We recently conducted a webinar with CSO Insights entitled “Revenue 2012: Making it Happen vs. Hoping it Happens!” At registration we asked attendees to name their Biggest 2012 Sales Challenge? We received answers such as “Making my 2012 sales plan,” “Closing more business,” ‘Shortening my sales cycle,” and “Finding more qualified leads.” (We’ve answered many of these questions in a co-authored blog post with Jim Dickie – read them here.)
How to Measure Pipeline Velocity
One unique question stood out that I would like to address here. The question was “I need to be more consistent making my quota on a quarterly basis, how can I easily measure and manage the velocity of my pipeline?” It’s an excellent question and we decided to devote a blog post to it.
Many companies measure just two or three discrete metrics in their pipeline, such as total value of qualified opportunities, sales cycle, and close rates. Focusing just on these metrics can cause them to overestimate the real value of their pipeline by not measuring the rate of change and the overall direction of their pipeline.
What to Measure and How To Improve Velocity
Knowing just the value of your sales pipeline is not enough; you must be able to gauge the speed at which opportunities progress from stage to stage and the average sales cycle time it takes them. Establishing a pipeline velocity metric specific to your company allows you to accurately predict sales results in present quarters. It also helps you determine the actions and activities needed to ensure adequate pipeline for future quarters.
Using the four variables below you can build a basic pipeline velocity calculation that helps predict if future sales will increase or decrease, based on current business conditions. Remember, the key to increasing velocity is to increase the first three variables while decreasing number 4 (sales cycle length).
Consider these two examples:
1) Number of qualified opportunities 10
2) Close Rate 25%
3) Average dollars/sale $100K
4) Length of the sales cycle 60 days
10 X 25% X 100K /60 = Pipeline velocity of 4.166
1) Number of qualified opportunities 10
2) Close Rate 25%
3) Average dollars/sale $100K
4) Length of the sales cycle 50 days
10 X 25% X 100K /60 = Pipeline velocity of 5.0
In this comparison simply reducing the sales cycle from 60 to 50 days improves pipeline velocity 20%. Similar gains are possible by increasing both deal size and quantity, and improving close rates.
As you become more confident in the accuracy of this metric you can continue to fine-tune it by adding additional variables. This will become helpful in determining additional top of the funnel activities required to continue a healthy flow of prospects for your sales team. Here are some advanced metrics to consider for the future.
- Lead progression rates from unqualified to qualified status
- Total opportunities required by sales stage
- Revenue conversion rate-Sold versus realized
Take the time to understand the metrics critical to your pipeline velocity. By doing this you can look at ways to improve your sales and lead generation processes to make sure you make the number on quarterly and annual basis.
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