Nowadays, the success of any sales process depends on the efficiency of the sales strategy. There are many tools available to measure the efficiency of these processes, but one of the most important is the Pipeline Velocity calculation. This is a simple but very effective formula that will allow you to measure the success of any sales process and help your business increase its revenue. In this post, we will explain the Pipeline Velocity Formula and explain how can you implement it in your sales process and help improve your results.
First of all, ¿What is Pipeline velocity?
The Pipeline velocity is one of the main indicators that will help determine the success of a company. In particular, it is the time between the start of a sales process and its closure. Thus, it is important to measure sales speed in the best possible way if you expect to get a clear picture of the efficiency of your sales processes.
For example, lets suppose your company manufactures sportswear and that it has 4 different product lines, such as running shoes, t-shirts, shorts and sweatpants. The sales speed should be calculated individually for each line, and will reflect the average revenue that each one is generating for your company.
Thereupon, the Pipeline velocity calculator is an invaluable tool for sales managers. This allows managers to have a clear and accurate view of the efficiency of their teams. It also helps identify and resolve bottlenecks, increase productivity and reduce closing times.
It is worth stressing that the Pipeline velocity calculator offers a simple way to evaluate sales team performance. This allows businesses to improve sales speed, improve salesperson productivity and increase turnover.
In short, the Pipeline velocity calculator is a useful tool for sales managers. This tool helps managers evaluate the performance of sellers and get a clear picture of the efficiency of the sales speed. This allows them to make more informed decisions and improve the productivity and efficiency of the sales process.
Why is it important to calculate the Pipeline velocity?
To achieve a business goal,, it is essential to understand your sales speed and how to accelerate it to meet a goal. Many entrepreneurs believe that revenue growth is achieved by increasing the volume of prospects, limiting results. However, with the speed of sales accelerating, you can earn more revenue with fewer leads. This is achieved through greater efficiency in the commercial field, allowing «doing more with less».
In other words, having Pipeline velocity calculator is necessary for businesses who want to measure the health of their products and distribution channels, as it helps understand how long it takes to sell a product, from its launch until the sale takes place.
How to calculate the Pipeline velocity?
If you want to optimize your sales process and get effective results, you need to know the essential formula to measure the efficiency of your sales team. This formula is known as Pipeline Velocity and is a simple but effective too that will help your business increasing sales.
This formula is based on the number of opportunities obtained within a month, which we must make an adjustment according to our monthly closing percentage and then multiply it by the average value of the contract previously calculated, all this will be divided between our average sales cycle in days.
When calculating your Pipeline Velocity, it is important to separate business opportunities with new customers from those with your existing customer base. This is because typically, your customer base’s opportunities have much higher closing rates than new ones. Mixing them would result in inaccurate measurements, so it is important to avoid it.
Taking into consideration the above formula, it is essential to stop to explain each of its aspects of the equation so that the calculation is beneficial and leads to properly informed decisions. Let’s start by understanding what we’re talking about when we’re talking about the average ticket.
This variant of the above formula refers to the number of active business opportunities your business currently have in mind. To identify them it is necessary to have well defined phases of the CRM and establish from which phase is considered a valid opportunity.
It is important to note that, the number of active opportunities that have currently been prospected and that have the potential to become customers. In addition, it should be noted that in order to identify these opportunities, it is necessary to have good customer relationship management (CRM), as this will allow us to track all interactions with potential customers.
In this sense, it is essential to have well-defined phases of your CRM, since this will allow us to know where each opportunity lies and take the necessary actions to turn it into a real customer. These phases usually include prospecting, rating, trading and closing the sale. Each of these phases requires a specific set of actions and tactics to maximize the chances of success.
Once the CRM process has been defined, it is necessary to establish from which phase it is considered a valid opportunity. This depends on each company and their business strategy, but in general, an opportunity is considered valid when you have passed certain qualification criteria and have a realistic revenue potential.
In short, it is essential to stop to reveal the importance of having a well-defined CRM process and establish from which phase is considered a valid opportunity to identify business opportunities with the potential to become customers. Keeping track of all potential customer interactions to maximize your chances of success is key.
Average Deal Value
The calculation of the average deal value of a company can be obtained by dividing the turnover in a given period by the number of active customers in the same period. This calculation is useful to get an idea of the average size of the contracts being signed, which is important to be able to make comparisons with the past or with the competition.
Furthermore, the average value of the contract also allows us to know which customers contribute the most to the turnover of the company. With this information, you can make strategic decisions to improve the profitability of your business,, such as developing customer loyalty actions, as these customers are the ones who contribute most to the turnover.
It is important to mention that the calculation of the average deal value must be done in a certain period, since this allows to analyze the evolution of contracts over time, and to detect trends or changes in the behavior of customers.
Another way to use the average contract value is to set sales goals and targets. Once you know the average contract value, you can set sales goals based on getting a certain number of customers or a turnover volume in a given period.
The «Win Rate» or success rate, which is used to measure the effectiveness of a sales team in converting opportunities into customers. It is calculated by dividing the total opportunities of a given period by the number of opportunities won, and expressed in percentage.
The Win Rate is a key indicator to measure the performance of a sales team and make strategic decisions. A high Win Rate indicates that the team is being efficient in converting opportunities into customers, while a low Win Rate may indicate problems in the sales process.
This KPI will also allow you to compare the performance of different sales teams within the same company, and detect possible problems in the sales process of a specific team.
