Sales Pipeline Conversion Model
It is common to forecast increases in software bookings after examining how many sales reps you have, their quota, and their levels of achievement, as so:
number of sales reps, multiplied by quota, multiplied by achievement level (%), equals forecasted bookings
This method isn't bad; it can be a good starting point if you lack other data on your sales pipeline. However this model is able to support the assumptions behind your long-term forecasts and aid the sales team with sales pipeline forecasts.
The Basic Premise
It can be difficult to trust long-term bookings numbers if you don't have any visibility at the start or the top of the funnel. If the prospects are not contacted and turned into qualified leads at a certain time rate and conversion factor, then how are you to know that it's possible to reach the bookings number upon reaching the end of the funnel.
The stages of the funnel have been based on a book written by Aron Ross and Marylou Tyler. If you work in SaaS or software, then it is worth reading "Predictable Revenue" by Jason Lemkin, and "From Impossible to Inevitable" by Aaron Ross. Both of these books give fantastic insights into setting up and scaling sales organisations, both including "how to" guides and real-life metrics- not all high-level content.
What does the Sales Funnel model do?
This model begins at the top of the funnel where you'll see prospects, and pushes them down through each stage of the cycle. It pushes the prospects through based on how much time that prospect has spent at that specific stage of the sales cycle (in weeks) and % of wins.
Sales Pipeline - Inputs
E.g. if 500 prospects were contacted this month, 10% are expected to respond, and this is expected to take a duration of 4 weeks to be accomplished. These 50 prospects then move on to the next stage of the cycle and at the right time in the funnel. This will continue through each stage of the cycle until you close a certain percentage of these deals.
Prospect numbers are driven by the no. of sales representatives that make up your team, and the number of new prospects the reps add to the funnel monthly.
The model also includes the ability to recycle the prospects that have been non-responsive. After having found their contact information, it makes sense to continue to contact these prospects until they agree to a sale or ask that you stop.
Once this model has been completed, you are able to take the output and use it to complete the SaaS Revenue Forecast Model.