Sometimes called sales velocity, most now call it by the name pipeline velocity. This is especially since B2B marketers are generally becoming more responsible for revenue alongside their sales teams, so it helps to think of pipeline velocity and revenue as shared metrics.
Pipeline velocity is a metric used by go-to-market teams to measure the speed at which opportunities move through the stages of a sales pipeline. It is typically calculated by taking the total value of closed deals in a given period of time and dividing it by the number of days it took to close those deals. This gives an average velocity for the pipeline, which can be used to track the performance of the sales team and identify areas where improvement can be made to the sales process. Additionally, pipeline velocity can be used to forecast future revenue.
The formula for calculating pipeline velocity is:
Pipeline Velocity= (qualified opportunities (created during lookback period) x avg deal size x win rate based on having been created and closed during that lookback period) / (Length of sales cycle / days in lookback period)
It is important to note that the period of time and the value used in this formula can be adjusted to fit the specific needs of your business. For example, you may choose to calculate pipeline velocity on a quarterly or yearly basis, or you may choose to use the value of deals in progress instead of closed deals. Establish a consistent way of measuring it across the company.
One of the most valuable use cases for pipeline velocity is in conjunction with attribution data. To make smart budget and strategy decisions in the future, you need to determine the most profitable levers for your business. One way you can do this is by measuring the pipeline velocity, sales cycle length, and win rate of different opportunity sources. Once you do this you can see which sources have consistently higher win rates and ACV, and shorter sales cycle lengths.
Here you can see we broke out sample data by pipeline source:
Sample Data findings:
Above you can see that though referrals were the source of the fewest opportunities, referrals had the highest pipeline velocity, due to their high ACV, win rate, and low sales cycle length. This means that any actions to produce referrals at a higher rate would be highly strategic. Based on the sample data, other profitable levers here might include upselling initiatives to increase the ACV of inbound opportunities, or pipeline acceleration initiatives to decrease the average sales cycle length for cold outreach opportunities.
Identify trends in the pipeline velocity over time. Are leads moving through the pipeline faster or slower than in the past?
How does your budget / resource allocation match up to your pipeline sources - are you investing in increasing the most valuable, efficient sources of pipeline?
Seeing changes quarter over quarter in your ACV, sales cycle length, volume, or win rate? Look for changes in sales processes that could have had an effect.
Pipeline acceleration is a metric used to measure the rate at which opportunities are moving through the different stages of a sales pipeline at an increasing pace. It is typically calculated by comparing the pipeline velocity over time, or by comparing the pipeline velocity to a benchmark or goal. A positive acceleration indicates that opportunities are moving through the pipeline faster, while a negative acceleration indicates that opportunities are moving through the pipeline slower. Pipeline acceleration is used as a metric alongside pipeline velocity to identify trends in the sales process and predict future sales revenue.
For most B2B businesses, quarterly pipeline velocity is the smallest time frame you should reference, since your lookback period needs to be at least as long as your sales cycle. Too small a reference period will be volatile and harder to see clear trends and insights.
One key factor to consider when using pipeline velocity is to take into account the length of your sales cycle when you choose what time frame to look at to calculate the pipeline velocity. The time frame should be at least the length of your sales cycle - so it’s generally recommended to use a reference period of at least a quarter - 91 days on average.
The most important thing is that you base qualified opportunities and your win rate on the same criteria. Qualified opportunities should be opportunities that both marketing and sales teams agree are qualified, and are open during the lookback period. They don’t necessarily have to have been created during the lookback period, but you can add that requirement if you like.
Your win rate is calculated by taking the total number of won opportunities that closed during a specified lookback period and dividing it by the total number of qualified opportunities that closed during that same time period.
In 2021, Company A had 50 opportunities close-win, out of a total of 450 total opportunities that closed in 2021. Company A’s win rate = 50/450, 11%.
ACV, or average contract value is calculated by taking the contract value of all your closed won opportunities during a specified lookback period and dividing it by the number of closed won opportunities.
In 2021 Company A had 50 opportunities close-win, for a total of $3,600,000. Company A’s ACV = $3,600,000/50, $72,000.
Sales cycle length is calculated by taking the time to close of all your closed won opportunities during a specified lookback period and dividing it by the number of closed won opportunities.
In 2021 Company A had 50 opportunities close-win, with a total sales cycle length of 3800 days. Company A’s sale cycle length = 3800/50, 76 days.
Outliers in sales cycle length - if an opportunity is way off from the sales cycle length of other opportunities, make sure it’s accurate. And if it’s skewing the data, you can always exclude it.
Small sample sizes: When you’re looking at specific sources with a small amount of opportunities, don’t read too deeply into the pipeline velocity data around that source. For example, if you only had 3 opportunities created from the source “Referrals”, with a win rate of 33% and pipeline velocity of $2M, you shouldn’t decide based on that that you should shift all your energy to that bucket. With only a sample size of 3, the win rate is not likely to scale, and the ACV might not be replicable either.
Within the equation, sales cycle length has the most impact on pipeline velocity, compared to ACV, win rate, and opportunity volume.