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Why is Pipeline Management Important to Construction Companies?

June 29, 2022
Erick Vargas

Companies that practice effective sales pipeline management experience significant increase in their growth rate and revenue, according to a study published in Harvard Business Review. The process of getting pipeline management under control isn’t difficult, especially when you harness the power of a proven program. Yes, there’s a learning curve, but it is short, and the long-term rewards will soon be seen.

What is a sales pipeline?

Your sales pipeline provides a complete visual picture of where your leads are in each stage of the sales journey including prospecting and lead qualification, follow-up calls and meetings, proposals and negotiation, and ultimately sales.

A successful sales pipeline will have a consistent, incoming supply of high-quality sales prospects, a short sales cycle length, and a high conversion rate. To keep a sales pipeline performing at the highest level, it must be well-managed.

Managing your pipeline is crucial to the success of your construction company because the information you gather when monitoring the pipeline gives you a roadmap for how to improve your rate of sales and boost your profit margin.

Any contractor, from solar energy to roofing to HVAC to concrete, etc. needs a properly managed sales pipeline. It provides you with the knowledge you need to make profit-boosting decisions about your business and implement strategies for growth.

Man holding a construction hat inside of a warehouse. Graphics of digital icons overlaying the image.

Make Accurate Forecasts and Manage Financial Health

Details – Pipeline management allows a construction company manager or owner to see where each sales rep is in the sales process with each lead they are working on and to make accurate forecasts about revenues.

Big picture – Pipeline management gives you an overview of the future financial health of your company. It does this by determining the value of the leads in the pipeline, factoring in your average close rate, and calculating revenue.

It’s quite simple when reduced to an equation:

3-month Sales potential in the pipeline x Close Rate x Average Value of Each Sale = Revenue (minus costs = profit).

For example, Sales potential ($380,000) in the pipeline x Close Rate (35%) x Average Profit Value of Each Sale/Revenue (gross revenue minus costs = profit) of 17%. Or $22,610 profit.

And of course, in the “worst case” scenario, if the current value of leads in the pipeline is not adequate to meet the financial needs of your company, resources can be allocated to increase lead generation and conversions to sales.

Evaluate Each Stage of the Sales Cycle

If you don’t have a firm grasp on what’s happening in the process from gaining leads to closing sales, you can’t make effective adjustments that will lead to increased profits. You’ll just be guessing. And that isn’t a good business model.

Managing your pipeline allows you to monitor the progress of each potential customer in each stage of the sales cycle and decide which actions are necessary to move them quickly though the stages without them feeling rushed. That is a challenging task, and a proven CRM (customer relationship management) software is indispensable.

Speed Up the Sales Process

Managing your sales pipeline will clearly show you which sales techniques speed up the sales process and achieve better results. You can also see at which stage or stages in the pipeline movement slows or stagnates and take action to correct the problems. In short, effectively managing your sales pipeline will create faster movement, and therefore more sales. The faster the potential customer moves through the pipeline, the sooner revenue will be generated, of course, and resources can be used to capture the next lead and sale.

Help Create a More Effective Sales Team

Managing your sales pipeline allows you to keep your sales team accountable by reviewing each sales rep’s activity including their ability to quickly move their potential customers through the pipeline.

When reviewing the pipeline, you can see how long it takes each sales rep to follow up with the leads they are working on throughout each stage of the pipeline. Finding and resolving follow-up issues is a major factor in increasing sales.

Tracking key sales metrics can help identify challenges and assist each sales rep with any performance issues.

Team working in an office, going over data on a laptop

Focus Your Sales Resources

A well-managed sales pipeline can help increase total deal volume, deal size and revenue by showing you which type of leads are the most profitable.

Sales pipeline management will allow you to determine who your best customers are and how they made contact with your business.

Take a few minutes to try this out. Review all of your sales over the last 6 to 12 months, or more. If you are a residential construction company, look at homeowner age, income level, household size, and where they live. You should see patterns emerge which can lead you to your typical customer, also called your “target demographic”. Once you know who your target is, you can direct your marketing toward those people.

Once you identify the type of lead that is most profitable, you can become more selective about the opportunities you pursue and focus your resources on generating those type of leads, rather than wasting time on the type of leads that are unqualified or unproductive.

See Ineffective Tactics and Dead Leads

If certain tactics or activities aren’t helpful in generating leads or convincing them to move along the pipeline, they can be eliminated, and new approaches can be instituted.

When you find leads that aren’t moving through the pipeline, you can work to find an alternative method to get them to the next sales stage or remove them from the pipeline all together.

Pipeline Management Equals Accurate Data

Pipeline management provides you with the ability to make decisions based on real data, rather than on gut instincts. Take advantage of the info provided by your pipeline. Data analytics are the key to maximizing the efforts put into marketing and sales.

Other data your pipeline provides includes your company’s average conversion rate and the conversion rate for each member of the sales team. You can clearly see whether the company and each salesperson is on track to meet the goals.

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