The Truth About 3x Pipeline Coverage—and What to Do Instead
In many businesses, 3x pipeline coverage is a compelling goal. Its simplicity is alluring. Ensure your sales pipeline is three times your quota, and you'll be on track to hit your target.
Measuring pipeline coverage this way is easy to grasp and widely adopted. Nevertheless, in this guide, I’ll go beneath the seductive simplicity and explain why 3x pipeline coverage is a flawed concept that often leads to missed sales quotas and unreliable revenue forecasts.
However:
I'll also show you a more practical approach to quantifying funnel coverage based on data-driven insights and strategic business development.
The best bit?
I'll explain the straightforward steps you can take today to implement a more robust and reliable way to measure pipeline coverage in your business.
In short, if you want to master pipeline coverage and understand whether you have enough funnel to hit your number, you're in the right place.
Let's begin.
3x Pipeline Coverage Rule Explained
The 3x rule calculates a pipeline coverage ratio by dividing the open pipeline due to close by the sales target for the same period.
People often refer to this method of calculating pipeline coverage as the 3x approach because they believe a rule of thumb is that the pipeline for the period should be three times bigger than the target.
In other words, if your monthly quota is $100,000, you need $300,000 of pipeline to hit your target.
Of course, some businesses reckon the pipeline coverage should be four times bigger than the sales target, so they refer to 4x pipeline coverage ($400,000 in this example). It's the same principle, but I refer to 3x throughout this article for consistency.
Either way, this approach has lots of support. You can find examples of people recommending it in How To Measure Pipeline Coverage and Sales Pipeline Coverage Ratio: A Guide.
3x pipeline coverage is a seductive concept. It's straightforward, easy to understand, and, on the face of it, a reasonable way to assess whether you have enough funnel to hit your sales goal.
Nevertheless, businesses that rely on this method of calculating pipeline coverage, and achieve the 3x goal, still wonder why they consistently miss their revenue goals. The reason is that the 3x pipeline coverage method is fundamentally flawed.
I'll explain.
The Case Against 3x Pipeline Coverage
There are four problems with the 3x pipeline coverage concept.
- Not all periods need the same pipeline coverage.
- More reliable metrics are readily available.
- Overconfidence in the pipeline is a significant risk.
- 3x pipeline coverage is a self-fulfilling goal.
Let’s examine the first one.
1. Not all periods need the same pipeline coverage.
Let's say your average sales cycle is four months.
In a well-managed sales and marketing environment with an average sales cycle of four months, all three levels of pipeline coverage in the diagram below may be acceptable.
For example, the current month's funnel should only contain well-qualified opportunities at advanced stages in the sales cycle.
In other words, you've already weeded out deals that do not have a reasonable likelihood of closing successfully this month. As a result, at the start of the month, we don't need 3x pipeline coverage for the current month. Instead, 1.3x may be sufficient, for example.
What about four months from now? The pipeline for deals closing four months from now will contain a mix of opportunity stages. Some deals are already well-qualified, while salespeople are still validating others.
Consequently, 3x pipeline coverage may be a reasonable goal for month four.
Next, let's consider the pipeline for deals closing in six months. If our sales cycle is typically four months, we can accept a pipeline coverage ratio significantly less than 3x. It's reasonable to assume that as-yet unidentified leads and opportunities will bolster the funnel.
So that's our first problem with the 3x approach. Like a stopped clock, it's only an accurate measure at specific times.
And as you'll see, even then, there are other problems.
2. More Reliable Metrics Are Readily Available.
The 3x pipeline coverage method assumes we will win a third of all deals due to close in any given period. That’s why it’s referred to as 3x.
Consequently, we are applying a top-down weighting to the pipeline of 33 per cent.
However, a bottom-up weighted pipeline summation is statistically more valid. Moreover, most CRM systems, including Salesforce, automatically calculate it for you (in Salesforce, the field is 'Expected Revenue'). The calculation is straightforward – it's the sum of the opportunity probability for each deal multiplied by its value.
What's more, applying opportunity probability best practices improves the reliability of Expected Revenue. Emerging AI functionality such as Prediction Builder further increases confidence in forecasting the outcome of every pipeline opportunity.
I'll show you how to incorporate these facilities into your pipeline coverage analysis shortly. But for now, let's agree that more precise metrics are readily available compared to the blunt instrument of top-down weighting.
3. Overconfidence in the pipeline is a significant risk.
Insufficient attention to pipeline quality is a significant risk for sales managers with more than 3x pipeline coverage.
That's because the metric doesn't take pipeline quality into account. For example, some deals may have slipped multiple times from one month to another. These opportunities represent a higher-than-average risk to your quota.
