Sales management – important for a business’ success in any
Business success is directly related to how quickly you convert leads into paying customers and the measure that reveals how fast your business is making money is sales velocity.
The faster you close deals, the better your sales velocity will be and as a result, so will your business performance. The next question that might come to mind is why does my business need good sales velocity?
Closing deals quickly enables you to generate revenue from those transactions as early as possible. If you can hit a higher sales velocity, it will give you a competitive advantage over your competitors as well.
Let’s take a look at why tracking your sales velocity is important.
Importance of Tracking Sales Velocity
You and your team could be killing it and not even know it. You might be thinking that everything is working just fine, but the numbers say otherwise. Worse yet, you might find out too late that your sales velocity has been steadily decreasing and your business is shrinking.
Sales velocity is a pivotal concept that can spell the difference between success and failure for many companies and it’s not as simple as the number of sales. 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.
By tracking sales velocity over time, you can benchmark your own sales velocity against that of other teams, compare the efficacy of specific representatives or regions, and see how changes to the sales process impact your business for good or for bad.
Furthermore, understanding sales velocity can also help you forecast with more precision and ascertain what factors to optimize to increase sales.
4 Key Variables that Impact Sales Velocity
Sales velocity is influenced primarily by four factors. Together, these factors can help you track how sales velocity changes over time, so you can optimize your operations accordingly. Those four variables are:
Number of Opportunities
It focuses on how many leads your sales team can generate in a given period of time. To compare sales velocity internally, you can also break down opportunities by sales rep, region, or product.
Average Deal Size
Many of the businesses out there consider this simply the value of an average sale they make. A company’s average customer lifetime value is more relevant for SaaS companies or subscription-based products.
Win Rate or Conversion Rate
This variable represents the number of leads that convert into paying customers during a given period. For example, if you start off with 100 leads and 40 of them become paying customers, you have a win rate of 40%.
Pipeline or Sales Cycle Length
It measures how long it takes for prospects to progress through your sales pipeline. Your sales cycle length determines how long this period will be. The complexity of the product and the price will also impact the decision of the prospect.
How to Calculate Sales Velocity
The best way to determine your sales velocity is to analyze your sales pipeline, lead nurturing process, and average sales deal size.
In order to calculate the velocity, the following information is required:
- The total number of opportunities in your sales pipeline
- The monetary value of your average sales deal size
- The customer conversion rate as a percentage of wins vs. losses
- The average sales cycle in a number of days or months.
Sales Velocity Formula
Your sales velocity can be calculated by multiplying the number of opportunities in your sales pipeline by the dollar/monetary value of your average deal size and your win rate. After that, divide the result by the number of days in your typical sales cycle.
Let’s say your business has 180 opportunities and has an average win rate of 27%. It has an average deal size of ₹53,000, and a sales cycle that likely lasts 60 days. With the formula discussed above, you can calculate sales velocity as follows:
Sales velocity = (180 x .27 x 53,000) / 60
= ₹25,75,800 / 60
After making the above calculations using the sales velocity formula, the sales velocity of your business is ₹42,930. 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, ₹25,75,800) or decrease the denominator (60 days) – or both, if possible.
Sales velocity has real value when it is tracked regularly. Utilize it to compare the short and long-term effects of adjustments in your sales process.
How to Boost Your Sales Velocity
To increase your sales velocity there are a variety of approaches you could take. Increasing opportunities, converting more leads, and increasing average deal size for your business, or decreasing the time it takes prospects to move through your sales pipeline are the options.
Improve Your Conversion Rate
You will need to find, target, and nurture sales-ready leads if you want to increase conversion rates. In addition, your lead qualification process will need to be refined and improved.
Take the time to identify leaks in your sales pipeline that need fixing. Find out if conversions are dropping off or stalling at certain steps.
Optimize Your Average Deal Size
Getting high-value deals brings a number of obvious benefits to your business. You should however bear in mind that bigger sales are typically slower to close. Therefore, improving your sales velocity comes down to balancing high-value and low-value opportunities.
This will help your sales reps manage their time effectively. By using a combination of strategic discounts, tiered offerings, and cross-selling, they can increase deal value.
Shorten Your Sales Cycle
For closing deals more quickly, it is important to break down your sales process step by step. Watch out for bottlenecks to speed up your sales process. Examine whether any particular stage is taking too long or slowing down the process. Consider using automation software to streamline the process.
Using Sales Velocity to Accelerate Growth
If you disregard sales velocity and simply focus on keeping a full pipeline, you will have tons of leads but not enough resources to manage the pipeline, negotiate high-value deals, or convert prospects into customers.
Optimizing your sales process from start to finish is possible only if you start measuring sales velocity.