Sales Pipeline Velocity Calculator
What is sales pipeline velocity?
Often referred to as sales velocity or sales pipeline velocity, the term "pipeline velocity" has gained prominence. This shift is particularly noticeable as B2B marketers are increasingly sharing revenue responsibilities with their sales counterparts. Go-to-market teams utilize pipeline velocity as a critical metric to measure the pace at which opportunities progress through various sales pipeline stages.
To calculate the sales velocity, the typical approach is to calculate the total cumulative value of closed-won deals within a specific timeframe and dividing it by the duration taken to win those deals.
This calculation yields an average velocity for the pipeline, serving as a performance indicator for the sales team that can help in pinpointing areas within the sales process that can be improved. Furthermore, the predictive potential of pipeline velocity extends to forecasting future revenue trends.
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How to calculate sales pipeline velocity?
Here is the formula to calculate pipeline velocity:
Pipeline Velocity= (qualified opportunities (created during lookback period) x avg deal size x win rate based on having been created and closed during that lookback period) / (Length of sales cycle / days in lookback period)
It is crucial to note that both the time frame and the parameters employed in this equation can be customized to align with your specific business requirements.
For example, you have the flexibility to compute pipeline velocity quarterly, annually, or even opt to use the value of ongoing deals instead of those that have been finalized. It is recommended to establish a uniform measurement approach throughout the entire organization.
How to use pipeline velocity to compare opportunity sources?
Looking at pipeline velocity in tandem with attribution data can unlock a host of opportunities. To optimize future budget allocations and strategic choices, it's essential to pinpoint the most lucrative drivers for your business. One way to take a strategic approach is by assessing the pipeline velocity, length of the sales cycle, and win rate across sources. This will unveil sources that consistently exhibit superior win rates, higher ACV, and shorter sales cycle durations.
In our above example, we can see that while referrals generated the fewest opportunities, they boasted the highest pipeline velocity due to their impressive ACV, win rate, and swift sales cycle.
Consequently, any efforts aimed at augmenting referral generation would prove exceptionally strategic. Drawing insights from the provided dataset, other potent tactics could encompass upselling endeavors to elevate the ACV of inbound opportunities, or initiatives to expedite pipeline progression for cold outreach opportunities, thereby reducing the average sales cycle duration.
Questions to ask yourself when looking at sales pipeline velocity
1. Are there discernible trends in the progression of pipeline velocity over time? Have you noticed an increase or decrease in the pace at which leads move through the pipeline compared to previous periods?
2. Is your budget allocation and resource distribution effectively aligned with your various pipeline sources? Are you strategically focusing your investments on the most valuable and efficient sources of pipeline?
3. Have you observed fluctuations from one quarter to another in metrics like Average Contract Value (ACV), sales cycle length, volume of leads, or win rate? Are there any indications of changes in your sales processes that could have contributed to these variations?
What is the most impactful metric that affects sales pipeline velocity?
Among the components of the equation, it is the sales cycle length that exerts the greatest influence on pipeline velocity, in contrast to factors like ACV, win rate, and opportunity volume.
There are few ways to influence and reduce the sales cycle:
1. One of the easiest ways to reduce sales cycle length is to ensure you instantly qualify your prospects after they submit a form and allow them to immediately book a meeting with the right sales rep.
This ensures that prospects don’t have to wait till your sales reps sift through all the leads in your CRM, manually qualify, and then reach out to them over an email to convince them to come to a call.
2. When SDRs want to hand off prospects to AE for a demo, provide them with an easy way to pass the baton. Reduce any administrative tasks that make your sales team frustrated and less productive.
Psst… RevenueHero lets you do just this and helps you reduce your sales cycle and reduce the age of your opportunities.
Two things to watch out when looking at pipeline velocity
1. Anomalies in sales cycle length: If there's a significant deviation in an opportunity's sales cycle length compared to others, ensure its accuracy. Should it disrupt the data pattern, you have the option to exclude it.
2. Small dataset concerns: When analyzing sources with a limited number of opportunities, exercise caution in drawing extensive conclusions from pipeline velocity data tied to that source.
For example, if there were just 3 opportunities originating from the "Referrals" source, boasting a 33% win rate and a $2M pipeline velocity, it's unwise to base major decisions solely on these figures. A sample size of 3 is unlikely to provide a scalable win rate, and the Average Contract Value (ACV) may not be replicable either.
FAQs about Sales Pipeline Velocity
A positive acceleration means opportunities are cruising through the pipeline faster, while a negative one indicates a slowdown. Pipeline acceleration works hand-in-hand with pipeline velocity, helping to spot trends in the sales process and make predictions about future sales revenue.
As a rule of thumb, opting for a reference period of at least a quarter, which averages around 91 days, is commonly advised.
While it's not obligatory for these opportunities to have originated within the same period, you can choose to impose such a requirement if desired.
For example: In the year 2022, Acme Corp moved 60 opportunities to closed-won out of 450 total opportunities that were successfully concluded. This results in Acme Corp's win rate being calculated as (60/450) * 100, which equals 13.33%
For example: During the year 2022, Acme Corp achieved the successful closure of 60 opportunities, accumulating a total contract value of $3,600,000. Thus, Acme Corp's ACV can be calculated as $3,600,000 divided by 60, resulting in an ACV of $60,000.
For example: During the year 2022, Acme Corp successfully closed 60 opportunities, with a combined sales cycle duration of 4000 days. This results in Acme Corp's sales cycle length being computed as 4000 divided by 60, which equals 66.66 days.