Moreover, the 3x rule doesn't differentiate between early, mid and late-stage deals scheduled to close in the period.
In extreme cases, I sometimes see opportunity pipelines that look like this.
In other words, multiple open opportunities have a close date at the end of the quarter or year. However, not many of these opportunities come to fruition. But from a 3x pipeline coverage perspective, everything looks great.
It's not a trap you want to fall into.
What To Do Instead of Using 3x Pipeline Coverage
Here's how I recommend you manage pipeline coverage:
Use the Weighted Pipeline approach for periods within the foreseeable future (i.e. the length of the sales cycle). Focus on deal qualification and funnel management, emphasizing pipeline quality and remediating shortfalls with short-term actions. Beyond the sales cycle period, recognize that the weighted pipeline is unlikely to exceed quota. Therefore, concentrate on driving new leads and qualified opportunities.
Let's break it down.
1. Using the Weighted Pipeline Approach for Sales Cycle Periods
The average length of your sales cycle determines the foreseeable future.
Some opportunities will close more quickly than the average, and others will take significantly longer. Nevertheless, your pipeline review process should focus primarily on the upcoming months within your average sales cycle.
When reviewing the pipeline for periods within the average sales cycle, compare the weighted pipeline to the quota for each period. Remember, the weighted pipeline is the sum of the Amount multiplied by the Probability for each opportunity.
Your first step is to validate the quality of opportunities within these periods. Metrics such as the # Close Date Month Changes, # Days Open, and # Days Since Last Stage Change are essential tools for this.
I fully explain how to use these pipeline quality metrics along with best practices for assessing pipeline quality in this post:
How To Assess Pipeline Quality In Your Sales Funnel.
Next, compare the weighted pipeline to the quota for each month. Assuming opportunities in the funnel are of good quality, if the weighted pipeline for each month is larger than the target, you can focus on closing the deals you already have.
Conversely, if the quota exceeds the weighted pipeline, you must apply tactical steps to address the shortfall. These steps may include upgrade or add-on sales to existing customers or conducting one-off marketing campaigns to generate quick deals. Consider whether bringing forward any deals forecasted to close in later months is possible.
Remember that even within the average sales cycle period, a relatively small shortfall when comparing the weighted pipeline to the target may be acceptable.
For example, month 4 may show a shortfall in the four-month average sales cycle. This position may be acceptable, provided that, based on historical experience, you are confident deals with a shorter sales cycle will enter the pipeline.
But what about the longer term? In other words, what about the months and quarters beyond your typical sales cycle?
2. Create New Opportunities And Leads for Later Months
If your average sales cycle is four months, it's reasonable to assume there isn't enough weighted pipeline to meet your revenue targets in later months.
This shortfall will likely exist even if the 3x pipeline coverage approach suggests the funnel is big enough in these months. But as we've seen earlier, the 3x coverage includes unqualified opportunities and some likely to be aspirational rather than definable openings.
In other words, acknowledge that your weighted pipeline is unlikely to be adequate for months beyond your sales cycle, and focus on strategic account planning, proactive business development, and marketing activities that will create new leads and opportunities.
Taking these steps means creating a longer-term, early-stage funnel in which some leads morph into well-qualified opportunities by the time you reach your average sales cycle.
When it comes to creating executable account plans in Salesforce, you will likely find this blog post helpful:
How To Implement Alternatives to 3x Pipeline Coverage
We've seen that measuring pipeline coverage using the 3x approach is flawed. Instead, combining a weighted pipeline approach with strategic funnel growth is a significantly more robust and reliable approach to hitting your sales targets.
To implement an alternative to the 3x pipeline coverage approach, take a structured approach by breaking the steps into three categories – people, process, and technology.
Remember, for maximum impact, you should integrate these steps with a broader sales enablement program that addresses the end-to-end sales and marketing revenue cycle.
Let's start with technology.
Pipeline Coverage | Recommended technology-related steps
I recommend the following technology-related steps.
Clean up out-of-date opportunities. When I first look at the sales pipeline of many clients, I see that they often contain old opportunities with close dates from the past. Some deals will still have legs, but others will likely be dormant. Either way, getting an accurate view of the weighted pipeline is challenging without cleaning up these deals. I've written a specific blog post that will help you with this step:
Don't Let Your Sales Pipeline Look Like a Bedraggled Washing Line.
Ensure the consistent use of opportunity stages. No subject causes as much angst during a Salesforce implementation as the question of which opportunity stages to implement. However, having a clearly defined set of stages with unambiguous definitions and clear exit criteria is essential if you want an accurate projection of the weighted pipeline. You'll find this blog post invaluable in achieving this:
How To Set Clear Opportunity Stages in Salesforce.
