There are a couple of ways to do this. A sales funnel, for example, enables teams to see the conversion-rate between each stage of the pipeline. This is useful, but doesn’t provide much more information for businesses to utilize.
Sales velocity, however, goes a stage further, and measures how quickly your business is making money. If you are looking to use just one metric to measure your marketing and sales success, sales velocity helps businesses to see the ‘bigger picture’. Let’s explore what it is, how to measure it, and how to improve your results.
The Sales Velocity Definition
Sales velocity is a popular sales pipeline metric that measures the speed at which your organization is generating revenue. The more money your business can make in the smallest amount of time, the better.
This helps businesses monitor the productivity of their sales team, the effectiveness of their pipeline, and enables them to identify where changes need to be made. Making small, consistent changes to your processes and seeing the impact they have on your sales velocity is a great indicator of what is and isn’t working.
It gives your sales representatives a clear understanding of the pace of potential customers traveling through the pipeline, as well as enabling them to accurately forecast their results.
According to many sales leaders, a good sales velocity usually hits about 70-80% of the set sales quota. However, it’s best to consider this metric as a tool for setting practical sales goals and gauging the likelihood of achieving them.
In simple terms, higher sales velocity typically means more revenue in the bank.
The Four Sales Velocity Metrics You Need to Know
How many opportunities do you have at the top of your funnel? These should be qualified leads that are likely to convert. Ensure they fit your buyer persona and target audience before they enter your sales pipeline.
Average Deal Size
On average, what is the dollar value of a deal? This will vary depending on the products you provide and the sector you are in. If you sell a subscription service, consider this number in terms of average customer lifetime value (CLV).
How many of your leads convert to customers? The higher the percentage, the better. The quality of your leads and the effectiveness of your pipeline will play a role in this number.
How long does it take to convert a lead to a sale? B2B buyer journeys tend to be longer and more complex than in the B2C world.
The Sales Velocity Equation
Now you’ve gathered the numbers you need to work out sales velocity, the equation is as follows:
Sales velocity =
number of opportunities x average deal size x conversion-rate ÷ pipeline length
Let’s say, for example, your organization gets around 500 opportunities per month. Your average deal size is $2,000, you have a conversion-rate of 25%, and, it takes an average of 30 days for your leads to convert. Let’s work out your sales velocity.
500 (opportunities) x $2,000 (average deal size) x 0.25 (conversion-rate) ÷ 30 (days)
= $8,333 (sales velocity)
The number you reach is roughly the amount of revenue you generate each day. If you want to improve your sales velocity and, in turn, increase the revenue you generate, then you need to make changes to one of the numbers in the equation.
Try increasing the number of opportunities you start with through effective lead generation and qualification activity.
1,000 (opportunities) x $2,000 (average deal size) x 0.25 (conversion-rate) ÷ 30 (days)
= $16,667 (sales velocity)
Or, aim to increase your average deal size by identifying upselling and cross-selling opportunities.
500 (opportunities) x $3,000 (average deal size) x 0.25 (conversion-rate) ÷ 30 (days)
= $12,500 (sales velocity)
Or, focus on increasing your conversion-rate through effective nurturing, optimization and strong sales techniques.
500 (opportunities) x $2,000 (average deal size) x 0.3 (conversion-rate) ÷ 30 (days)
= $10,000 (sales velocity)
Or, reduce the time it takes for a lead to convert by speeding up and streamlining your sales process. Note that this number is the only one you should be looking to decrease.
500 (opportunities) x $2,000 (average deal size) x 0.25 (conversion-rate) ÷ 27 (days)
= $9,259 (sales velocity)
The most important factor when it comes to making changes is consistency. Notice that in every example, only one variable was changed at a time!
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