The more quickly you can convert leads into paying customers, the more successful your business. Time is money, after all. Yet, the sales metric that reveals the most about both time and money—sales velocity—is commonly overlooked.
What is Sales Velocity?
Sales velocity is a measurement of how fast you’re making money. It looks at how quickly leads are moving through your pipeline and how much value new customers provide over a given period.
Why is it so Important to Track Sales Velocity?
Sales velocity plays a huge role in your business’ ability to thrive and grow. The less time it takes for prospects to move through your pipeline, the faster you can close more deals. So, a higher sales velocity means you’re bringing in more revenue in less time. Tracking sales velocity over time allows you to benchmark your own sales velocity against other teams, compare the effectiveness of individual reps or regions, and see how changes to the sales processes impact your business, for better or worse. Understanding sales velocity can also help you forecast more accurately and determine how your sales process can be optimized for faster sales and higher conversion rates at each stage.
This blog will show you how to measure sales velocity and identify any bottlenecks that might be slowing down your sales process so you can start bringing in more revenue, faster.
There are four factors that affect sales velocity: the number of opportunities in your pipeline, average deal size, conversion rate, and how long it takes to complete a sale. Together, these metrics can be used to calculate sales velocity so you can track how it changes over time and, hopefully, figure out how to optimize your operations to make money faster.
1. Number of Opportunities
How many leads can your team work through in a given period? If you want to compare sales velocity internally, you can also break down opportunities by sales rep, region, or product.
2. Average Deal Size
For many businesses, this is simply the dollar value of an average sale. For SaaS companies or subscription-based products, average customer lifetime value is more relevant.
3. Win Rate or Conversion Rate
How many leads turn into paying customers over a given period? If you start with 100 leads and 40 of them become paying customers, you’ve got a win rate of 40%. Pretty straightforward.
4. Pipeline Length or Sales Cycle Length
How many days does it take for prospects to move through your pipeline? The answer depends on how many steps are in your sales cycle, how complex your product is, and the cost of your offering.
Figuring out your sales velocity requires taking a good hard look at your pipeline, sales cycle, lead nurturing processes, and average deal size.
The sales velocity formula requires the following pieces of data:
- Number of opportunities in your pipeline
- Dollar value of your average deal size
- Customer conversion rate as a percentage of wins vs. losses
- Average sales cycle in number of days
Calculate your sales velocity by multiplying the number of opportunities in your pipeline by dollar value of your average deal size and your win rate. Divide the result by the number of days in your typical sales cycle.
Let’s say your business has 50 opportunities, an average win rate of 25%, an average deal size of $10,000, and a sales cycle that typically lasts 60 days. Here’s how you could use the formula to determine sales velocity:
Sales velocity = (50 * .25 * $10,000) / 60
= $125,000 / 60
This tells us that your sales velocity is $2083.33, which means you’re bringing in roughly that much revenue each day. Knowing this, you can either strive to increase the numerator (in this case, $125,000) or decrease the denominator (60 days)—or both, if possible.
That said, a one-off calculation doesn’t actually reveal much about the health of your business. To get the full picture, you need to put these numbers into context. The true value comes from consistently tracking sales velocity at regular intervals and using it to compare the effects of changes in your sales process.
If you want to increase your sales velocity (and, really, what business doesn’t?), there are several approaches you can take. You can either increase your opportunities, conversion rate, or average deal size—or decrease the time it takes prospects to move through your pipeline. Ideally, you should continue with your current lead generation strategies while optimizing the other three factors.
- Improve Your Conversion Rate: Increasing conversions requires finding, targeting, and nurturing sales-ready leads. In addition to refining your marketing and honing your lead qualification process, take some time to analyze your pipeline for leaks that need patching. For instance, are conversions dropping off or stalling at a certain step?
- Optimize Your Average Deal Size: There are obvious benefits to landing high-value deals. However, bigger sales tend to take longer to close, so the real key to improving your sales velocity balancing high-value and low-value opportunities that allow your reps to manage their time effectively. Try to increase deal value using a combination of strategic discounts, tiered offerings, and cross-selling.
- Shorten Your Sales Cycle: If deals are taking too long to close, try breaking down your sales process by step and keep an eye out for bottlenecks. Is there a particular stage slowing things down or taking too long? Is there software available to automate part of the process? Fixing up that problematic stage could shorten your entire sales cycle.
If you ignore sales velocity and blindly focus on keeping your pipeline full, you’ll have tons of leads but not enough resources to move them through the pipeline, negotiate high-value deals, or convert prospects into customers. However, once you start measuring sales velocity, you’ll have the data and insights necessary to optimize your sales process from start to finish.
Have you been measuring sales velocity in your company? How has it helped you in winning sales? If you haven’t been measuring sales velocity, how might this change your plans for 2018? Let’s keep the discussion going in the comments.