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Writer's pictureRamin Zacharia

Pipeline Coverage: What is the Right Value for Your Reps and Teams?

As a sales rep or sales leader, you are tasked with working your leads and opportunities to develop as rigorous and actionable of a pipeline as possible.


In today’s world, you probably are also using a bevy of software tools and ample methodologies to develop your approach — you most likely have a CRM to keep all of your contacts and notes in one centralized location; some lead and intent scoring tools to help drive towards the most actionable opportunities in front of you; some call recording and AI note taking tool to make sure you probably capture your calls and document your action items and next steps, and so much more.


On top of that, you are being told to follow a new sales methodology — whether it be Challenger, SPIN selling, MEDDIC, consultative selling or some derivative therein.


You are practically inundated with data and approaches, and tend to get overwhelmed with it all if you are trying to drive change in your actions to hit your quota.


But taking a step back from all of this and regardless of which flashy tools or approach you use to drive towards strong attainment of your targets — it’s good to start by compartmentalizing your approach to solve this multi-variable problem and focus on specific metrics.


A good one to start with proper management and definition of your pipeline coverage.

Pipeline coverage is an KPI and expression of how much pipeline you have in total vs. your quota target. It is usually expressed as a multiple, and the rule of thumb that most literature points to is that sales reps and teams should shoot for 2x to 4x pipeline coverage.


While this rule of thumb range is an okay place to start, you should focus on “double-clicking” further into this and defining what pipeline coverage should specifically look like for different time periods, different reps, different teams, and different sales segments.


After all, every business is unique, every sales segment is unique, and many vertical end markets and end customers are unique, so just relying on a 2x-4x pipeline coverage multiple to run your sales organization sustainably and successfully over the long haul is a recipe for missed opportunities, and sometimes — failure.


Factors to Analyze and Track Towards Defining Proper Pipeline Coverage Multiples

Tracking pipeline coverage rigorously in an organization often sits at the intersection at sales leadership, sales operations, and finance.


Regardless of who institutes its tracking and management, it should be a regularly used output and metric for go-to-market teams to find where there may need to be improvements — whether it be in funnel and lead generation, marketing / ad investment, alternative selling methodologies or change in pricing strategies and sales promotions.


From my experience, there are five key factors that go into assessing and trying to find the right pipeline coverage metric for the specific teams and the overall organization.


While I am certain there are many others and plenty of other nuances, these are five that I find to be the most universally applicable in driving towards creating a more accurate, useful pipeline metric to convey to your go-to-market team and sales leadership.


The five factors to focus on with pipeline coverage are the following:

  1. Time period and seasonality

  2. Sales cycle and average days to close

  3. Funnel stage conversion rates

  4. Average contract value / average sales price

  5. Opportunity win / loss rates


Let’s now dive into what each of these factors represent and how they impact your pipeline coverage metrics across your organization.


Time Period and Seasonality

When dealing with businesses that are seasonal in nature, it is important to ensure you take into account what timeframe you measure and state your pipeline coverage ratios, and incorporate ample pipeline to account for the busier seasons.


For instance, many software / SaaS businesses tend to be back-weighted in a calendar year, with a good chunk of their sales coming in the fourth quarter (October, November, December) of a calendar year.


Venminder was no different when I was there — we always sold more in the second half of the calendar year and in Q4 vs. the first half or any other quarter in the year.


A 3x pipeline coverage ratio over your largest sales quarter and busiest sales quarter (i.e., Q4) vs. a 3x pipeline coverage ratio over your smallest sales quarter are the same pipe coverage metric, but much different when you understand the underlying components and absolute values.


So in order to properly define and manage your pipeline coverage ratios, taking time period and seasonality into account is important because it shows where you may need additional opportunities to meet your minimum threshold at any given point in time. Put simply, it ensures actionable opportunities exist to meet your stated sales objectives and bookings targets.


