Using advanced metrics and analysis to pull insights and next steps from the data in your sales pipeline is the latest and greatest practice in optimizing the sales process.
Today’s best performing sales teams are using the sales pipeline velocity formula to drive strategy.
Number of sales-qualified leads in your pipeline times the overall win rate percentage of your sales team times the average deal size (in dollars) divided by your current sales cycle in days.
If you need to brush up on the metrics used in this formula, check out our post on sales pipeline metrics to track.
Why is it called pipeline velocity?
Velocity = distance ÷ time, like miles per hour or meters per second
Sales pipeline velocity = projected revenue per day. Think of it as the revenue that travels the entire length of your pipeline in one day.
It’s a metric that tells you how much revenue you can project to come in the door each day, and you want that number to increase.
The Four Levers of Pipeline Velocity
Take a look at the four metrics that are involved in this equation. Each one affects the other, but in the effort to improve the whole system, you’ll need to focus on specific areas and objectives. If you want to increase your pipeline velocity, look to make the following improvements in your sales process:
- Increasing the number of sales qualified leads.
- This would probably be a marketing or BDR department objective. Lead generation is a whole other beast on the other side of the funnel with its own conversions to optimize and messages to express. Communicate to them what other information your leads should be interacting with to ensure they’re ready for a sales call.
- Increasing average deal size.
- Drive more value and upsell more customers or raise your prices. You can’t just change prices and spam leads with exorbitant offers left and right, but you can make an effort to increase your offer quality in conjunction with increased price.
- Increase your overall win rate.
- Identify drop offs between deal stages, diagnose what went wrong and incorporate solutions into your sales strategy.
- Read more: 5 Ways to Increase Sales Conversion Rates.
- Decrease the length of the sales cycle.
- At every stage in your sales cycle, there are opportunities to optimize and iterate. Getting rid of one day here, one day there, responding to leads faster, and more can have a big impact on revenue numbers in a given month.
Related content: How to Increase Sales Results without Burning Out Your Team.
What’s the point?
In short, more accurate revenue forecasts.
Today, data-friendly sales teams use a CRM (or even a fancy spreadsheet) to keep track of the opportunities in their sales pipeline. They might list out a sequence of stages or steps in their sales cycle, and then organize the contacts and the information on their opportunity within each deal stage.
If I asked those same sales teams to tell me how much money they project to make within the month, based on what’s currently in their sales cycle, they would probably use the weighted deals method of forecasting. This is a simple tactic that has its use cases but its results should not be relied upon as mega-accurate revenue projections.
When To Use Weighted Forecasting
This method attaches a percentage of likelihood to each deal stage in the sales pipeline that represents the probability of any of the deals in that stage to close. For instance, a lead that is still in the “nurture awareness” stage might have a 10% chance of making a purchase, while a lead that has had multiple meetings and is in the “proposal sent and in review” stage has a 70% chance of closing.
This might give you an idea of what revenue will be at the end of the month, but it’s not fully reliable. What’s happening is you’re taking every single deal, weighing it, and deciding it’s safe to assume this is the amount of money that comes in that month. What you end up with is a (somewhat arbitrary) portion of a large deal that generally wouldn’t even be paid in one month anyways.
Two Issues in Reliability with this Model:
- Time. Deals are closed when their specific sales cycle is completed, so the revenue your projecting might not actually be in your account during the period your forecasting.
- In the real world, you don’t end up with a just a portion of a deal. It’s either 0% of a closed-lost deal or 100% of a closed-won deal.
But this isn’t a useless tactic. Weighing deals is very valuable in terms of prioritizing your sales team’s efforts around the opportunities that have the highest potential impact on revenue. Take one $10,000 opportunity at a 70% likelihood to close, and another $50,000 opportunity at a 30% likelihood to close. The first deal has a weighted forecast of $7,000, while the second is at $15,000. It makes sense to get the team focused on that second deal, and it’s a reasonably dependable, standardized way of determining priority.
Read more on growing your revenue the smart way: The Ins and Outs of Sales Pipeline Management.
Our Final Tip: Remember the Big Picture.
Revenue growth. It’s easy to get lost in the weeds, especially when doing the detail-intensive work of sales pipeline management. Don’t forget that your efforts in maintaining and optimizing the end of the buyer’s journey all add up to growing your organization’s revenue in less time than before.
Read more on the big picture in our mega-helpful long-form guide to Understanding and Achieving Revenue Growth. It’s free, right here on the world-wide web, no email or download necessary. If you like it, just do us a favor and send it to your team.