaking pipeline down into its component parts and variables will help your business provide signals on what is working vs not. For instance, marketing-generated pipeline is showing lower ACVs that sales-generated pipeline. Why is that the case? What can we do to address that?