Understanding Your Pipeline Velocity for Better Budget Planning

Posted by Munira Fareed on 4/29/16 3:23 PM

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Your marketing analytics have a lot to tell you. They can help you identify the customers worth the most to you, the marketing activities contributing the most to revenue, and the sequence of actions most likely to lead to a sale.

That’s all hugely important. But your analytics can also help give you a pretty clear picture of how much money you can expect to come in within a given time period. Imagine how useful knowing your profits for a future quarter would be for planning your budget. 

What Is Pipeline Velocity?

B2B sales cycles vary in length based on a number of factors but, as many businesses know all too well, they can get very long.  The average B2B purchase requires more than five people to sign off on the decision. With that many people involved, you’re dealing with a lot of different opinions, priorities, and barriers to a final decision.

When you have a lead that appears to be on its way to making a sale, that feels like a win. But if it takes a year for that promising lead to actually turn into a sale, you’re stuck with little more than potential money in the meantime.

Your pipeline velocity is the measure of how well your leads are moving through the sales process, so you can better predict when your current leads will convert from potential sales to actual revenue you can count on.

You’ve got four main marketing analytics you should consider to determine your pipeline velocity:

  • The number of leads you have – you probably want to go with your sales qualified leads (SQL) here, since they’ve made it through enough of the process already to be solid leads.
  • The average number of SQLs that become sales – What percentage of your SQLs make it past the finish line to become customers?
  • The average deal size –How much do they typically spend once they do buy?
  • Average length of the sales cycle – Finally, how much time usually passes from the moment they become an SQL to when they purchase?

If you multiply the first three numbers, then divide them by the fourth, you can start to see how much money you can expect to come in during a given time period.

Obviously, the amounts aren’t exact. Even though data can help do a much better job at predicting what’s to come, we can’t quite see the future yet. Some of your leads may move much more quickly through the process than average, or you may have a quarter where sales are lower than average due to economic factors beyond your control.

Nonetheless, when you have clear, accurate data to work with, your predictions can come pretty close.

Why Your Pipeline Velocity Matters

And figuring out numbers that come pretty close has its benefits.

  1. You can set more realistic goals.

Every marketing organization should have a series of goals they set to match their performance against. Those goals have to be based on something though, they can’t just be numbers plucked from the air.

When you know your pipeline velocity, it’s much easier to make sure you’re setting goals that are realistic. If your sales team normally manages to close on 10% of your sales qualified leads, then setting a goal that would require them to close on 50% of the leads you have in the pipeline puts them in an impossible position.

You want to challenge your team and make sure everyone’s delivering solid results, but expecting unrealistic progress will only lead to frustration and bad planning all around.

  1. You can better identify when there’s a problem in the pipeline.

If the number of SQLs that turn into customers drops, then you can work to identify what’s causing the change. Sometimes it will be causes out of your control, like a change in the economy or industry, but sometimes it could be due to the quality of the leads, a change in the sales process, or an update to the product.

When you know what the pipeline velocity should be when everything’s working well, then you’ll be able to tell when results drop below normal so you can step in to analyze the situation and work toward a solution.

  1. You can plan out your budget for the next quarter more effectively.

Finally, your pipeline velocity provides you with a reasonable guess at how much money you’ll be bringing in for a set period of time. When you can predict revenue with relative accuracy, then you can make smarter decisions about how much to spend.

You don’t want to overspend and end up with a deficit at the end of the year, but you also don’t want to cut your marketing budget and reduce the number of leads going into the pipeline as a result. Getting the budget just right is tricky, but understanding your pipeline velocity makes it easier.

Many customers are different and past data can’t tell you everything about the leads and customers to come, but there are enough trends in how businesses behave for you to make some educated guesses. Once you have a clear idea of what to expect to make, you can make smarter decisions about what to spend now.

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Topics: Hive9, Effective Planning

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