What is pipeline velocity?
Pipeline Velocity = Sales Velocity
How fast the pipeline is moving through your sales funnel (how fast deals are moving through the sales process).
Why do you need pipeline velocity?
It helps to show how well a sales team finds new customers.
How to calculate pipeline velocity
To determine the pipeline velocity, you divide the total amount of money made from sales by the average time it takes for a sale.
Use the following steps to calculate pipeline velocity:
- Get the total value of all deals closed in a certain period. e.g., monthly, quarterly, or annually.
- Determine the average time it takes for a deal to move from one stage to another in the sales process.
- Divide the total value of closed deals by the average time it takes for a deal to move through the pipeline.
This will give you the pipeline velocity.
Example:
If the total value of closed deals in a month is $100,000, the average time for a deal to move through the pipeline is ten days.
$100,000 ÷ 10 days = $10,000/day
The pipeline velocity is $10,000/day
The higher the pipeline velocity, the better.
A more complex formula:
Focusing on net revenue may limit your flexibility on what metrics you can leverage to improve growth.
You can expand your focus to include:
- Win Rate
- Annual Contract Value
- Qualified Opportunities
- Sales Cycle Length
The expanded formula would look like this
Win Rate * ACV * # of Qualified Opportunities /(Sales Cycle Length/# of days in the period)
Win Rate:
% of Won Deals
Example:
- Total deals = 80
- Lost deals = 60
- Closed (won) deals = 20 or 25%
E.g.
25% * ACV * # of Qualified Opportunities /(Sales Cycle Length/# of days in the period)
Annual Contract Value (ACV):
Annual Contract Value is a metric used to measure the total value of a contract over a year.
It is typically used in software as a service (SaaS) and subscription-based industries to measure the value of recurring revenue generated from a customer over time.
Calculation
To calculate the ACV, you need to take the contract’s total value, including any recurring or subscription-based payments, and divide it by the number of years in the contract.
E.g., In a 3-year contract worth $90,000, the ACV would be $30,000 ($90,000 / 3 years).
NOT pipeline ACV
E.g.,
25% * $30,000 * # of Qualified Opportunities /(Sales Cycle Length/# of days in the period)
Qualified Opportunities:
Potential sales deals that have been thoroughly vetted and determined to have a high probability of closing.
Once an opportunity has been qualified, it is considered “sales-ready” and is added to the sales pipeline.
E.g., 50 qualified deals.
E.g.,
25% * $30,000 * 50 / (Sales Cycle Length/# of days in the period)
Sales Cycle Length:
How long did it take to close a deal in the period e (e.g. a month, quarter, or year).
E.g 120 days
E.g.,
25% * $30,000 * 50 / (120 /# of days in the period)
# of days in the period:
Number of days in the period (period you trying to determine pipeline velocity for) e.g. a quarter (91 days).
E.g.,
25% * $30,000 * 50 / (120 /91)