This is a fact: The faster you can convert leads into paying customers, the more successful your business. Time is money - but most organisations tend to overlook the sales metric that reveals the most about time and money—sales velocity.
What is Sales Velocity?
Sales velocity is simply a measurement of how fast you’re making money, by examining how quickly leads are moving through your pipeline and how much value new customers provide over a predefined period.
Sales velocity is one of the defining factors in your organisation’s ability to succeed and to grow, because the faster prospects move through your pipeline, the faster you can close more deals. So, a higher sales velocity simply means you bring in more money in less time. By tracking sales velocity over time, you can benchmark your own sales velocity against other teams and compare how effective individual sales reps or regions are. You can also track changes in the sales processes and see if they have a positive or negative impact on your business.
Understanding your sales velocity gives you the ability to do more accurate forecasting and optimise your sales process at each stage to achieve faster sales and higher conversion rates.
So let’s look at how you can measure sales velocity and identify anything that’s slowing down your sales process, so you can start increasing your revenue.
There are 4 Key Variables that Impact Sales Velocity
There are four variables that affect your sales velocity: The number of opportunities in your pipeline, the size of your average sale, your conversion rate and the length of time it takes to complete a sale. Together, these metrics allow you to calculate your sales velocity, track any changes over time and work out how to improve it to make more money.
Let’s take a closer look at those metrics:
- The number of opportunities in your pipeline
Look at the number of leads your sales team can work through in a given period – Even compare sales velocity internally, by breaking down opportunities by sales rep, region, or even product.
- The average deal size or sale
This can simply be the dollar value of any sale or if you’re selling subscriptions, like SaaS (Software as a Service) it will be the average customer lifetime value.
- Your Conversion Rate
The number of leads your team convert into paying customers over a given period. Calculate a percentage, based on the number of conversions (ie. 100 leads with 20 sales = a conversion rate of 20%).
- The length of time to complete a sale
How long does it take for prospects to move through your pipeline? That answer could depend on a number of factors, including how many steps there are in your sales cycle, how complex your product is, and the how much it costs.
The Formula for Sales Velocity
Armed with the calculations from those four elements, we can now calculate your Sales velocity.
The formula is quite simple [The number of opportunities] x [The average dollar value of your deal] x [Your conversion rate] divided by the number of days in your typical sales cycle.
So for instance, if you have 50 opportunities with a conversion rate of 25%, an average deal size of $10,000 and an average sales cycle of 60 days, your sales velocity calculation will look like this
Sales velocity = (50 * .25 * $10,000) / 60 = $125,000 / 60 = $2083.33
So your sales velocity will be $2083.33, and this is approximately the amount of revenue you’re bringing in each day. To improve this, you can do two things: Increase your numerator ($125,000 in the example) and/or decrease the denominator (60 days in the example).
This of course is a simple example at a given point in time. Tracking sales velocity over time will give you a much more accurate picture of the health of your business and allow you to make improvements to increase your income.
How to Delete Bottlenecks and Boost Your Sales Velocity
To increase your sales velocity, 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 to close a deal. Ideally, you should first continue your lead generation strategies and focus on improving the other three factors.
- Improve your conversion rate
To do this, you need to find, target and nurture leads that are ready to buy. You also need to fine tune your lead qualification process. Then look at your pipeline – your follow-up process . Identify any steps where leads drop off or stall and improve them.
- Optimise your average deal size
Notice I didn’t say ‘increase’ and here’s why: While there are benefits to landing high-value deals, they tend to take longer to close, so the real key to improving your sales velocity is balancing both high-value and low-value opportunities, allowing your reps to manage their time effectively. You can increase deal value by using a combination of strategic discounts, tiered offerings, up-selling and cross-selling.
- Shorten Your Sales Cycle
If deals take too long to close, break your sales process down, step by step and find the bottlenecks. Is there a particular stage slowing things down or taking too long? Can you automate that stage and speed it up by incorporating software? You’ll find that fixing that problematic stage could shorten your entire sales cycle.
Use Sales Velocity to Accelerate Your Growth
A common and fatal mistake is to ignore sales velocity and just blindly focus on keeping your pipeline full. This gives you plenty of leads but you may not have not enough resources to move them through the pipeline, negotiate high-value deals or convert them. Your pipeline may also be faulty and these leads you are bringing in could be wasted. By measuring your sales velocity, you’ll have all the data and insights you need to optimize your sales process from start to finish.