A company-specific Funnel Ratio, also known as the Pipeline Ratio, proves essential for maintaining sustained balance within your funnel and among accounts.
The Funnel Ratio measures the size of the Total Funnel (TF) relative to the total assigned Sales Quota (SQ). The resulting formula is:
FR (Funnel Ratio) = TF (Total Funnel) / SQ (Sales Quota)
For example: Suppose Acme, Inc. had a Total Funnel of deals equaling $100 million and the sum total of the assigned quota for the entire sales force is $50 million. Their Funnel Ratio would be 2:1.
FR (Acme) = $100M / $50M or 2:1
What the data says
Research from Sales Benchmark Index indicates that companies have the following margins of error in their sales forecast:
- 36% of sales forecasts have a margin of error of <25%
- 22% of sales forecasts have a margin of error of 25% to 50%
- 29% of sales forecasts have a margin of error of 51% to 75%
- 13% of sales forecasts have a margin of error of >75%
These findings suggest that achieving forecast accuracy remains a difficult goal for sales leaders. Depending on how your company's statistics compare to those described above, the Funnel Ratio is an important metric for sales leaders to monitor as they manage their team to reach sales goals.
Is it your Funnel Ratio or your Conversion Rate?
The value of what's in your funnel is one part of the equation, but Conversion Rate is another important metric to consider when deciding which selling activities need to be prioritised.
What percentage of opportunities going into the top of your funnel are coming out as closed business at the bottom? If you determine that your Funnel Ratio needs to be 10:1 to hit your objectives, you may have more of a conversion issue than a prospecting issue to manage.
Consider what's going into the top of your funnel. The more you can screen out opportunities that have no real chance of closing, the lower your Funnel Ratio will need to be. Top-performing sales organisations are 57 per cent more likely to follow a standardised process to qualify opportunities.
What to consider regarding opportunities entering your funnel:
- Are opportunities qualified properly before entering the funnel?
- Do you have a disciplined process for qualifying opportunities that is shared among your team?
- Do you have defined criteria for screening out companies that are not a good fit for your products or services?
Next, consider the value that has been assigned to the opportunities in your funnel. If value is not properly or consistently assigned, it could inflate your ratio.
When determining the value of opportunities in your funnel, ask yourself:
- How well defined are the values associated with each opportunity?
- Has the customer provided input to validate the value?
- At what stage of the sales process is a value assigned?
- Is there potential for this value to grow or decrease over the course of the sales cycle?
Simplified, this is a four-step process to determine if your funnel is ready to produce the results you need:
- Identify Funnel Ratio
- Identify Conversion Rate
- Determine if Funnel Ratio is adequate to hit goal
- Feed the funnel to meet your ideal Funnel Ratio
What should my Funnel Ratio be?
Funnel Ratio varies from .25:1 to 5:1 depending on the company and its sales channel, sales cycle length, degree of maturity, and many other factors. But when determining what will work best for your company, the general rule is that the longer your sales cycle, the lower your conversion rate, the higher your margin of error in forecasting accuracy, the greater your Funnel Ratio needs to be. Better understanding your metrics will ultimately enhance your opportunity for success.
Get on course
Start by compiling your company's internal data and comparing it to these benchmark statistics. You'll gain a better idea of what your Funnel Ratio should be once you've gathered and reviewed the relevant information.