ELI5: Pipeline Velocity – What Pipeline Velocity Is, How to Calculate It, and How to Use It
There’s a Reddit concept called ‘ELI5’, if you’re unaware, that stands for... Explain like I’m 5 years old.
It’s a great saying to draw out simplified explanations of complex topics, and a fun subreddit.
When I first started looking into marketing metrics, I kind of wished that there was something that explained them all like I was 5, and now that we’ve created our Pipeline Velocity Calculator, I thought it’d be a great time to explain it ourselves.
So if you’ve been wondering about pipeline velocity... here goes!
First, I asked ChatGPT... I don't use it to write content, but I thought it’d be fun to see what ChatGPT does when you ask it to explain pipeline velocity to a five year old. I’d give it a 7/10, the analogies are good, but it doesn’t really bring it back to pipeline velocity much... So thanks, but I'll take it from here, ChatGPT.
What is Pipeline Velocity
Pipeline velocity is to put it simply – how quickly you’re closing deals once opportunities are created, measured in dollars per time period, such as quarter.
Example: $45,500.00 in pipeline velocity per quarter would mean that taking into account my win rate, number of opportunities, average contract value, and sales cycle length, I can expect to get $45.5K in closed-won revenue per quarter.
Why Should I Care
Pipeline velocity matters because ultimately, revenue is the metric that matters most. And you can’t just measure revenue at the end of each quarter or year, you have to be able to forecast and drive revenue predictably.
How to Calculate Pipeline Velocity
Calculating pipeline velocity takes a little bit of math, but it’s not too calculated. The most confusing part is probably the reference points – what time frame you’re referencing, where to use closed won / lost / open opportunities, and making sure all your metrics are consistent.
Pipeline Velocity Formula
Pipeline velocity = (Qualified Opportunities x Average Contract Value x Win Rate) / (Sales Cycle Length / Lookback Period )
How to Use Pipeline Velocity
Let's outline a key use case for how you can use pipeline velocity: Comparing different sources of pipeline by their velocity
This is something outlined in our Pipeline Velocity Calculator page, basically you measure pipeline velocity for each source that you wish to compare, then you can make a table like the one below to compare the different metrics of each source.
You can use pipeline velocity as your leading indicator of which pipeline sources are most profitable for your business, and then compare the individual variables that make it up– sales cycle length, ACV, win rate, and number of qualified opportunities, to determine which variables are the best levers you can focus on to increase your pipeline velocity.
Here are ways you can improve each of the factors determining pipeline velocity:
To increase your number of qualified opportunities you can adjust your targeting or make changes to improve your lead to opportunity conversion rate. For example, if you have plenty of MQLs but not many qualified opportunities, you could start retargeting non-converted visitors or nurturing leads with email.
Average Contract Value
To increase your average contract value, you could work on upsell initiatives, or adjust your targeting. If moving further upmarket is feasible, this can greatly contribute to raising your average contract value.
To increase your win rate, you could work on adjusting your messaging or your targeting. For example, after each quarter or at least year, you should take a look at the reasons for your losses. Any commonalities between the reasons can be addressed to increase your win rate.
Sales Cycle Length
To decrease your sales cycle length, you can make optimizations to your sales-marketing handoffs, run air cover advertising to accounts in pipeline, and run gifting campaigns. You might even want to examine which types of opportunities close quickly versus which languish, and then adjust your targeting to go after accounts that tend to close more quickly.
One thing you might notice as you measure pipeline velocity is that sales cycle length is actually the variable with the most impact on pipeline velocity. It’s something to keep in mind as you decide where to put your resources, any resource investments that could close deals sooner may be worth considering.
So there you have it, a brief high-level overview of what pipeline velocity is, and some ways you can use it and improve it.
Ready to get started? Check out the free pipeline velocity calculator on our website.