It should be noted that this indicator should be measured in a certain period, since this allows to analyze the evolution of the performance of the sales team over time, and detect trends or changes in their behavior.
Length of Sales Cycle
The metric known as «Length of Sales Cycle» is used to measure the time between an opportunity entering the customer relationship management (CRM) system until it closes.
The sales cycle is a key indicator to measure the performance of a sales team. A short sales cycle indicates that the team is being efficient in managing opportunities and generating closure, while a long sales cycle may indicate problems in the sales process.
To get the sales cycle, it takes the time elapsed between the entry of an opportunity in the CRM and its closure, it is calculated for all the opportunities won and the average is performed. In this way, the Length of Sales Cycle allows you to measure the average sales cycle of a sales team and compare it with other opportunities or sales teams.
It is crucial to consider that the sales cycle may vary depending on the type of product or service being offered, as well as the sector in which the company finds itself, so it is important to establish a parameter to compare it with other companies or industries.
If we seek to enhance this pipeline, it is advisable to perform the following strategies:
Get more opportunities in our pipeline
A sales pipeline is a visual representation of sales opportunities throughout the sales process, from identifying an opportunity to closing it. The pipeline is divided into different phases, such as the prospecting phase, the quotation phase, the trading phase and the closure phase.
The goal of getting more opportunities in the pipeline is to increase the chances of sales being closed and thus increase the company’s profits. A pipeline with more opportunities is more likely to become real sales, which means more revenue for the company.
To get more opportunities in the pipeline, it is important to have a solid prospecting strategy. This may include prospecting automation tools, such as using CRM software, creating engaging content to attract potential customers, conducting networking events, and implementing an online marketing strategy.
In addition, it is indisputable to ensure that the sales team is able to identify and convert opportunities into real sales. It is also necessary to have a system of monitoring and measuring the opportunities to be able to evaluate the performance of the equipment and make decisions to improve the sales process.
Reduce the Length of Sales Cycle
The sales cycle refers to the time that elapses from when a sales opportunity is identified until the sale is closed. Simply put, we can say that the average sales cycle is the average time it takes to close a sale.
Reducing the average sales cycle is an important strategy since it implies that deals are closing faster, which translates into a faster revenue for the company and better efficiency in the sales process. In addition, if the sales cycle is shorter, it is more likely that problems in the sales process can be identified and corrected before they negatively affect the end result.
To reduce the average sales cycle, you must have a good understanding of the different steps in the sales process. At the same time, it is also important to have a strong prospecting strategy to identify sales opportunities efficiently, and a sales team trained to convert sales opportunities.
A mechanism to monitor and measure opportunities is essential to assess team performance and make decisions to optimize the marketing process. In addition to this, process automation could also be considered to increase efficiency and reduce time spent on administrative tasks.
Improve conversion from «Opportunities» to «Win rate»
To increase the company’s ability to convert business opportunities into effective sales, it is important to regularly measure the win rate to evaluate the success of strategies implemented. In addition, specific actions such as improving sales cycle management could be considered, such as:
Identify and understand potential customers:
Having a good understanding of the needs and desires of potential customers to be able to offer them products or services that really interest them, is a determining factor to increase the quality of conversions.
Improve the quality of opportunities:
When analyzing opportunities, it is essential to determine which ones have the greatest potential to translate into successful sales. This can be achieved through a proper classification of opportunities, a better understanding of customer needs and a more accurate identification of opportunities with the greatest potential.
Improve the sales process:
It is important to have an efficient and effective sales process that allows sellers to effectively present the company’s products or services and adequately respond to customers’ questions and objections. This can be achieved by continuously training sellers, implementing sales tools and creating a highly trained sales team.
Follow-up and analysis:
Regularly measure the success of strategies implemented to improve the conversion of opportunities into effective sales, will allow achieving objectives more efficiently. In other words, an analysis of the causes of success and failure will allow the timely adaptation of strategies in order to improve results in the future.
In short, improving the conversion of opportunities into effective sales requires a comprehensive approach that includes identifying and understanding leads, improving the quality of opportunities, improving the sales process and monitoring and analysing performance.
Let’s imagine that you face up the following situation at your company:
- You have 10 Opportunities
- Your Win Rate is 30%
- Your average deal value is 7,000 euros.
- And you have a 21-day Length of Sales Cycle.
With this data and following the formula, we will get a Pipeline velocity of 1000 euros per day. So if you could increase the opportunities by 2 and reduce our average cycle to 18 days, you would achieve 1400 euros of pipeline velocity, which means an increase of 40% of this!
Given this, we found that the formula of Pipeline velocity is a valuable tool to analyze and improve the results of a business. One of the main advantages is that it allows you to identify which variables are the most important to increase for a better result. However, it is important to note that it is not always possible to increase all variables equally. For example, it may be easier to increase the number of opportunities than to improve the success rate. Therefore, it is important to focus on those variables that are easier to increase at first, before moving on to the more difficult variables.
In addition, it is important to remember that the formula is only a tool, and decision making in a business is not only based on numbers and formulas, but also on a deep understanding of customers, industry and the market. Therefore, it is crucial to combine the formula with other tools, along with a deep understanding of customers, industry and the market to get a complete understanding of how they affect results.
While the use of a sales process speed calculator is essential to measure the health of products and distribution channels and understand how long it takes to sell them; It is the sales activities and information below the surface that, Ultimately, they will help you refine your sales strategy and increase performance. To get the best results, start with accurate data (number of leads, size of operation, winning percentage and sales cycle) and use the strategies we’ve shared!