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The purpose of sales pipeline stages
Categorizing prospects in your sales funnel based on sales pipeline stages serves multiple purposes.
Most importantly, the stages of a sales pipeline indicate how likely prospects in the sales pipeline are to close. This is key for accurate forecasting. Ideally, all prospects in a certain stage have more or less the same likelihood of closing.
Choosing meaningful stages in your sales process supports effective reporting. Your management and board aren't only interested in knowing how many opportunities you have, but also what stage of the sales pipeline they are currently in.
Finally, by looking at where prospects are in the sales cycle, sales reps can understand what those prospects expect from them at any point in time, and effectively progress them. This support achieving sales targets.
Choosing your sales pipeline stages
Sales pipeline stages group together prospects that are in a similar situation and have similar intent to purchase. They also effectively group the activities your sales team should focus on with those prospects.
The logic you choose to define the list of stages, and the qualification criteria for prospects to be in one stage or another, are extremely important. They drive the effectiveness of sales pipeline management in reaching its purpose.
Many companies define stages such as "discovery", "demo", "proposal sent", "negotiation", and "closing". These stages, however, provide a very inside-out view. The fact that you sent a proposal to a prospect doesn’t mean they have a higher intent to buy.
Your pipeline stages should be named according to prospect-relevant triggers and statuses, and NOT to your actions in that stage.
The stages I use in most cases are "qualified opportunity", "solution fit", "vendor of choice", and "terms agreed".
Imagine a prospect telling you: "I was reviewing 5 vendors. We still need to finalize a commercial agreement, but right now, in principle, I want to work with you. You are my vendor of choice." If this happens, you can infer that the opportunity is much more likely to close, compared to one with a prospect who didn’t tell you the same. Knowing this from them also guides you into doing the next thing: finalizing a commercial agreement.
Qualification criteria for effective sales pipeline management
How can you decide at which stage a certain opportunity is?
You do it by defining qualification criteria for each stage. The more opportunities progress, the higher intent you should expect from your prospect and the stricter those qualification criteria should be. This logic is what creates a funnel shape in your pipeline.
The main qualification criteria for each stage should be a clear input coming from the prospect. This defines the meaning of each stage.
You can have additional qualification criteria regarding the information you must collect and the things you must do before moving to a stage, such as booking a follow-up meeting, updating the CRM, and more.
In the template above you find my best-practice sales pipeline stages and qualification criteria.
"Qualified opportunity" is the first stage a deal should have when you create it in your CRM. Qualified, in this context, means you know enough about the opportunity to judge that it is a valid opportunity you can close. At this stage, you can leverage simple evaluation criteria, such as BANT. BANT stands for Budget, meaning the prospect can supposedly pay for your services, Authority, meaning you’re talking to someone who can progress you to a buying decision, Need, meaning you understand their problem and you believe you can solve it, and Timeline, meaning the prospect is selecting a solution and has a timeline in mind to finalize this selection, as opposed to bring just browsing and researching.
"Solution fit" is what you move your opportunity to when your prospect confirms that your solution potentially fits their needs. This typically happens after you have presented it and sometimes run a demo. At this stage, your prospect may be evaluating other vendors. However, you are definitely part of the game.
"Vendor of choice" brings you one step further. It means the prospect communicated that you are their preferred solution and they want to proceed with you, rather than with one of those vendors they were evaluating, provided that you reach an agreement on terms and commercials.
“Terms agreed” is the last stage before closing. You found an agreement on these terms and conditions, at least verbally. The only task that remains is paperwork.
“Closed won” is the final stage. An opportunity should be closed only once the paperwork is signed and onboarding starts.