The sales pipeline is your future revenue. It is also a major source of uncertainty, with lots of time and resources invested in monitoring. This creates risk, but what exactly is pipeline risk? Understanding its nature is a prerequisite for achieving sales success and revenue.

There are three main types of sales pipeline risk. 

1. Bad Data

Poor data quality is the first source of unpleasant sales surprises. "Data quality" for sales reps and managers is data that gives an accurate view of where their prospects are in their buying process. This has a number of notable implications:

• IT departments love data cleaning campaigns. However, they are usually focused on administrative vs. economic data quality. Unless your CRM database is an absolute mess, these campaigns will be esthetically satisfying but practically meaningless for sales - a waste of both time and resources. 
• Be wary of requiring lots of administrative information from your sales reps. Of course reporting is part of their job, but you don't want to drive them away from your CRM software altogether. Timely opportunity updates are more important than comprehensive contact details. 
• A well-understood sales process is key. It doesn't need to be super-sophisticated at first (you can always fine tune it later). Classifying your pending opportunities in 3-4 stages will considerably improve economic data quality and reduce pipeline risk. 

2. Dicey Opportunities

Unless your company's sales process is extremely tight and mercilessly enforced, there will always be a few dicey opportunities in your sales pipeline. 

• The first reason for this is the traditional reluctance of sales reps to qualify opportunities out. Experience may prove time and again that recycling dicey opportunities actually increases sales, but they are only human. Optimism is one of the "animal spirits" famously discussed by J.M. Keynes.
• The second reason is the frequent lack of clear rules for advancing an opportunity in the pipeline. I am not necessarily talking mandatory workflows here, but simple criteria that reflect true progress on the buyer’s side. For example at SalesClic, an opportunity moves from “Exploring needs” to “Building momentum” when our first contact has introduced SalesClic to other members of her team.
• The third reason is that identifying black sheep can be really hard, especially when you have tens of open opportunities in your pipeline. Despite the paramount importance of sales velocity for assessing an opportunity’s health, CRM software (let alone Excel spreadsheets) is still weak at taking the time factor into account.

Measuring sales velocity and leveraging the historical data in your CRM database changes your life. From touchy discussion topics, stagnation, optimism and an opportunity’s quality become measurable facts. Here is what, at a minimum, you should monitor:

• The time each open opportunity has already spent in your pipeline compared to your historical sales cycle length.
• The time you are expecting each open opportunity to spend in your pipeline (i.e. the difference between the closing date and today) compared to your historical sales cycle length.
• The historical conversion rate from one pipeline stage to the next.

3. Inaccurate Forecasts

Forecast inaccuracy is the inevitable consequence of bad data and dicey opportunities. It is also a question of methodology and algorithmic proficiency.

• Methodology: Most B2B companies use judgmental forecasting methodologies, which they mistakenly believe are the only ones available. But alternative, data-based methodologies are available, and simple behavioral tricks can also help. So don’t feel condemned to weighted pipelines and forecast categories.
• Algorithmic proficiency: Leveraging the historical data in your CRM database can be tricky. Luckily, depending on your in-house computer programming capabilities, Salesforce gives you the option of creating your own advanced forecasting module, or searching the AppExchange for the relevant application. In both cases the deeper understanding of your pipeline’s health and increased visibility on future revenues will likely pay for the investment.

When you think about it, a sales pipeline is a collection of assets with uncertain returns, just like a financial portfolio. There is really not reason you couldn’t adjust the risk/return profile of your sales pipeline as if you were an asset manager. It starts with a proper understanding and assessment of pipeline risk!

For more wisdom on keeping your sales pipeline growing download the free ebook, 5 Secrets: Build Your Sales Pipeline and Keep it Growing, at the button below.