It is quite evident the more quickly you can convert leads into paying customers, the more successful will be your business. Time is money and the sales metric that reveals the most about both time and money is sales velocity.
Sales velocity is a sales metric tool that helps businesses analyze how fast they are making money. Also, it focuses on how quickly are your leads moving through your pipeline and how much value your customers are providing over a given period of time.
Importance Of Tracking Sales Velocity
Sales velocity plays a vital role in enhancing your business’ ability to thrive and grow. Furthermore, the less time it will take for your prospects to move through your pipeline, the faster you will be able to close more deals.
Therefore, a higher sales velocity means your business is bringing in more revenue in less time. By focussing on tracking sales velocity over time, you are able to benchmark your own sales velocity against other teams.
Besides this, you can also compare the effectiveness of individual reps or regions, and see how minor or significant changes to the sales processes impact your business, for better or worse.
By understanding, sales velocity can also help your business forecast more accurately and determine how your sales process can be optimized for the faster sales process and higher conversion rates at each stage.
4 Key Variables That Impact Sales Velocity
There are mainly four factors that affect sales velocity. When used together, these metrics help your business to calculate sales velocity so you can track how it changes over time and, accordingly, figure out how to optimize your operations to make money faster. The 4 variables are the following:
- Number Of Opportunities:
It focuses on how many leads can your sales teamwork through in a given period. If you are interested to compare sales velocity internally, you can also break down opportunities by sales rep, region, or product.
- Average Deal Size:
Now for many businesses out there, this is simply the monetary value of an average sale their business makes. For SaaS companies or subscription-based products, average customer lifetime value is more relevant.
- Win Rate Or Conversion Rate:
This variable addresses the number of leads that turn into paying customers over a given period of time. Furthermore, for example, if you start with 100 leads and 40 of them become paying customers, you’ve got a win rate of 40% which is pretty straightforward.
- Pipeline Length Or Sales Cycle Length:
This variable addresses the number of days it takes for prospects to move through your pipeline. The answer depends on how many steps are there in your sales cycle. It also depends on how complex your product is, and the cost of your offering, be it a product or a service.
The Sales Velocity Formula
In order to figure out your sales velocity, you will require taking a good hard look at your sales pipeline, sales cycle, lead nurturing processes, and average sales deal size.
Also, the sales velocity formula requires the following pieces of data:
- The number of opportunities in your sales pipeline.
- The monetary value of your average sales deal size.
- Customer conversion rate as a percentage of wins vs. losses.
- The average sales cycle in the number of days or months.
You can calculate your sales velocity by multiplying the number of opportunities in your sales pipeline by the dollar/monetary value of your average deal size and your win rate. Then, divide the derived result by the number of days in your typical sales cycle.
Let’s say your business has 50 opportunities and has an average win rate of 25%. It has an average deal size of $10,000, and a sales cycle that likely lasts 60 days. Using the sales velocity formula as discussed above, you can determine sales velocity:
Sales velocity = (50 * .25 * $10,000) / 60
= $125,000 / 60
After making the above calculations using the sales velocity formula, the sales velocity of your business is $2083.33. This means that your business is roughly bringing in that much revenue each day.
After 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, whatever suits your calculation parameters.
In order to get the full picture, you will need to put these numbers into context because the true value comes from consistently tracking sales velocity at regular intervals. Make sure to use it to compare the effects of changes in your sales process in the short as well as long run.
How To Boost Your Sales Velocity
If you are looking to increase your sales velocity, there are several approaches you can consider taking. Your business can either increase opportunities, conversion rate, or average deal size, or it can decrease the time it takes prospects to move through your business’s sales pipeline.
But it is always suggested that you should continue with your current lead generation strategies while optimizing the other three factors.
- Improve Your Conversion Rate:
If you want to increase the conversion rate, you will require findings, targeting, and nurturing sales-ready leads. In addition, you will have to refine your marketing and honing your lead qualification process.
Take out time to analyze your sales pipeline for leaks that need patching. See if your conversions are dropping off or stalling at a certain step.
- Optimize Your Average Deal Size:
There are many obvious benefits your business will enjoy after landing high-value deals. However, keep in mind that bigger sales tend to take longer to close. Therefore, the real key to improving your sales velocity is to balance high-value and low-value opportunities.
This will allow your sales reps to manage their time effectively. Train them to increase deal value using a combination of strategic discounts, tiered offerings, and cross-selling.
Monitor their performance using NeoDove and see how well they are executing their tasks, make a note of their drawbacks and train them accordingly in the future.
- Shorten Your Sales Cycle:
If deals are taking too long to close, you need to try breaking down your sales process step by step. Make sure you keep an eye out for bottlenecks.
See if there is any particular stage slowing things down or taking too long. Look for software available to automate part of the process. For example- By using NeoDove many of the dealers have been able to automate and streamline their sales process. Addressing and fixing up a problematic stage can greatly shorten your entire sales cycle.
Using Sales Velocity To Accelerate Growth
If you and your business are ignoring sales velocity and blindly just focusing on keeping your pipeline full, in that case, you will have tons of leads but not enough resources to move them through the pipeline, negotiate high-value deals, or convert prospects into customers.
But if you start measuring sales velocity, your business will have all the required data and insights necessary to optimize your sales process from start to finish.