There are several issues that Sales Managers and Sales Operations Managers experience when receiving sales projections from their teams.
Among the most popular issues are the over-projection of monthly- and quarterly-sales opportunities and the sales team complaining that they need more leads. As a SalesManager, you are also aware that the longer a prospect stays in the sales cycle, the less likely it is to close. So how do you get to more accurate sales projections and a better understanding of turning those projections into actual realized revenue? How do you determine if your sales team is losing great opportunities by not closing qualified leads in the first place? And more importantly, how do you know which metrics to focus on to better understand how to help your sales team? The simplest answer is that you need to understand sales pipeline velocity and how to track it.
If your sales team can't accurately project their 30, 60 or 90 day projections, then you need to track their sales pipeline velocity. If your sales team doesn't understand the effects that shortening a sales cycle will have on realized revenue, then once again, you need to track their sales pipeline velocity.
Sales pipeline velocity is measured by how quickly you can turn a prospect in your pipeline into an actual closed deal. Sales pipeline velocity is something that should get tracked by your sales team so that they can better understand how to make moe accurate projections. Sales pipeline velocity requires the tracking of four different components: the number of qualified prospects, the average deal size in the pipeline, the average close rate of your organization, and the length of the sales cycle, measured in days, for your particular product or service. By accurately tracking these components for your organization, both monthly- and quarterly-sales projections can improve significantly.
The formula for determining your pipeline sales velocity: number of prospects x close rate x average deal size divided by the length of sales cycle.
For example, if your sales team has 200 qualified prospects with an average close rate of 33% every month and the average deal size is $50k and the sales cycle length is 60 days, then according to the formula for determining sales pipeline velocity, your sales team would have a velocity of 55. This means that your team has a high possibility of closing 55 deals in 60 days. This is a more accurate picture for closings.
By measuring and tracking each component of the sales pipeline velocity, you can decide where your sales team needs improvement. Should the sales cycle be shortened by 10% or more? Does your sales team actually need more qualified sales leads to hit your monthly and quarterly targets? You can decide now that you have the appropriate tools. And if you're not tracking these metrics, you are incapable of accurately predicting valuable income and wasting precious time on the wrong sales activities. Train your sales team in the proper categories so that your sales pipeline velocity gets you to your goals.