What Is Sales Velocity? (With Formula and Importance)
By Indeed Editorial Team
Published November 11, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Companies typically use metrics such as pipeline velocity to measure the success of their marketing and sales activities and find ways to improve them. Pipeline velocity helps a business identify roadblocks in its sales pipeline that may prevent prospects from becoming paying customers. Learning about this metric can help you formulate essential sales strategies to increase a business's revenue. In this article, we define sales velocity, differentiate a sales funnel from a sales pipeline, highlight the factors that affect pipeline velocity, explain how to calculate it, discuss its importance, and give tips for improving it.
What is sales velocity?
Sales velocity, or pipeline velocity, refers to how quickly a business's leads move through its pipeline. It's an important sales metric that determines how quickly a business makes money and how much money it makes. A company with an enhanced sales pipeline can quickly convert leads to customers and increase its pipeline velocity. That may help it generate more revenue and understand its expected income over a particular period. Calculating sales velocity enables a company to distribute its budget according to expected losses and gains.
What is a sales pipeline vs. sales funnel?
Pipeline velocity depends on the sales concept of a sales pipeline, which, alongside the sales funnel, describes a prospect's journey to becoming a customer of the business. Both terms are similar but have a fundamental difference. A sales pipeline describes the set of actions that a sales representative may perform to convert a lead to a paying customer successfully. In their standard order, the pipeline stages include prospecting, lead qualification, sales call or meeting, proposal, negotiation and commitment, contract signing, and post-purchase.
The sales funnel metric measures the conversion rate at each stage of the customer's journey. To simplify the evaluation process, the sales funnel stages can include awareness, discovery, intent, evaluation, purchase, and loyalty. By knowing the differences between both, you may better understand the pipeline velocity and use its results to increase the customers that move through the sales funnel.
What factors determine pipeline velocity?
Below are the factors that determine the value of a pipeline velocity:
Number of opportunities
Opportunities refer to the number of qualified leads in the team's pipeline during a specific period. Qualifying involves a sales representative asking questions that help them determine whether the prospect has the need, budget, and authority to buy in the near future. It assists the business with determining their viable sales prospects, which can help increase their pipeline velocity and revenue. They may also identify low-quality leads who may not move forward in the pipeline and remove them before they lower the value of the velocity.
Deal size or value
Deal size represents the dollar value of each sale to the prospect. You can calculate it by dividing the generated amount by the number of deals that you closed during a specific period. If the company sells products at set prices, you may focus on the pipeline velocities of these individual products. Companies that sell products in bundles may evaluate the average deal size, while software as a service (SaaS) businesses may calculate the average customer lifetime value.
Conversion rate, or win rate, refers to the number of leads you successfully converted to paying customers during a specific period. You can quickly calculate this by dividing the number of recorded sales by the number of opportunities. This metric grows similarly to your opportunities by qualifying more leads. Leads you qualify are more likely to purchase, which can increase the pipeline velocity.
Sales cycle length
The sales cycle length denotes the time it takes a prospect to move through the sales pipeline. Its figure depends on factors, such as the number of days it takes to close a deal and the number of deals you close. The faster a lead or prospect moves through the pipeline, the earlier you can move on to the next prospect.
Pipeline velocity formula
You can link the factors affecting the pipeline velocity together in a formula. Using it, you can determine how quickly a customer moves through your pipeline and the actions you may perform to simplify the process. Below is the formula to calculate this metric:
Sales or pipeline velocity = (Number of opportunities x Deal size x Conversion rate) / Sales cycle length
How to calculate sales velocity
The steps below highlight how you may calculate the pipeline velocity:
Have all necessary data. Begin your calculations by determining all necessary data. These include the number of opportunities, deal size or value, conversion rate, and sales cycle length.
Substitute the data into the formula. The formula is the mathematical relationship between the different factors that help analyze the pipeline velocity. Substitute the data you gathered into this formula to evaluate how quickly prospects move through your sales pipeline.
Analyze the numerator. The numerator of the formula contains the number of opportunities, deal value, and conversion rate. Multiply these three figures and note the resulting value.
Divide the numerator by the denominator. The denominator generally contains the sales cycle length alone. Take the figure you obtained from evaluating the numerator and divide it by the sales cycle length.
Evaluate the results. Once you have obtained a figure, you may know how high or low your pipeline velocity is and formulate steps to improve it. You can also repeat this calculation between periods and compare their results to know if you're converting more prospects as time passes.
What is the importance of calculating pipeline velocity?
Pipeline velocity is an important sales metric that helps you understand a business's growth potential. Focusing on how to calculate it informs a business of the number of leads who ultimately make purchases and add to revenue in a specific period. If the pipeline velocity is high, the company may determine what works to focus more on and improve it. A low pipeline velocity communicates the necessity to develop strategies that optimize the sales process. Other benefits that a company may derive from calculating and finding ways to improve its pipeline velocity include:
evaluating the sales team results against other teams in the company
developing strategies that increase the size and quality of sales leads and deals
comparing the performances of individual sales representatives or regions
identifying strengths and weaknesses within the sales process
understanding the overall effectiveness of the sales team
Tips for improving pipeline velocity
Below are best practices that can help you move customers quickly through your sales pipeline:
Increase your number of opportunities
To increase your opportunities, knowing how they differ from ordinary leads is important. A lead is an individual who has only shown interest in a product, while opportunities are qualified leads that you've deemed likely to become paying customers. Rather than focus on increasing your leads, you may find ways to qualify more leads and increase your opportunities.
Focus on and improve your conversion rate
Understand why prospects aren't moving entirely through the pipeline and quickly address or fix it. That may help improve the conversion rate and save the extra efforts to qualify those prospects. Common steps you may take to improve your conversion rate include:
removing prospects that you and your team deem highly unlikely to move through the pipeline because of specific roadblocks
defining clear next steps for high-quality leads
informing decision makers at the earliest convenience
Enhance your deal size
Besides increasing your number of opportunities, you may also want to increase the amount each opportunity or qualified lead spends on a deal. Rather than arbitrarily increase prices or force a product or service on the customer, consider reconciling cost and value. You may achieve this by identifying customers' pain points and providing them with the best bundle. Providing add-ons for a product or service may make it easy to use. You may also provide after-sales services such as guides and product training that help you foster communication with the customer and can promote customer loyalty.
Shorten your sales cycles
You can quickly increase sales by shortening the time it takes a prospect to move through your pipeline. Useful ideas that can help you move customers quickly through the pipeline include:
automating repetitive tasks
responding to customers' questions quickly on products and services
focusing on the highest-performing channels
making pricing clear for customers at the initial stages
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