[Draft] Be Careful Using the Sales Pipeline Coverage Ratio (3x or 5x, it’s All Erroneous)

[Draft]

Very many VPs of Sales say that Pipeline should be 3x as big (in terms of $ value) as your quota, but this is a mistake.  It’s not only a generalized way of looking at the Pipeline and it’s also dangerous and won’t help you.

What I recommend is that the Pipeline Coverage ratio will depend on each individual sales reps’ % Win Rate and the quality and current stage of open Opportunities. Instead of simply making your Pipeline 3x your quota, you should focus on maintaining Pipeline integrity and honing your sales process.

In fact, there are 5 major limitations of the Pipeline Coverage Ratio:
1. It’s close-date agnostic. Even if you add 100 new opportunities to your Pipeline, you
won’t be able to close them immediately, so you need to adjust your coverage based on
the close date for these opportunities, not just their presence in the Pipeline.

2. It’s stage agnostic. In the eyes of the Pipeline Coverage Ratio, all opportunities have
the same likelihood of closing. Of course, this isn’t the case – early-stage opportunities
are significantly less likely to close than their late-stage counterparts. Your Pipeline
coverage should account for this, but a rigid 3x coverage ratio does not.

3. It’s deal-size agnostic. Very large deals are different from small deals – they can
skew your Pipeline value up and they typically convert at a lower rate – but the Pipeline
Coverage Ratio treats all sizes of opportunities the same.

4. It’s dependent on your sales process. Do you close deals when timing is an issue? Do
you cohort your Pipeline by opportunity size? The answers to these questions affect the
amount of coverage you need but are not considered for a 3x Pipeline Ratio.

5. It’s an unreliable forecast. Many Sales Managers use Pipeline Coverage Ratio as a
proxy for forecasting, but the truth is that it is inaccurate and lazy. Your forecast should
be metrics-driven and take into account the specific opportunities in your Pipeline and
the specific reps working them.