* This article originally published in Inc Magazine
Written by Inc : Staff writer

There are several good reasons why every small and medium-sized business needs to build and maintain an effective customer pipeline, but perhaps the most important one is that failing to do so can jeopardize your financial stability, says Yoon Cannon, a business growth expert, author and keynote speaker at Paramount Business Coach LLC. “If 80 percent of your company’s annual revenue is riding on 20 percent of your total customer base, then you risk a devastating hit to profitability from losing just one or two of your biggest clients,” she says. Grant Car done, author of Sell or Be Sold: How to Get Your Way in Business and in Life, adds that a pipeline structure is “essential to the long-term viability and growth of your organization. It is impossible to be too aggressive in this area.”

The thought of building a customer pipeline can be off-putting to some business owners and managers, but that is most often because they lack knowledge about what the process entails, says Hunter Belington, a principal at Closer Consulting, which specializes in the recruitment and development of sales professionals. “They aren’t sure what goes into one or how to manage it.” But building a customer pipeline doesn’t have to be expensive or difficult, especially if you break the process down into a series of key stages.

The goals of a customer pipeline include creating awareness, generating leads, converting leads to sales, boosting transaction value through upwelling and cross-selling and increasing frequency through reorders and repeat sales. You should begin by mapping out the sequences that best align with your ideal target market profile and the products/services you would most like to begin or continue offering them, Cannon suggests. “The low-hanging fruit is often your lower-price offerings in the early stages, and that’s a good place to start. But you should begin thinking about what you can offer at higher price points that might eventually provide a greater return on your investment,” she says.

The pipeline creation process should include measuring performance in each stage of the process, setting benchmarks against existing performance and establishing the potential for improvement. The pipeline must provide you with accurate metrics so that over time your understanding of the process and your ability to measure and boost performance will improve, says Jeff Connelly, a professor at the Acton School of Business and president and CEO of CMIT Solutions. “It is important to break down the process into phases so that you can measure each one. You can only improve it when you are able to measure it.”

Gathering, analyzing and leveraging customer information are critical activities, says Cannon, who breaks the process down into seven key stages. Stage one is prospects who respond to a free offer, indicating a willingness to learn more about you and your business. A subgroup of people who express interest in a low-risk offer emerges in stage two and is further refined by those who complete that transaction in stage three. “From the prospects in the first three stages, you should be able to identify those likely to be interested in your mid-price offerings. The ones who complete that transaction become stage five customers,” she explains. The final two stages are the high-price-point interest group and the high-price-point customer group, typically representing about 20 percent of your customer base but up to 80 percent of your profits.

It is important to note the nature of the customer information that is most valuable in an effective pipeline. For the most part, general demographic information provides little value; it is customer contact data, information requests and purchase patterns that are most useful. This crucial information can be leveraged through a segmentation process such as that described by Cannon, as well as through customer relationship management (CRM) and direct marketing. With CRM, employees answering incoming calls can know exactly who the customer is and what he or she last ordered. The same data can be used to do a better job of targeting direct marketing efforts, regardless of media channel.

Finally, building a culture of performance, learning and continuous improvement is essential to wringing maximum value from your customer pipeline. Metrics and performance benchmarks are part of that effort, but incentives, morale-building and fostering an enthusiastic atmosphere that is conducive to your business goals are at least as important. “For many SMBs, a culture of performance means a change in behavior to consistently measuring performance metrics for the first time,” Cannon says. “Continuous improvement is about a consistent focus on a daily or weekly basis to monitor results and change variables as needed in order to better meet your target market’s needs and do a better job of motivating them to become customers.”