In a nutshell, it tells you how much revenue your team can generate per average deal lead time. If you know your sales velocity, you can use it to:
Improve your revenue forecasting accuracy
Determine knowledge gaps within the sales team, e.g. they may be discounting too quickly rather than focusing on “value-based-selling”
Evaluate your sales process to improve efficiency (i.e. reduce average lead time, get more deals into the system and/or increase conversion rates)
Compare sales teams’ performance and identify opportunities to bring everyone up to best-in-class
To put it simply:
“The higher your sales velocity, the faster you’re making money — therefore the more revenue you can make in a year.”
How To Calculate It
Let’s take a look at the Sales Velocity equation:
Sales Velocity = (The Number of Qualified Opportunities X Average Deal Value x Average Win Rate) / Average Length of the Sales Cycle
Measuring sales velocity gives you a snapshot of your results. So you need to take the snapshot frequently (weekly or monthly) and monitor the trend over time
It may also be helpful to record trend graphs compared to the same time in previous year(s)
This calculation gives you a good indicator of the overall effectiveness and efficiency of your sales team, as well as an idea of the general health of your business. It’s also a great way to focus your attention on which lever to pull hardest to drive more growth for your business.
The sales velocity equation allows you to identify problem areas in your pipeline and take proactive steps to improve them.
Breaking Down The Variables
The challenge with sales velocity is that it’s a compound measure: four variables that interact with each other are all at play. For example, you could improve conversion rates by qualifying leads harder, but that may reduce the number of qualified deals in the pipeline. And, unless the other three variables change or improve, sales velocity could actually go down!
Let’s break each of the variables down, and think about how to optimise them. Remember, you can’t tweak one in isolation of the other — which is why sales velocity is such a good measure.
Number of Opportunities
Every pipeline has a certain number of opportunities over a given time period. To boost sales velocity, you need to ensure that your pipeline contains an increasing number of pre-qualified high-converting opportunities. This is about quality first, then quantity.
Focus on building a manageable pipeline of qualified leads, instead of one bursting with all sorts of random stuff. For this, you need to ensure you have well-defined sales pipeline qualification criteria. You also need to make sure that sales and marketing have agreed on what a Marketing Qualified Lead (MQL) and Sales Qualified Lead (SQL) looks like.
Be realistic with who your targetcustomer is. Sure, the huge opportunities are tempting, but they can be a risky gamble if you’re using all your time to go after them. You may need to shift focus onto a larger number of more attainable/qualified clients that you can swiftly bring through your pipeline. There is no “one size fits all” answer to this.
When you start to change the way you qualify leads, the absolute total number in your pipeline is likely to go down. So we’d recommend changing this in combination with reviewing your lead generation programmes.
Average Win Rate %
How many live opportunities turn into revenue-generating customers in the measurement period? To identify your win rate, you simply divide the number of sales opportunities won by the total number of sales opportunities in that reporting period. For example, if during the last month you had 100 pre-qualified leads in your pipeline and you won 25 paying customers, your win rate is 25%.
This underlines why it’s better to focus your attention on a smaller selection of high-quality leads rather than a larger selection of unlikely ones. Improve your win rate by capturing, prioritising and nurturing these high-quality opportunities.
You can boost your win rate by being purposeful about the opportunities you chase. For example, our free RFP Calculator allows you to point-score potential RFPs to determine whether they’re worth your time, based on the likelihood of winning the business.
Optimise your personal win rate by developing a strategic negotiation process. From the first conversation all the way through to the late stages of a deal, it’s vital that sales teams are following a tried-and-tested approach to effective negotiation.
Average Deal Value
Average deal value, or average deal size, is a hugely important factor. It can be a much more efficient way to improve sales velocity than, say, winning more deals in total.
It takes time to build strong relationships, so maximising the ones you have is key. To improve average deal value, think about how you can add value to your prospect by providing tiered options in your pricing proposals.
Maximise your average deal size by cross-selling to prospects — but only when there’s a clear benefit to the customer. As a trusted advisor, you need to have your prospect’s best interests at heart. If you have something that will genuinely provide value, make sure you’re upselling it to maximise your average deal value (ADV).
Steer clear of discounting by focusing on value-based selling and things that cost you little but mean a lot to your client.
Average Length of Sales Cycle
This is the only factor in the sales velocity calculation that you want to reduce. The less time a lead spends in your funnel, the more deals you can get through the pipeline with the same capacity. Shorten your sales cycle — and therefore improve your sales velocity — by streamlining your sales process.
Automate repetitive tasks to reduce the number of person-hours spent each week. Sales automation tools are designed to take the pressure off the admin, to help your sales team focus on high-value tasks like relationship-building.
Dealing with large enterprise companies? Streamline the process of negotiating with procurement by understanding exactly who they are and what they’re looking for.
Because it’s a compound measure of four variables that all impact each other, increased sales velocity quarter-on-quarter is a clear indicator of a sustainable high-growth business. The numbers speak for themselves:
Monitoring sales velocity over time has many benefits for your business. You can benchmark your performance against other teams or regions, and assess how changes impact sales growth.
It provides a clear way to optimise these four sales variables: number of opportunities, average deal size, average win rate and average sales cycle length. Approaching each of these with a strategic and consistent game plan will ensure your sales team performs at its revenue-generating peak, quarter after quarter.
About the Author: Mike Lander
Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.
He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.
He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.
Download our FREE guide to negotiating with procurement professionals