Did you know that 50% of high-performing sales organizations (the ones surpassing quota) have a structured sales process in place?
Top teams use metrics and data to drive their decisions and set realistic goals for their departments and reps to optimize their sales cycles.
One awesome metric that can help teams measure the health of their pipeline and how quickly deals move through it? Pipeline velocity.
What is pipeline velocity?
Standard physics defines velocity as the speed of an object in a given direction.
In sales, pipeline velocity refers to how deals move from the start of the pipeline to the finish line, aka. where a deal is won or lost. It’s essentially a measure of how fast you move what’s in your pipeline through to close.
This equation is designed to give salespeople the average dollar amount coming in on a daily basis.
How do you calculate pipeline velocity?
Pipeline velocity = (qualified opportunities x win rate x deal size) / (length of sales cycle in days)
Let’s break down the metrics in the equation above.
Qualified opportunities are the number of deals you have (which can be found in your CRM) that are qualified, or that have expressed interest in buying your product or service.
Win rate is the percentage of deals you win. Your CRM will likely have this data, but if you need to calculate it yourself, you can do so by dividing the total amount of deals you win by the total amount of deals you had in a given period.
Example: You had a total of 100 deals in October. You won 60 of them. So, your win rate is 60%.
Deal size is the average dollar amount of your deals.
Length of sales cycle is how many days it typically takes you to get a prospect from first contact to close.
Let’s take a look at a calculation example of pipeline velocity.
You had 10 qualified opportunities and won 50% of them. The average deal size for these 10 opportunities was $10,000. It takes you 30 days to move a prospect from contact to close.
(10 x 50% x $10,000) / 30 days = $1,667
With the above numbers, you’ve got an average of $1,667 moving through your pipeline on a daily basis.
How can pipeline velocity help sales teams?
The goal of pipeline velocity is twofold.
First, sales leaders want to move deals through the pipeline quickly. Second, teams want to increase the number of qualified leads (and decrease the number of unqualified leads) in the pipeline.
Tracking pipeline velocity can measure the effectiveness of the two goals above. It can also be helpful when it comes time to set realistic sales quotas and goals, because they offer an accurate measure of what’s coming in every day.
How can you increase pipeline velocity?
Despite all the metrics involved in calculating pipeline velocity, there are really only two ways that you can improve it (without changing your pricing).
1. Speed up the deals moving through your pipeline.
This means you need to optimize your sales cycle to make it as efficient as possible.
For example, your current sales cycle might be 30 days and involve a deal moving from an SDR (sales development rep who gets the lead) to an Account Manager (who qualifies the lead) to a Technical Account Manager (who closes the deal).
But, you might find a way to cut it down by a few days by moving directly from SDR to Technical Account Manager.
2. Increase the number of quality leads in your pipeline.
It might seem like adding as many leads as possible to your pipeline is best—but it can actually hurt you. Focus on putting quality leads in the pipeline; otherwise, your reps are wasting time on leads that won’t convert to won deals.
To improve the quality of the leads in your pipeline, you need to know your personas (if you’re B2C) or ideal company profiles (if you’re B2B).
A persona is the profile of a qualified prospect. Their age, location, and title might all play into your persona.
Ideal company profiles (ICPs) are similar. You need to know the average revenue, number of employees, and location for your ideal customer.
When you’re familiar with what makes for a qualified prospect, you can pursue those personas or ICPs and add more qualified leads to your pipe.
Another important thing to remember is that reps need to disqualify an unfit prospect as quickly as possible. Find out more about hot leads here.
Improve your pipeline velocity with these tips.
The following hacks are proven methods for decreasing sales cycle length and adding more qualified leads to your pipeline.
Work with other departments.
The rise of SaaS applications these days is making products more complex—and in turn, sales cycles are often longer.
For example, a technical SaaS product that’s customizable for each prospect (like Marketo) likely has a longer sales cycle than something more simple, like Trello.
Realtors also face longer sales cycles, as do many marketing agencies and other firms who sell high-ticket consulting services, since high-ticket prices mean prospects take more time to think through a purchase.
But what can sales teams do to shorten the sales cycles like these?
One of the best ways to shorten sales cycles is to provide plenty of relevant content to your customer. You could work with your marketing and product teams to create valuable content that supports different parts of your sales cycle.
For example, a blog post about your industry is great for educating a prospect early in the sales cycle, while an in-depth product handbook benefits prospects later in the sales cycle, when it’s time to sign the contract.
Check out this supporting blog example. A marketing agency that targets retail businesses is selling a service to help their customers prep for Black Friday. Sales reps can include this blog in their follow-ups:
If you sell a premium service (which can also have longer sales cycles of 30+ days), then provide clients with content about the types of services you offer.
Case studies are another prime example of content that supports sales teams. Have case studies that highlight the biggest selling points and top benefits of your product/service. Here's how MailChimp does it through videos:
Get prospects to their Aha! moment sooner.
The “aha moment" is typically a product marketing or product management term. It refers to the moment a prospect realizes your product can help them—almost like a eureka moment—but with your product.
As a sales rep, you can guide your prospects to these moments. Learn about their companies and their needs, and take them through your product to the features that are most likely to alleviate their pain.
Make sure that your marketing team creates valuable content around these aha moments (For example, in case studies.)
If you sell a service, your clients will still have aha moments! These are the moments when customers realize your service will get them to their goals.
For example, if you sell marketing services and you perform an SEO audit for a company looking to improve SEO, that’s a perfect opportunity to show them you can help them. You run the audit and get on the phone with the prospect, hold their hand, and show them with physical evidence (the audit report) that you can accomplish exactly what they need.
Shorten your trial period.
If you offer a free trial, what would happen if you shortened the trial period?
SaaS companies have made the “free trial” an expectation of most prospects. Even service companies like SEO firms offer free SEO audits.
What would happen if your company went from a 14-day trial to a seven-day trial?
Your prospects need to learn how beneficial your product is to them, quickly. If your prospects get to the aha moment on average by day four, then you can shorten your trial from two weeks to seven days. That could speed up your sales cycle by seven days and improve your pipeline velocity.
Make your proposal a contract.
If you’re a consulting firm, what would happen if your proposal was also a contract?
Even if this tactic only shortens your sales cycle by one day, it can make a world of difference. For instance, if we shorten our example above ($1,667 per day in pipeline velocity) by one day, we’d have an increase in pipeline velocity of over $20k per year.
Use pipeline velocity to measure the quality of your pipe.
“Speeding up my sales cycles and increasing the quality of leads in my pipe really hurt my business.” — said no sales leader, ever.
Pipeline velocity can help you measure and improve the speed at which deals move through your pipeline and the quality of your leads.
Make sure you know your personas and ideal company profiles so you can target the prospects most likely to convert to buyers. Stay creative and work with other departments in your company (like Marketing) for support around your sales cycles so you can make them more efficient. And above all else, make sure your leads are high quality as that will speed up your conversions more than anything else.
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