Mythbusters: What is your Ideal Sales Pipeline-to-Quota Ratio?

Are you using Download our Free Pipeline Analytics App to visualize your sales pipeline.

This week on Mythbusters, our crack team of scientists and specialists looks to shatter more conventional wisdom, old wives’ tales and perpetuated myths and lies. Does a goldfish’s memory REALLY only last for 3 seconds? Can mirrors REALLY be used to make a death ray? Do you REALLY need a 3x sales pipeline-to-quota ratio?

Wait. What? You DON’T need a 3x sales pipeline-to-quota ratio?

While we might not be an elite mythbusting team with our own show on the Discovery Channel (yet), we are determined to help sales managers overcome the traditional biases and conventional sales wisdom that insist a 3x (or more) sales pipeline-to-quota ratio is absolutely necessary for any team to realistically hit its targets. This archaic line of thinking suggests that in order to produce X amount of revenue, a rep must have a sufficiently filled opportunity pipeline of n(x), where “n” is the multiple of pipeline to quota. Traditionally, this “n” has been 3. If sales managers were to subscribe to this axiom and expect their reps to close $10 million worth of deals this quarter, that means they must provide a pipeline that is valued at $30 million.

The question is whether this 3x ratio is a data-backed rule or simply the product of a “that’s how it’s always been done” mentality that is pervasive throughout the sales industry.

Interactive Sales Benchmarks

See how your company stacks up against others in your industry by exploring our filterable Sales Performance Benchmarks.

Many sales organizations reflexively apply the industry standard of a 3x sales pipeline-to-quota ratio. Since this number has been bandied about among sales organizations for decades, many companies unthinkingly adopt it, treating that ratio as a one-size-fits-all blanket solution. By looking at historical conversion rates, companies can gain a clearer picture of what their true sales pipeline-to-quota ratio is. A sales manager looking at this report, in conjunction with the overall won/loss report for each quarter, can determine how much revenue resulted from the corresponding pipeline value that quarter and with some simple division, come up with an accurate sales pipeline-to-quota ratio that is more accurate than a blanket 3-to-1.

However, even more worrying than adopting a 3-to-1 sales pipeline-to-quota ratio is the fact that companies looking to increase quotas simply demand ever more pipeline, pushing the ratio up to 4x, 5x or more. This incessant demand for more – more revenue! more pipeline! – is indicative of a failing sales philosophy.

The truth is that companies don’t necessarily need more sales pipeline – they simply need better sales pipelines, as well as more realistic quotas and improved conversion rates. Let’s break down each of these three areas leading to improved sales pipeline-to-quota ratios.

Tighter Sales Pipelines

Research has shown that companies with philosophies demanding quantity over quality – 4x or 5x quota in their sales pipelines – unsurprisingly tend to have lower quality leads within their sales pipelines. Instead of qualifying leads through marketing channels or other stringent ways of making sure that these leads fit their ideal customer profile, these organizations simply cast as wide a net as possible, in an attempt to boil the ocean.

This creates a lot of unnecessary work for your sales reps, putting a vast number of unqualified leads on their plate This will drive down their activity efficiency ratios, as a majority of their many calls will ultimately fall on deaf ears. Help your reps prioritize opportunities in their sales pipeline – especially Marketing Qualified Leads (MQLs) –  by implementing stricter qualification methods at the top of the sales funnel. When your lead gatekeepers are more alert, only the best prospects who are most likely to convert will trickle through the pipeline.

Accurate Sales Forecasts

Having an accurate sales forecast – or more importantly, a history of accurate sales forecasts – can help you determine the best pipeline-to-quota ratio for your company. For starters, instead of simply subscribing to the 3x ratio of yesteryear, look at your historical conversion ratios. If a whole year’s worth of sales results suggest that you only need a 2.5 or 2x sales pipeline-to-quota ratio, then why are you slaving away to fill your sales pipeline to hit that magic 3x number? Listen to your data, for it is telling the real story.

Careful sales pipeline management also involves identifying potential red flags that could sink the accuracy of your sales forecast. One particularly critical sales forecast killer is the size and value of deals, especially when they are substantially larger than average. Big deals (2x or more above average) tend to have lower likelihoods of closing and longer sales cycles. These factors should be noted by sales managers when conducting sales forecasts and taken with a grain of salt. Just as sales organizations should not adopt a one-size-fits-all approach with their sales pipeline-to-quota ratio, sales managers should not treat every opportunity in the sales pipeline with a blanket method when forecasting.

Improved Conversion Rates

Finally, instead of stressing over how to increase the sales pipeline in order to meet quota, sales managers should be focused on coaching their reps to improve their conversion rates. After all, if every rep was able to double their output and improve their ratios by 2x, then sales organizations would only need a 1.5x sales pipeline-to-quota ratio, right?

While such substantial improvement – and subsequent decrease in necessary sales pipeline – is unrealistic, marked improvements in the conversion rates of sales reps is highly attainable. Sales managers simply need to study the data more closely and spend more time coaching, beginning by looking at the sales funnel for every rep. The sales funnel reveals conversion rates between stages for each rep. This is a great area to begin attempting to find weaknesses in a sales rep’s selling process.

(Download our Free Sales Funnel App for to visualize your conversion rates.)

For instance, if a rep is converting extremely well through the first 4 stages of the sales funnel, only to see a dramatic fall-off at the end, perhaps he or she is negotiating poorly. If the inverse is true – where a rep has poor conversion rates at the beginning but is able to close a majority of opportunities that make it to the end – perhaps that rep isn’t qualifying leads well enough. Studying the sales funnel intently is the key to finding salient points for analytical sales coaching.

Sales managers need to start thinking outside the box in order to keep up with increasingly innovative competition. A great way to start is by ditching archaic business practices and philosophies, such as the blind faith in a 3x sales pipeline-to-quota ratio. Shatter that myth by looking at your historical conversion ratios and coming up with a truly accurate ratio, while finding new ways – instead of more! more! more! – to improve on your sales pipeline conversion rates.