What is pipeline coverage ratio?
Pipeline coverage ratio is a sales metric that measures the total value of your pipeline relative to the target sales quota for a particular period. It is the ratio of all your sales opportunities and your revenue target.
How to calculate pipeline coverage ratio?
To calculate the pipeline coverage ratio, divide the ‘total value of opportunities’ in a period by the ‘target sales quota’ for the same period. Both figures should be of the same time frame.
Formula for calculating pipeline coverage ratio
Real-life example of pipeline coverage ratio
Let’s understand the pipeline coverage ratio with the help of an example:
You run a micro SaaS business and have set a target revenue of $100,000 for the next quarter. Let’s say you have $300,000 worth of opportunities in your pipeline for the next quarter.
Then, your pipeline coverage ratio will be: 300,000/100,000 = 3:1
This means, you have 3x pipeline coverage.
What’s an average pipeline coverage ratio? (benchmark)
A good pipeline coverage ratio is considered to be between 3 - 5.
Kyle Coleman, VP of Growth and Enablement at Clari explains pipeline coverage benchmark setting:
“Let’s say your sales process is really efficient and your sales team is really humming and they’re closing every dollar that they qualify. They don’t need 3X coverage. They could get away with 1.5 or 2X coverage. On the other side of that coin, if your sales team is operating inefficiently and closing sub-optimally, then you might need 4 or even sometimes 5X coverage.”
So, now what? You’ll need to analyze your previous results and set benchmarks for yourself according to those findings.
Ways to improve your pipeline coverage ratio
- Keep generating leads: The first step to ensure good pipeline coverage is to have enough leads in your pipeline. To keep the sales pipeline full, companies should focus their efforts on both – lead generation and prospecting.
- Set specific targets: Directing your sales reps to keep pipeline coverage at a certain level isn't much help. Set specific target actions for weeks and months in order to continue generating new leads. Some examples might be, posting 3x a week on socials, reaching out to 5 prospects on a daily basis, etc.
- Focus on profitable leads: Rather than trying to win unqualified leads, it is recommended to focus your efforts on the best, sales-ready, and high-value leads. It’ll ensure that sales reps spend time with higher buyer intent prospects. Know about some sales qualification methodologies.