A Customer Relationship Management (CRM) system is a crucial tool to track the opportunities and customer relationships necessary to grow your company. A CRM system cannot, however, convert those opportunities into bottom-line profit. Apply pipeline pricing to translate CRM data into results that achieve your revenue goals.
Move From Solid Possibilities to Well-Timed Results
CRM data furnish leadership with a centralized way to review and share critical information, such as the probability of winning (pWin), start and end dates, sales funnel phase, and other variables that help keep your team customer-focused. A segment of these opportunities then becomes part of your annual financial plan. Pipeline pricing translates CRM data into results your firm can accomplish within that plan year.
Pipeline pricing provides critical timing for revenue and cost data that includes:
- Consideration of realistic start dates and ramp-up timing.
- The labor, direct materials, subcontract cost, and other direct costs needed to deliver the work.
- Revenue that can be delivered based on planning assumptions.
When factored by pWin, this leads to a revenue and cost profile that:
- Allows for a holistic view of how opportunities impact your financial results.
- Drives support costs, such as overhead labor and fringe benefits.
- Factors into your income statement forecast.
- Has a significant impact on your balance sheet forecast.
- Moves you toward Defense Contract Audit Agency (DCAA) compliance for estimating systems and indirect rate development.
Do Not Skip This Critical Step
Adding opportunity line items may be the most important effort in maximizing your pipeline. Business development teams are known to set a lofty revenue goal even though acquisition process timing and the remaining fiscal calendar make the target virtually impossible. Validating the realism of input is an often-missed step in financial planning:
- Get real with your goals by adding the line items for each opportunity that will drive revenue and profit. Access a detailed description of this process in Nue’s guide to pipeline pricing.
- Once pricing is done, review results for each opportunity. If your contract profit margin is too high, you are likely missing costs or overstating revenue. If the contract profit margin is too low, consider a review of your ability to perform the contract and your desire to pursue the opportunity.
- Once you review the pipeline summary of all opportunities, you are ready to determine their impact on your financial plan.
Get Ready To Reap Bottom-Line Benefits
Pipeline pricing input provides the necessary data to integrate into your financial plan. Tie revenue dollars, direct labor, and other direct costs to a general ledger (GL) account for financial planning with a consolidated pipeline view. You can also incorporate revenue and cost by project directly into a full contract waterfall report and visualize your revenue flow based on sources of business.
Another key benefit of pipeline pricing is to go beyond revenue and direct costs to delve into other indirect and variable costs:
- Indirect Costs – When you add a utilization percent less than 100% to your plan, the balance of available time goes to indirect labor, such as overhead. Leave schedules will calculate paid leave (e.g., holiday and vacation/paid time off). Based on full-time equivalents (FTEs), pWin, cost, and other factors, these dollars are calculated and incorporated directly into the financial planning by GL account.
- Variable Costs – Pipeline pricing scales your financial plan to incorporate variable estimating assumptions. Once you factor in pipeline labor and non-labor costs, you can determine other drivers. Examples include updated FTEs used to estimate costs based on employee count, labor summarized for base compensation or total compensation (including bonuses), and updates of assumptions when revenue/sales change.
Changing any pipeline pricing assumptions, such as the number of FTEs, direct costs, percentage utilization, and cost or bill rates, will update pipeline pricing and flow through to your financial plan for revenue, direct cost, and variable and semi-variable indirect costs.
Demystify ‘What Ifs’ With pWin Pipeline Updates
Perhaps the most significant benefit of “what if” pipeline updates is that changes are made to the pWin for a rapid view of the flow-through impact. Change the pWin, recalculate, and quickly view dashboards and reports to see the impact on your top line, bottom line, cash, indirect rates, and other key financial measures. You can maintain your base plan and copy the entire pipeline and other assumptions to a new scenario or run comparisons between scenarios.
Contact Nue today to gain the pipeline pricing insights you need to select the opportunities that fit your business strategy and maximize profitability.