Here in Boston, we love rowing. Every year thousands of us crowd around the Charles River to watch boats gracefully glide along the river as they race at the Head of the Charles Regatta. What most casual spectators don’t realize is all the components that go into making one of those rowing shells move as quickly down the river as possible (and it’s not nearly as graceful as it may look). Unlike with running, for example, just because you’re the best athlete doesn’t mean your boat is moving the fastest. For a crew to win a race, there are key variables that will lead them to be the fastest boat on the water: the best equipment, the cleanest technique, the best crew cohesion, and high mental determination to name a few.
Similarly, key components factor into one phenomenon that can show the health of your overall sales process. Within sales, moving plenty of high-value opportunities successfully through the pipeline is the goal of every sales VP. That movement is measured by pipeline velocity, a way for you to see exactly how you are succeeding in getting your prospects from one end of the funnel to the other. By measuring this, and each of the components that determine pipeline velocity, not only will you be able to benchmark and track how well you’re doing, you’ll be able to guide changes to your sales process and coach to build a better, quicker-moving team.
Measuring Pipeline Velocity
First, we need to understand what speed, or velocity, is. Velocity, in the physics sense, is the rate of change of position with respect to time. In math, it looks like this:
If you go 60 miles in one hour, you’ve gone (drum roll please) 60 mph:
Pretty simple. Pipeline velocity takes this idea and applies it to sales:
Here the “position” is your sales position, comprised of:
- The number of qualified opportunities in your pipeline
- The overall win rate percentage for your sales team
- The average deal size for your sales team
The “time” is the average duration of your sales cycle. Here you can see how that works with some numbers. If there are 100 opportunities available and your average win rate and deal size are 30% and $5,000, respectively, then your sales “position” is $150,000.
To determine your sales velocity you can divide this position by time taken, in this case, a 45-day sales cycle.
Therefore, with these numbers, pipeline velocity = $3,333. This is essentially telling you that every day you have ~$3K coming through your pipeline.
What it doesn’t tell you is if that’s good or bad. Just as you don’t necessarily know a VW Beetle is slow until you put it up against a Tesla, you will not necessarily know whether your velocity is fast or slow until you benchmark against your own team over time or against other sales teams.
Also important to note is that you can end up with same pipeline velocity with different variable components. For example, if there are 150 opportunities available and your average win rate and deal size are 50% and $2,000, respectively, then your sales “position” is still $150,000. Also for example’s sake, say the sales cycle stays 45 days meaning the pipeline velocity still = $3,333. This shows that it’s important to not only track how pipeline velocity as a whole is changing but take into account the trends of each component. What should be evident is that a change in any of the composite numbers—opportunities, win rate, deal size, sales cycle—impacts your pipeline velocity.
This is one of the reasons that pipeline velocity is an excellent metric to calculate and track. It combines all of these numbers in one, and you can see if you’re increasing or decreasing your sales effectiveness over time.
How To Increase Your Velocity
Obviously, everyone wants a faster pipeline—more valuable, won opportunities through the pipeline, in a quicker time.
More revenue, less time. Bingo.
To do so, you have those four variables to play with. To increase overall velocity, the numerators—opportunities, win rate, deal size—have to increase, or the denominator—sales cycle length—has to decrease. Or, ideally, both!
Let’s look at how you can change each of these numbers for the better, through both a more efficient sales process and better sales coaching of your team.
Increasing Opportunities – Know Your Conversion Rates By Stage
The number inputted into your pipeline velocity treats all open opportunities the same, no matter whether they are fresh or just about to close. This aggregated number is good for a headline view, but not actionable. For that, you have to break the number back down into your distinct funnel stages and look for where opportunities are stalling.
If there is a particular stage where you are losing the most opportunities, then that is where you need to put the work first. In the above case, there is a significant loss between the evaluation stage and the buying process stage (44% loss). What is happening there that is causing so many prospects to try out your product, but not want to go any further? This could be:
- A process problem—the need wasn’t identified in the qualification stage, and when they evaluated the product, the potential customers couldn’t see the value. By defining exactly how each prospect should be qualified as early as possible, you can increase the conversion rates between stages.
- A coaching problem—the sales reps weren’t able to show the value of the product to the prospect, even when there was a need. In this case, individual reps can be better coached in the demo and trial phases, to show prospects the core value of your product.
For the original numbers, a small 10% increase in pipeline opportunities, either new ones entering the pipeline or an improvement in conversions throughout (or both), can easily increase your pipeline velocity:
Increasing Win Rate – Know Why You Lost
If you want to win more, you have to know why you lost. Determining the “why” of your closed-lost deals should be at the forefront of any sales leader’s mind. By finding why you are losing the most deals, you can tailor your sales and marketing strategy towards those issues, and start to turn the closed-losts into closed-wons.