For instance, pipeline coverage ratios are typically measured and stated over a 1-month, 3-month, 6-month, 9-month or 12-month basis. Having a good handle on which timeframe is most appropriate for your business / go-to-market teams helps go a long way to better understanding how individual reps and full teams should be tracking.


But beyond that, it helps identify potential gaps / inadequacies between reps of the same team or broadly patterns in your business and sales cycle.


If you notice that the time period coverage ratios for reps that have the same quota are misaligned, you can take immediate action as a sales manager to change your round robin lead distribution to more heavily weight the team member that has fallen behind or look more into the pipeline of each rep to see if there is bloat or more precision and attention required to close deals.


Generally speaking, the longer the time period, the lower the pipeline coverage ratio will be (unless you operate a really long sales cycle with pipeline opportunities created 9+ months in advance of them closing). That is generally okay, because your lead generation and funnel creation will eventually generate more pipeline as time goes by.


Sales Cycle and Average Days to Close

Managing sales velocity is an overlooked area in most businesses I have worked with. After all, it is difficult to perform experimentation on what can shorten your sales cycle and average days to close while you are holding a bag and trying to close deals to make your commission.


Sales cycles and average days to close are critical factors in better understanding your pipeline coverage metrics across the organization, as they allow you to get a better sense of how much time it takes you to close (win or loss) a deal from the day it is been created as an opportunity.


If you know that it takes your enterprise team on average 120 days to close opportunities, and your SMB team 60 days on average to close opportunities, you have a good understanding of your sales cycle.


But why stop there? Why not use that knowledge (because knowledge is power, right?) to inform how you manage and track pipeline coverage ratios by each team — in this case, you would put a lot of stock in managing rigorous pipeline coverage ratios on a rolling basis between 0–4 months for the enterprise team and 0–2 months for the SMB team based on their sales cycles and average days to close.


This additional level of precision helps to inform strategic questions you can begin to ask and answer, like how you want to create simpler pricing and packages to your enterprise prospects to get sales cycles down to say 90–100 days.


Or how you could use different ad-based marketing campaigns to target SMB prospects every month to replenish the faster moving SMB pipeline and keep feeding your funnel and reps in that end of the market.


Let’s look at how sales cycles and average days to close drive unique nuances between pipeline coverage ratios in completely different business models: 1) an SMB software company that targets high-growth businesses with a niche marketing product and sells monthly subscriptions using primarily an inside sales model vs. 2) an enterprise software company that sells primarily into the healthcare and education vertical end markets.

In 1), the SMB software company’s business model is more short-term oriented — fast velocity, fast decisions, definitely more churn n’ burn in this hypothetical, high-level example.


Given your sales cycles and average days to close are shorter, your pipeline coverage metrics will likely be tighter and managed more on a week-to-week, 1–2 month basis to ensure that your reps have enough opportunities / leads to work through every day and every week.


On the other hand in 2), the enterprise software company selling to the healthcare and education industries will most likely have extremely lengthened cycles and slow-moving prospects that must go through procurement cycles and budget decisions. This will drive you to manage pipeline coverage with a more long-term orientation and view, not worrying as much about sales velocity and movement, but more about quality, high-touch, and consultative selling to ensure these prospects get everything they need to pick your company.

Funnel Stage Conversion Rates

Leaning into better understanding more funnel metrics is critical for proper alignment of investment, resources, and training your go-to-market team. As a sales leader and manager, having a good handle of the individual nuances and patterns of your reps and teams through the sales funnel goes a long way in making your performance more predictable, avoiding surprises, and managing the metrics that matter.


Another metric that matters to informing your pipeline coverage ratios are conversion rates through your defined stages in your lead generation and opportunity funnel.


There are various stage definitions and names, but for the sake of illustration, I will start with some of the most commonly seen and broadly applicable stages in lead generation, specifically for sales teams — discovery call creation, sales qualified discovery calls, and opportunities.


