Pipeline Velocity: What is it and How do I Track it?

June 29, 2016

This introductory post on the concept of pipeline velocity is going to be one in a series in which we incorporate insights from MRP’s data scientist, Cary Correia, in order to take a deep dive on the subject. In the coming weeks, you can look for a progression of more in-depth posts about pipeline velocity that will collectively serve as a comprehensive resource on the topic. This mini-series will be one of many to come, so we hope you enjoy!

What is Sales Pipeline?

The sales pipeline is a representation of the journey that your customers take through the buyer journey. It allows sales representatives to forecast their sales pipeline and gather important metrics against their sales goals such as average deal size, time to close, and average number of deals.

What is Pipeline Velocity

Pipeline velocity (ˈpīp-ˌlīn və-ˈlä-sə-tē) noun: The speed at which your leads move through your sales pipeline to close deals.

There are a lot of reasons you need to know how quickly prospects are moving through or expected to move through your pipeline: so that you can know if you are hitting your revenue goals, so that you can better predict future sales, so that you can get a feel for the activity levels of different markets…the list goes on. Today, we’re going to talk specifically about pipeline data collection and analysis.

How to Track Pipeline Velocity

Sales Pipeline Metrics

There are a few key metrics that come into play here: qualified leads/opportunities, average win rate, average deal size, and length of the sales cycle.

  • Monitoring the number of qualified opportunities you have at a given time tells you a lot about lead velocity because you can tell if your lead gen opportunities are improving or flopping.
  • Your win rate – the percentage of leads that convert – gives you the opportunity to improve your pipeline velocity by monitoring the momentum of prospects at each stage of the process.
  • Naturally, a bigger deal size is always better. A lot of lower-value prospects moving rapidly through the pipeline might not generate as much revenue long-term as a few higher-value deals.
  • And of course, sales cycle length is what gives us a sense of the speed. Any salesperson knows that the longer a prospect is left in the pipeline, the less likely they are to convert, so you want to make sure the sales cycle is short..

Now let’s put those sales pipeline metrics to work.

The Formula

Tracking pipeline velocity is a lot like tracking regular velocity, which is to say you divide a change in position by the change in time. In the case of pipeline, the equation is: (number of qualified opportunities in your pipeline times the overall win rate percentage of your sales team times the avdeal size (in dollars) for your sales team)/Sales Cycle (days). Using this formula, your result will be the estimated amount of revenue you have coming through the pipeline every day. The higher that number, the better your pipeline velocity.

If the sales manager benchmarks that number often enough, they will be able to set an attainable but ambitious revenue goal to hit by the end of the year, and use the estimated revenue to create a linear graph toward that goal. On the same graph, you should be overlaying a line tracking where you actually are in terms of revenue for the year so that you can visualize how on-track you are to hit your goal.

In Summary: Why?

If you track your pipeline velocity, you can rule your pipeline – not let it rule you. It gives you actionable data:

  • By breaking down your opportunity progression stage by stage, you can figure out where problems lie and where successes are thriving. If you’re losing prospects after they hear the sales pitch, then maybe your pitch materials need a little coaching. If you’re losing prospects during the buying process, maybe your process isn’t in tune with the customer’s needs.
  • By tracking your sales cycle length, you can determine when you’re about to lose the deal and use alternative strategies to save the deal.
  • By tracking your deal size, you can figure out what you’re doing that seems to work to get bigger deals in the pipeline. Is it better targeting or better pricing or better bundling?
  • By tracking where your opportunities are coming from and analyzing where you’re not able to penetrate you could shift resources (i.e., sales people and marketing budgets) to crack a tough territory.
  • You can even recognize the traits of top reps and look for gaps in your remaining staff to create new and effective sales training techniques.
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