Best practice is to have a field in your CRM to enter a closed-lost disposition be it “timing”, “need”, “lost momentum”, “poor qualification” and so on. Keeping track of how many closed-lost opportunities you’ve had isn’t enough. By requiring sales reps to note why an opportunity is lost you’re one step closer to identifying areas in your sales function that could be improved.
In this scenario, it’s pretty clear where the lost opportunities are going: timing and lost momentum.
- Timing is likely a process problem. Not identifying through the right qualification process whether the prospect is capable of purchasing the product at this time, whether they are really in need right now, or whether it is a priority for the company sets an opportunity up for failure.
- Lost momentum comes down to a coaching problem. Are the reps driving the sale in a Tesla, or are they a passenger in a VW? Sales reps need to set out mutually agreed next actions at each stage to keep the momentum going. This could be something as big as agreeing to legal terms, or as small as scheduling the next phone call. At the end of one interaction, the rep and the prospect have to know what will happen next.
Plugging in an increased win rate to our pipeline velocity equation shows what an impact this can have. An increase of 10% in win rate leads to a 33% increase in pipeline velocity:
Increasing Deal Size – Know Your Mix of Deals
Of course, all businesses operate differently and have different target markets and sectors. However, a best practice is to get a solid mix of deal values in your open pipeline that exist within a reasonable range of what your average deal size opportunity is. Too many low-value deals and your team will clearly be inefficient. But too many high-value deals and they might be stuck in long sales cycles. Ideally, you want more high value than lower, but a healthy mix will help keep your pipeline more predictable.
Here the mix of deal values is quite erratic. This is bad news for your pipeline velocity calculation as it could shift widely from week-to-week. This type of erraticism deters from predictability. Not only will this affect the trending of your pipeline velocity calculations, but it’ll also make for difficulty forecasting. In a more normal sales operation, the mix is likely to be more stable. In that case, the goal is to increase the upper portions of these graphs, increasing the percentage of high-value deals (again, within a reasonable range of your average sales price).
- Alignment between sales and marketing is the key process change that can lead to higher value customers. In particular, a switch from lead-based marketing to account-based marketing can provide more air cover, helping to build pipeline and close deals.
- Coaching-wise, it’s important that sales reps see where marketing can help them in their role, using them wisely to warm up high-value leads through specifically targeted messaging, and to provide support to hot opportunities.
Increasing the deal size again bumps up the pipeline’s speed. In this case, adding an extra 20% to the velocity through choosing more wisely in the marketing and qualification stages of the funnel:
Decreasing Cycle Length – Know Each Employee’s Sales Cycle
Whereas the previous metrics all had to be increased to impact the pipeline velocity, as the denominator, sales cycle length, has to decrease for you to increase your selling speed.
In the figure above, Joe Smith is spending inordinately long in each stage. His numbers are likely skewing the average sales cycle in aggregate. It could be the Joe is handling some of the tougher assignments, but it could also be that he could learn a thing or two from Dorothy McGuire who has a healthy open pipeline of opportunities in each stage, but an overall sales cycle about half as long as Joe Smith’s.
- By analyzing the sales cycle of each employee independently, you get a much finer resolution of the issues slowing down the cycle. You can then coach each of these issues independently instead of trying to instigate some one-size-fits-all training.
- If a constant issue comes up then you know it is a sales process problem. Just as reps can learn from their sales leaders, so can the leaders learn from the reps, especially when it comes to what is happening on the ground.
By decreasing the sales cycle by just a few days overall—taking just one or two days of each level of the overall stages—you can dramatically increase your pipeline velocity.
Ringing The Changes
“A rising tide lifts all boats” — John F. Kennedy
Any sales leader is unlikely to be happy just impacting one of these numbers—they’ll expect all four to change for the better.
And this is possible because the overarching improvements—better processes and better coaching—will improve all numbers simultaneously. This is what happens if we make all the changes above:
These are all minor changes brought about by slightly better processes and slightly better coaching throughout the entire organization. Just like when you coach to improve the technique of a racing crew, from that improvement, your crew will move more cohesively, their mentality will improve and overall, your boat will be moving down the Charles way faster.
Through this helpful metric you can see how a new qualification strategy, showing individual reps how to better demo the product, or any number of strategic initiatives impact your overall sales performance. By tracking pipeline velocity and following its trends, you can compare your current performance to that of the past and improve your strategy to successfully hit your goals moving forward.