Discovery calls originate from potential prospects that either come inbound or your lead and pipeline generation team (i.e., marketing, sales development reps, sales reps) looking for a potential solution and inquiring with your company. In this call, you typically will provide a high-level overview of your product suite and capabilities, and look to qualify whether or not a prospect is a good fit for a purchase. Creating more discovery calls should yield more qualification, which will lead to more opportunities, and thus more wins / bookings for your team.


This typically will flow down the funnel to whether or not the discovery call is properly “qualified” by your sales team and your deal qualification methodology, which in turn creates a funnel conversion via a sales qualified discovery call. Between discovery calls created and sales qualified discovery calls, you can create and measure a ratio to measure the efficacy of how leads pass certain thresholds by simply dividing the number of sales qualified discovery calls by the total number of discovery calls a sales rep yields.


Typically expressed as a percentage, this tells you how many of the discovery calls a sales rep or team works and converts to a sales qualified lead, which in turn goes into the bottom of the funnel as an opportunity in your sales pipeline.


From there, you can better understand how and why a certain sales rep which maintains a very tight qualification process has a lower sales qualification ratio, whereas another rep that does not have as high of a bar, and thus has a higher sales qualification ratio, may convert most of their discovery calls into sales qualified leads and opportunities.


With this deeper dive into the funnel metrics and conversion ratios between reps, you can better understand why a certain rep has a lower (or higher) pipeline coverage ratio — because they may be keeping their pipeline whistle clean on only the most qualified opportunities or vice versa, may bloat their pipeline (and thus, their coverage ratio) because they qualify their leads in a more inclusive manner.


By analyzing funnel ratios like the one I have walked through and combining it with pipeline coverage, you can begin to better understand the nuances of your team’s sales qualification abilities (or lack thereof) and identify patterns of behavior in various sales segments, between sales reps, and work to institute changes or sales enablement to drive towards different outcomes.


And by different outcomes — let’s all hope it means MORE SALES, which is what we all want… :)

Average Contract Value / Average Sales Price

Now that we have made ourselves through the funnel and assessed how different ratios can better inform where you can develop more detailed management of pipeline coverage between teams and reps, let’s focus on closing those deals and qualified leads.


Despite its importance and how simple it is to manage and monitor, average contract value and sales price tends to be overlooked as a primary driver of sustainable success for organizations of all types.


By better understanding and articulating average contract values and selling prices in your organization, you can create optimized pricing strategies to fit markets and end customers, become situation sellers and problem solvers, and simplify your way to regularly meet and exceed your quota targets.


Beyond that, it makes pipeline management much more rigorous — if you have a good handle on trends in your average contract values across your reps and teams, one of your key variables to winning sustainably is well-defined, allowing you to control it and manipulate it for the results you want.


Facing a slow sales quarter or month, and want to encourage a promotional program to win more customers in a faster fashion? Consider simplifying sales with starter packages priced more competitively at a lower ACV to win and get customers in the door.


Dealing with a larger prospect that wants an all-in-one solution and wants multiple demos of each part of your suite? Slow down, consult more with the prospect and figure out the optimal price of a comprehensive offering to not only meet your monthly target, but get you into quarterly accelerators with a bigger total ticket price on this one sale.


This metric is a key driver to reducing noise and allowing for more comparability between your reps’ pipeline coverage ratios.


If you have enterprise sellers that are more consultative sellers, you will tend to find them have a larger ACV per sale, and thus may be okay with their pipeline coverage ratios being lighter (given they may be understated vs. where actuals will come in).


But you should still dig deeper to avoid other variability, such as the below illustration.

In practice, you tend to find two reps in the wild:


  1. reps that always try to solve for a specific dollar value (aka — whale hunters typically): these reps can hit it big when they are hot, but are more rigid in their approaches and cannot find creative ways to solve problems for prospects because they are very focused on hitting a number (so they can obviously make their quota).


