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The customer pipeline [Selling
Posted on January 22, 2013 @ 09:15:00 AM by Paul Meagher

When investors evaluate a proposal, one of the most critical aspects of the proposal they must judge is whether the customer pipeline supports the growth projections.

The best data that an investor can use to evaluate the customer pipeline is historical sales data. The investor can see if the trend in the sales data supports the growth projections. Not all companies, however, are in the revenue generation stage, or don't have much of a history built up, so for these companies, investors might rely on:

  • Whether the management team has experience, relationships, or assets that support growth projections.
  • Whether the company has any sort of first-mover advantage that might lead to fast growth.
  • Whether the company is in a growth market and are well positioned to take advantage of it.
  • Whether the company actually has the capabilities to execute on their growth projections if they are successful in acquiring more customers at the required rate.
  • Whether the company is in a market where buy decisions can be made quickly or not. If they are in the health care industry, for example, it might be difficult to quickly sell software units because of the bureaucracy involved, union resistance to changes, regulatory burden, etc....

For entrepreneurs seeking investment in their proposal, it is important that you be able to discuss your customer pipeline and how it supports your growth projections. Investors will generally be skeptical of growth projections in the first place, but they will want to gauge your customer pipeline and whether it is likely to generate enough new customers to support increasing revenues over time.

One caveat is that revenue growth can occur by gaining more of a share of customer spending, rather than generating new customers per se, so just looking at the number of new customers over time can be misleading if the company intends to grow revenues by increasing their share of existing customer spend. The customer pipeline not only bifurcates to reach new customers but also widens to handle more of a given customer's spend.

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