Categories Articles, Sales and Marketing

Remember the equation Velocity = Rate/Time from your high school physics class? It makes the phrase “pipeline velocity” sound perfectly quantifiable. On this week’s Mythbusters, we are going to show you why sales pipeline velocity is NOT quantifiable, despite the meaningless formula for it floating around in the sales blogosphere.

Pipeline velocity has never really been defined, but you hear heads of sales using it quite a lot. “We want to improve our pipeline velocity,” they’ll say. But what does that actually mean?

(For even more detailed information on pipeline management, check out our FREE eBook: The Definitive Guide to Pipeline Management.)


What pipeline velocity means

Pipeline velocity refers to action in the pipeline – whether opportunities are coming in, moving through, and closing out of your pipeline (won or lost) at a steady pace. In other words, it is an offset to stale pipeline. “We want to improve our pipeline velocity” translates to “We want to decrease the number of stale opportunities in our pipeline and improve our methods of moving opportunities along.”

Sales VPs want to make sure their teams are creating a lot of opportunities in the pipeline, steadily moving them from stage to stage, and closing them whether by winning or losing. Moving deals to Closed-Lost is good for the hygiene of your pipeline because it ensures your open pipeline is honest. If your reps do not move stale opportunities to Closed-Lost, you cannot trust that your pipeline contains opportunities that could Close-Win.

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Why the equation doesn’t work

When your CEO asks you about pipeline velocity, he or she does not expect you to give a number. They would have no idea what it means. However, there is a formula out there that would reduce pipeline velocity to a single number. Advocates for the equation claim it is “a tool for predicting sales productivity over the course of a sales cycle.” Here’s the equation:

Pipeline velocity = [# of qualified opportunities * Win Rate % * avg. deal size in $] / length of sales cycle

This formula defines pipeline velocity as expected dollars earned per day.

Yes, it has some merit in showing that improving pipeline velocity means increasing the number of qualified opportunities entering your pipeline, increasing your Win Rate %, increasing the average value of each deal, and/or decreasing the length of your sales cycle.

But here is where the equation’s value breaks down. By this equation alone, you cannot tell the difference between the following two cases:

  • Case A

# of qualified opportunities: 100

Win Rate: 30%

Avg. dollars per sale: $5,000

Sales cycle: 45 days

Pipeline velocity = [100 * 0.3 * $5000] / 45 days

   = $3,333.33 per day

  • Case B

# of qualified opportunities: 100

Win Rate: 20%

Avg. dollars per sale: $5,000

Sales cycle: 30 days

Pipeline velocity = [100 * 0.2 * $5000] / 30 days

   = $3,333.33 per day

In both cases, you get the same number for pipeline velocity, but two sets of variables are different. In Case A, your Win Rate is 30% and your sales cycle is 45 days. In Case B, your Win Rate is 20% and your sales cycle is 30 days. Let’s say both cases are taken from the same company, but Case A represents the company’s numbers in July 2013 and Case B represents the same company’s numbers in October 2013. If the Sales VP focuses on the pipeline velocity number, $3,333.33 per day, he might say that there were no improvements or fallbacks in the sales process between July and October. But if he looks at each variable involved, he will notice that while the sales team shortened the sales cycle, the win rate dropped from 30% to 20%. Perhaps this is because his reps were so focused on shortening the sales cycle that they pushed potential customers too much.

So: the formula itself is meaningless. It is the variables driving the formula that are relevant and worth measuring and discussing.

How to improve pipeline velocity

Focus on making the inflow and outflow of your sales pipeline a predictable process. Audit it on a regular basis to make sure every single opportunity in your open pipeline is qualified. Talk with your reps about opportunities that appear stale. For example, if the average number of days a Won opportunity spends in stage 3 is 5 days, and you see an opportunity in one of your reps’ pipelines that has been in stage 3 for 17 days, talk to your rep about why he has not moved it to Closed-Lost. Maybe his contact is stalling, or maybe his contact went on vacation and they have set up a meeting for the following week. If his contact is stalling, tell your rep to get rid of that stale opportunity to make your open pipeline more reliable.


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