  2. reps that are very quick to discount and give away the kitchen sink at the drop of a hat: these reps are seemingly solving for not losing deals more so than trying to win deals or be cognizant of solving a customer’s / prospect’s problems with proper solutioning. Therefore, they tend to just give away things even if they mean nothing because they feel like it gives the customer more reasons not to say no.


Both of these reps and derivatives of the above bring a different challenge to the table in managing their deal values and ultimately their pipeline coverage ratios — one is easy to manage and predict given they are more consistent with steady average deal values, one is more volatile and unpredictable and often put your organization “in a pickle” without proper sales discounting rules and control authorizations put into place.


Regardless, having a good handle of your ACVs across teams and reps will drive you to better articulate a specific set of pipeline coverage ratios that are better than rules of thumb.


Opportunity Win / Loss Rates

The fifth and final factor I’ll walk through is another simple, but oft-missed set of metrics — opportunity win and loss rates.


You could have a great funnel and lead generation machine. You could have the best rules of engagement, discount authority matrices, and round robin automation and sales operations processes in place.


You could have a good handle on tracking and monitoring pipeline coverage ratios by rep and team and an even better understanding of average contract values and selling prices, and how that fits into your pricing strategies over time.


But if you do not understand or track win and loss rates at a high and detailed level, you could be missing a ton of low-hanging fruit value creation opportunities in your go-to-market organization.


How are opportunity win/loss rates connected to better pipeline coverage management? Well, if you know how many opportunities your reps and teams convert to wins (or not), you can derive what the best threshold is for your pipeline creation and coverage across the organization.


Rather than rely on a static rule of thumb of 2x-4x coverage, win/loss rates in real-time can allow you to create a more real-time heuristic that tracks towards what you are seeing “boots on the ground.”


When the COVID pandemic hit, many businesses saw halts and delays in their sales cycles. Lots of loss codes due to pushes or uncertainty or lack of budget.


When regional banking failures from SVB, First Republic, and Signature Bank occurred, many businesses were shocked and needed to see what would happen next in the financial and banking sector before making a purchasing decision.


If you kept good hygiene and tracked win/loss rates and win/loss codes consistently, you’d be able to report and be informed of what amount of pipeline and coverage you need to hit your numbers more precisely.


If you know you only close 10% of your total opportunities and want to compare yourself to a business in your space that has a 40% win rate, you know you have to do a lot to figure out how to juice up that 10% closer to the 40% benchmark you are tracking towards.


But you also know that sales is a results-oriented profession and you cannot be just focused on the theoretical and need to find ways to get things across the finish line. So while you work to drive sustainable increases and improvements to your win rates, you know in order to win more, you’re going to need more pipeline coverage / more pipeline opportunities fed to you.


Quality is generally preferred over the long-term to succeed, but sometimes you need good ole quantity to get you the results you need to keep the lights on and the trains moving on time.


So having a good handle on win/loss rates, and analyzing by end market, size segment, and individual reps helps provide that added context and insight for your pipeline coverage ratios. It goes a long way to make sure you are creating enough pipeline to meet and exceed your numbers, and ultimately win more deals.


Concluding Thoughts: Start Now and Build from There

As mentioned, sales is a complicated, hectic, fast-paced job that is largely based on results. “Revenue cures all ailments,” right?


So while you are on the field and on the phone trying to drum up new business, it may be overwhelming to take in new data and create new analytics or sift and filter through everything to create novel approaches and processes.


You may be inclined to just rely on what has always worked for you in the past, and that’s a great starting point for sure. Using the rules of thumb like in 2x-4x in pipeline coverage ratios is indeed the best place to start.


But do not stop there. Peel back that extra layer and dig a bit deeper into better defining a metric like pipeline coverage that’s unique to your sales team and organization.


After all, sales is also about listening, assessing and reacting to new information that is presented. So hopefully you all learned something new with some of these additional metrics and factors to drive towards sustainable success in your go-to-market organization.


Now go get that bag and as always, reach out to me if I can be helpful at rzacharia@rtdinsights.com.

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