Billings
Billings = the total value of invoices sent to customers in a period
Stage Conversion Rate is the While Pipeline Value sums the total ARR of active opportunities in pipeline, weighted pipeline is weighted based on the current deal stage. Weighted pipeline value is a more accurate estimate of Closed Won ARR based on the current pipeline value.
Let's assume we have the following list of opportunities currently active in our sales process:
The total pipeline for these opportunities is $130,000. Additionally, we can also get pipeline totals for our two sales reps: Bugs Bunny ($85,000) and Daffy Duck ($45,000).
Note that Fabulous Factories - New Business is omitted from this sum, as the stage is marked as "Closed Lost".
We can summarize our pipeline by Stage to understand how much ARR is in each step of the sales process. To summarize the Pipeline ARR by Stage, we generate the following ARR table:
While we have the total pipeline value here, we can apply the weightings to more accurately estimate how much of the pipeline ARR will be Closed Won.
Probability to Close is a percentage that estimates how much of the ARR that is in a particular stage of a pipeline is expected to be Closed Won. Typically, Probability to Close will be lower in earlier stages of the sales process and higher in later stages of the sales process.
If we multiply the probability to close by the Pipeline ARR, we'll get the Weighted Pipeline ARR value in each stage.
$10,000
Probability to Close assumptions for each stage assume that deals in different stages have a different chance of being won. Deals in Stage 1 are 25% likely to be won, while deals in Stage 2 are 40% likely to be won, and deals in Stage 3 are 65% likely to be won.
After applying the probability to close to the Pipeline ARR, we now have $2,500 in Stage 1, $16,000 in Stage 2, and $52,000 in stage 3, for a total weighted pipeline value of $70,500. This estimate is closer to the real value we expect to have in Closed Won ARR.