As a fundamental part of effective go-to-market strategy execution, a Sales Pipeline Planning Model is a marketing concept embraced by successful B2B marketers.
Customer acquisition and retention are key B2B marketing goals, requiring tight synchronization between sales and marketing within the sales process. At the granular level, the marketing action and sales action plans should be aligned and optimized for the same business goal – revenue.
In a B2B direct sales model, revenue is dependent both on the number of sales reps and the effectiveness of those sales reps. A first-step in a sales action plan is to determine the number of sales reps required to meet or exceed the revenue plan. This calculation starts out in a simple, straightforward manner:
- Revenue target divided by the average selling price equals the required number of deals
However, the calculation can become more complex. Some organizations standardize on a quota in the form of an absolute value that can range from $1 million to multimillions. Factors affecting quota setting may vary from the maturity of the organization or market, new customer acquisition versus installed based selling, experience of the sales team and optimization of the sales process.
Another twist on quota setting may come from a cost perspective. In this scenario, the cost of the B2B sales person may be calculated as fully loaded including target earnings, benefits, travel, entertainment, etc. That cost is then increased to meet gross margin and/or profitability goals. This method results in the quota that needs to be assigned per direct sales rep from a cost plus profit perspective. In either case, the optimum number of sales reps is obtained by dividing the quota for the organization by the quota assignment per rep.
And, some organizations may examine the velocity of deals in the sales pipeline to determine the average sales cycle and a sales reps’ bandwidth. Assumptions are made around the amount of time required of a sales rep to win a deal — and this number is adjusted based on the win rate. The net is the number of deals a sales rep can manage within a year and win. When this number is multiplied by the average selling price, the reps’ quota is defined.
Regardless of the approach to set quota, the result is a definitive number of direct sales reps that a B2B business needs to meet its revenue goals. However, those sales reps need to be fully ramped to be most impactful. Specifically, it takes time to attract, hire and ramp (or onboard) a sales person.
The best-in-class B2B organizations invest in their sales reps’ success via onboarding. The onboarding process provides the rep time to learn the market, technology, solution, competition, the unique selling proposition and sales process in order to build a strategic account plan. During the onboarding period, a sales rep will not be able to carry a full quota.
Typically, a B2B direct sales organization will ramp a sales reps’ quota ranging from 0, 25%, 50% or 75% for the first quarter or several quarters. It’s very useful to construct a model that summarizes the number of sales reps, their corresponding ramp rate and the revenue each rep is expected to deliver each quarter and for the fiscal year. Since the impact of a sales reps’ performance is directly correlated to revenue, it’s crucial to build an effective Sales Pipeline Planning Model to facilitate revenue generation.