Sales Velocity or Opportunity Pipeline Velocity is a KPI that provides general direction and speed at which the sales pipeline is moving based on historical opportunity conversions. It is an indicator of sales organization’s effectiveness vis-a-vis to their initiatives taken over time. Sales Velocity can be considered as a throughput measure of opportunities through the pipeline.
Classic definition of velocity states that “object rate of change in position with reference to time“. Sales Velocity, as a KPI measures positive conversion i.e. Won Opportunities over period of time. Widespread formula adopted to derive Sales Velocity is as follows
Sales Velocity = Number of Opportunities x Conversion Rate (%) x Average Opportunity Value / Opportunity Conversion Days e.g. 25 Opportunities * 10% Conversion Rate * $25,000 Avg. Value / 45 Avg. Length = $1,300 per day
This standard formula pro-rates the final value to a daily amount based on data available as of the current date. It should be interpreted as the sales velocity snapshot. The moment a new opportunity is identified or value of opportunity changes, the sales pipeline velocity has to be re-calculated. If one among the three measures in numerator increase or denominator decreases, it will have positive impact on final Sales Velocity.
Alternative approach to derive Sales Velocity uses cumulative opportunity value trend over a period of time and calculates the growth percentage for each adjacent periods. The time context should have a beginning and ending time period with an additional period at the beginning to calculate growth. Base measure used in this approach to build Sales Velocity is Opportunity Value of won opportunities during the respective time periods. Plotting both values i.e. Opportunity Value and Growth %, similar to the sample on right will show the sales velocity over period of time based on actual data. In the sample graph one can easily identify that growth is falling irrespective of increase in opportunities and can take actions accordingly.
In conclusion, both components are crucial to interpret sales velocity. The historical trend chart shows past performance of sales velocity and when combined with the standard formula it gives the variables that a business user can use to change the direction of Sales Opportunity Velocity.