Beyond Speed: Rediscover the Strategic Power of Pipeline Velocity

It's so obvious, but only a little data on it. But we know that statistic Gartner surveyed their audience in 2019, concluding that 60% of companies miss their sales quotas due to poor pipeline management. This is not necessarily something we can associate with the pipeline velocity, but it's likely close. At least measuring and improving velocity can help you hit the quota (if someone has a source for that, please share).

Pipeline Velocity is a metric that quantifies the rate at which leads and opportunities move through the sales pipeline stages, converting into paying customers. The traditional way of interpreting the metric is associated with the speed at which it deals with conversion. It's much more than that that. It combines several critical sales metrics to assess the sales process's efficiency comprehensively.

The metric offers significant insights into the efficiency and health of a company's sales process. A high pipeline velocity suggests a robust and efficient sales cycle essential for accurate revenue forecasting.

This accuracy in forecasting is vital for strategic planning and financial management. Furthermore, by identifying bottlenecks in the sales process, pipeline velocity helps in the effective allocation of resources, ensuring that they are directed towards areas that need improvement or support. This not only optimizes the sales process but also contributes to cost efficiency.

Often forgotten benefit is the ability to respond to market changes swiftly, keeping it competitive. This responsiveness is crucial in dynamic market environments where customer preferences and industry trends can shift rapidly. Optimizing pipeline velocity can lead to more accurate forecasting, efficient resource utilization, and enhanced market responsiveness, critical to a company's success and competitive standing.

The formula to calculate Pipeline Velocity is straightforward:

Pipeline Velocity = (Number of Opportunities × Average Deal Value × Win Rate)/ Length of Sales Cycle​

That all is conventional wisdom regarding the metric. Most of us were conversing about that or experienced random questions in the form of follow-up questions during the QBR or weekly pipeline review. Translating all of that to financials is the "juice" of the metric. Let's focus on the benefits of that for a moment, as some of them are not so obvious:

• Accelerated revenue generation: A higher pipeline velocity means opportunities move through the sales pipeline more quickly, leading to faster revenue generation. This quicker conversion from prospects to paying customers improves cash inflows, crucial for maintaining healthy cash flow.
• Cash flow FCST: When pipeline velocity is consistent and predictable, it allows for more accurate forecasting of cash flows. Companies can better anticipate when cash will be received, which helps in planning and managing finances more effectively.
• Efficient resource allocation: Optimizing the metric involves streamlining sales processes and resources. This efficiency accelerates the sales cycle and can reduce operational costs, positively impacting cash flow by lowering expenses.
• Reduced sales cycle: A shorter sales cycle resulting from increased pipeline velocity means the time between initial investment in sales and marketing efforts and revenue realization is diminished. This quicker turnaround can significantly improve cash flow, especially for businesses that have longer sales cycles.
• Predictability in revenue streams: Revenue streams become more predictable with a faster and more efficient pipeline. This predictability is beneficial for managing cash flow, as businesses can plan with greater certainty regarding their income.
• Customer relationships: A more efficient pipeline often leads to better customer experiences, as clients are moved through the sales process more smoothly and with fewer delays. Appreciative customers can lead to repeat business and referrals, positively impacting cash flow.

Knowing all that, let's see how this can be translated into several misconception scenarios where the pipeline velocity suggests a problem in the wrong place. These misinterpretations are quite common practices in companies with limited insight into what the nature of their market is changing and the type of product they are selling. Perception of the last one can often be underestimated.

Long sales cycles. Let's say a company selling complex B2B high-tech solutions faces long sales cycles due to the need for extensive education of the customer, multiple decision-makers, and a high level of customization in their product.

Simply speeding up the pipeline may not be feasible or desirable. The pipeline velocity metric might show slower movement, not due to inefficiencies but due to the necessary time for thorough customer education and decision-making processes. Anything that is consultative selling, professional services, or requires a change in traditional thinking will likely be in this bucket. If that's the case, improving velocity in this context might mean focusing on better qualification of leads or enhancing sales enablement rather than just trying to shorten the sales cycle. You must educate your audience, introduce them as an expert in the area, or provide a hand-holding process. This particular problem doesn't necessarily indicate an issue but instead reflects the nature of the sales environment. We have to be careful here.

Seasonal fluctuations. A company dealing in consumer products with significant seasonal demand experiences changes in pipeline velocity throughout the year. The metric during peak season might be high due to increased demand, but this doesn't necessarily reflect the efficiency of the sales process. Conversely, lower velocity in off-peak seasons might not indicate a problem. Seasonal fluctuations can skew the interpretation of that metric, making it challenging to gauge the underlying sales process efficiency.

Without adjusting for these seasonal variations, the company might make misguided decisions, like changing the sales strategy during a naturally slow period` or failing to recognize inefficiencies during peak seasons. These types of businesses are very cash flow sensitive and must plan around that. You are in trouble if you make a wrong decision based on the incorrect pipeline velocity readout. No good.

Diverse product portfolio with varying sales dynamics. A diversified corporation with a wide range of products, from fast-moving consumer goods to high-value industrial equipment, tries to apply pipeline velocity uniformly across all units. Different products have different sales dynamics. For instance, industrial equipment may have a longer sales cycle and require more in-depth customer engagement than consumer goods. Applying the exact Pipeline Velocity expectations across a diverse portfolio can lead to inaccurate performance assessments. Misalignment in expectations can result in inappropriate resource allocation, with some business units being pressured to speed up their sales processes unnaturally.

In contrast, others must be pushed more to optimize their sales cycle. Complexity doesn't stop here. Since each BU might have a different buyer and could be co-dependent on various product sales, it adds a lot of blurred pictures regarding velocity. Aggregating everything in one metric makes sense only if you apply the same approach to all units and understand the underlying issues.

Conclusion

Yes, it's a simple and fundamental metric. However, the value is not in the metric itself. It's the actions you need to take to change the trajectory of your output. The breadth of the impact is determined by the steps you and your team can take. That's why the underlying strategic significance of pipeline velocity is underestimated. Focused improvement of this metric enables companies to accelerate their sales cycles, boost overall revenue generation, and expedite their cash reinvestment. The benefits are beyond the obvious, especially if you have no time to review hundreds of weekly metrics. Regular monitoring, thorough analysis, and well-calculated strategic actions are crucial for optimizing pipeline velocity, ensuring the company maintains agility and responsiveness in a dynamic market.

This metric is a compass for Revenue Operations (RevOps) teams, guiding them towards impactful efforts. The strategies we've discussed—improving lead quality, refining the sales process, empowering sales teams, aligning marketing and sales, and effectively leveraging technology—work in concert to expedite the sales pipeline.

Prioritizing pipeline velocity is a strategic imperative for companies aiming for efficient, accelerated, and scalable growth. By adopting a holistic approach that fine-tunes every facet of the sales and marketing process, companies can unlock new levels of performance and profitability, steering towards success and market leadership in a competitive landscape.

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This article is written by our partners RevOps Venture

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