The Case Of Rising Sea Levels
Martha Nielsen is over 80 years old living in a beachside town in Italy. Martha has seen world wars and technological revolutions happen. However, nothing surprises Martha more than moving her beach home back from the shore this year for the third time in her lifetime.
Little does Martha know that it all started two and a half centuries ago, with the advent of the first industrial revolution that triggered the extensive use of coal, thus initiating a chain of events that provoked climate change - melting million-year-old glaciers in the Antarctic and other regions of the world and rising sea levels that now come to her door every few decades.
But why are we talking about melting glaciers on this blog? Well, it so happens that the cause-effect is often so complicated in GTM that most people tend to ignore it altogether or, worse, not even realize it is happening.
The Butterfly You See Fluttering In Your Window Was A Caterpillar Once
Just like the butterfly in your window was a caterpillar for three weeks before it took the shape of a beautiful butterfly, your pipe was in the making much before it took the form of a deal - a lead for weeks in the inbound business, perhaps a contact for weeks in the outbound business.
That means that the opportunity in your CRM is an outcome of a few deciding steps: it has gone through a BANT methodology to be vetted, for it is a real deal. It means that the XDR has conversed with the prospect to check that the product and use case you support to fit their needs. After that interaction, it’s converted into an opportunity.
Unfortunately, that is not the case. Far too many organizations have a bulked-up pipeline created with no checks or validations. The leadership team bases their forecasting on this pipe and their revenue guidance to investors on where they will land the year.
Heard the phrase “needle in the haystack”? That’s precisely what is happening to your important deals - they are lost in this quagmire of bad pipe, lengthening your deal cycles. It does have to be that way.
The Case Of Sales Velocity & Progression
First up, how do you even get rid of a lousy pipeline getting created? Three things:
- Strong understanding of your business processes
- KY-ICP: Know Your ICP. We wrote at length how active ICP refinement and prioritization still seem like art, not backed by enough data and actionable recommendations, and how to go about it. Blog link here.
- Quick feedback loops: Ability to feed learnings from wrongly created opportunities back into training for SDRs.
Coming to sales velocity, it measures how fast you are making money. Sales velocity is NOT the number of days between opportunity creation and closure. Sales velocity tells you how much money your business is making every single day!
Let’s break it down.
Sales Velocity has four variables:
- Number of opportunities
- Average deal size (ASP)
- Win Rate
- Sales Cycle Length
Let’s say you have 100 opportunities in your pipeline, and you win 25% of them. Your avg. deal size is $15,000, and the sales cycle of 90 days.
Your sales velocity = (100 opps * 25% winrate * $15,000 ASP) / 90 day deal cycle = $4,166
It means your business is making $4,166 every single day.
Wanna know your own sales velocity? Calculate it here! Make a copy of the google sheet and enter your numbers.
If you want to improve your daily cash flow, you have the following choices:
Either increase one of the following⬆:
- Number of Opportunities
- Avg. deal size (ASP)
- Win Rate
Or decrease your sales cycle⬇.
Earlier, we discussed in this blog how many organizations struggle with a “bulked up pipe” with no real idea of what Opportunity is working towards closure and what’s stuck and why. If you had a thousand Opportunities stuck in the pipe for months with no movement, you would notice your sales velocity is directly affected to the point it is wrong.
The Medicine For Your Problem
So what is the right way out here? Knowing trends in your lead conversions is critical. It directly tells you what kind of opportunities should be created first.
Knowing what opportunities have not worked historically gives you an edge to refocus your energy on critical deals. Remember the Pomodoro technique for productivity? It is a time-management technique that tells you to drop everything you are doing and focus on a critical task for an uninterrupted 25 minutes. Your Pomodoro technique for Opportunities is to focus it all on the necessary ones.
Two things happen at scale when your entire organization is operating on insights-driven decision-making:
- It weeds out the unnecessary opportunities from your pipe, thus giving a transparent picture of what your true pipeline and forecast is
- It actually feeds back into your marketing efforts on what kind of opportunities close and hence attracts the right ICPs.
Tying this back to sales velocity, you now have opportunities in your pipe that are genuinely relevant to your business. Given that you have a real-time understanding of your ICPs and the emerging ones, the focus shifts from MQL to SQL conversion. Your win rates see a jump and your sales cycle shortens because your reps are now ultra-focused only on real Opportunities.
This is doable on a spreadsheet for an org with one sales rep doing it all with 5 Opportunities and one client. Heck, you don’t even need a CRM!
However, if you are an org that has invested significantly in a CRM like Salesforce or Hubspot or a Marketing automation solution like Pardot, Marketo, or Hubspot - the scale of your analytics in the absence of an app to do it is limited by the ability of your best Ops person or the business analyst. And no analyst signed up to find data patterns in two dozen spreadsheets.
So arm your analysts and RevOps with an app; they are supercharged to strategize on the insights derived from the app vs. spending a hundred hours figuring out your funnel conversions by lead source, industries, regions, etc.
Happy Scientific Hustling!