Implement reports and dashboard comparing weighted pipeline with quota. You can do this in several ways, including building your own reports and dashboards. I also recommend you look at our dedicated app. This solution eliminates work for salespeople and provides a comprehensive and robust reporting solution. Here's where you can learn more: GSP Target Tracker app page.
Implement pipeline quality metrics. For managers, it's challenging to quickly review all the opportunities in a busy pipeline and identify those you should be sceptical about. However, the metrics of # Close Date Month Changes, # Days Open, and # Days Since the Last Stage Change are vital – they enable you to identify deals that need further scrutiny quickly. Have your system administrator build these metrics using Flows or Apex; alternatively, the metrics, associated reports, and dashboard charts come pre-built as part of the GSP Target Tracker app.
Implement Account Planning within Salesforce. Creating and tracking executable account plans is critical for driving revenue from new and existing strategic customers. You can use the newly released Salesforce account planning functionality. Alternatively, you can use the more comprehensive yet straightforward app that we've built. Use this page: Create Account Plans in Salesforce.
Also, I recommend reviewing this blog post describing account planning best practices: How To Create Account Plans In Salesforce That Actually Work.
Next, let's examine some of the process changes you will likely need to make when implementing a pipeline coverage approach.
Pipeline Coverage | Recommended process-related steps
I recommend the following process-related steps.
Define a weekly pipeline review cadence. The most successful sales organizations I've worked with have a weekly pipeline review. The sales cycle length doesn't matter; the pipeline reviews happen every week. Only an immutable act of God prevents a review from taking place.
Define the pipeline review methodology. The pipeline review methodology defines how people undertake the actual reviews. For example, the methodology defines which reports and dashboard charts are used and in what order. It specifies the preparatory activities that salespeople must undertake. It describes the quality metrics that get reviewed and enables leaders to understand what 'good and bad' look like. It ensures a consistent method of recording actions, documenting the next steps, and tracking actions.
Define a key account plan cadence and methodology. This activity is even more critical in many organizations than the pipeline process and methodology. That's because it takes place less often and has a lower level of urgency compared to the pipeline review. However, neglect it at your peril—without regularly reviewing account plans, business development initiatives, and marketing campaigns, you are leaving the longer-term pipeline growth to chance.
Finally, let's consider the people-related steps.
Pipeline Coverage | Recommended people-related steps
I recommend the following people-related steps.
Coach leaders on the pipeline review methodology. Don't assume business leaders, even those promoted from sales positions, know how to conduct a pipeline review. Instead, organize a program of training and coaching that equips leaders with the knowledge and best practices for applying your pipeline review methodology. If pipeline reviews are conducted via web meetings, I recommend you record these calls and provide in-private coaching to managers on how to optimize the effectiveness of funnel reviews.
Coach salespeople on pipeline self-management. No salesperson should come to a pipeline review half-prepared (or even not prepared at all). However, you likely need to coach salespeople on your expectations and how to conduct the preparation. As with managers conducting pipeline reviews, assuming everyone will automatically know how to do this is a mistake.
Coach everyone on writing executable account plans. In the long term, coaching leaders and salespeople on producing high-quality key account plans with executable objectives may be the biggest bang for your buck in hitting your sales targets. That's because most people find it challenging to write excellent account plans, and even when they do, the objectives and actions quickly get forgotten about in the whirlwind of day-to-day activities.
Claim Your Complimentary Review
If you like what you've read in this article, here are some immediate steps you can take to improve the way you track pipeline coverage in your business.
- Claim your free pipeline coverage review. Contact us, and we'll arrange a web meeting to discuss pipeline coverage in your business. We'll give you solid pointers and recommendations that will get you started. There's no expectation of an ongoing dialogue and no strings, just a straightforward conversation resulting in some practical advice. Here's how you arrange that call:
Arrange a pipeline coverage conversation.
- Review the GSP Target Tracker app. You've seen why the 3x pipeline coverage is flawed. That's why we built the Target Tracker app. It lets you compare pipeline coverage (and historical performance) versus target at the salesperson, team, company and product levels. Here's where to learn more.
- Review the GSP Account Planning app. To grow the longer-term funnel, proactive key account plans for strategic customers, prospects, and partners are essential. Unfortunately, these plans don't happen by chance. You need a straightforward yet powerful way to create and track these plans in Salesforce. That's what this app gives you. Here's where to check it out:
Don’t have time to read the entire Blog Post right now?
No problem.
You can download the entire “Your Sales Forecast Is Probably Wrong” eBook for free by completing the form below!