Sales Velocity: What It Is & How to Calculate It
Sales velocity is the measurement of how quickly a sales team closes deals and generates revenue.
In other words, sales velocity is the speed at which leads in the pipeline are converted into customers.
In this article, we’ll go over everything you need to know about sales velocity, including why it’s so important to track, what factors influence it, and how to increase sales velocity within your organization.
Here’s what we’ll cover:
- Why Is Tracking Sales Velocity Important?
- Sales Velocity Formula
- The 4 Variables of Sales Velocity
- How to Increase Sales Velocity
Why Is Tracking Sales Velocity Important?
Sales velocity, on its most surface level, measures how quickly your sales team generates revenue.
The higher the sales velocity of a sales organization, the more money they make in a given timeframe.
Put in such plain terms, it’s easy to see why sales velocity is incredibly important to any sales organization. If your team isn’t able to generate revenue quickly enough, the business will fail to thrive and, eventually, collapse.
But there’s a lot more nuance involved with measuring sales velocity than just the dollar amount on the bottom line.
The sales velocity measurement also allows sales professionals to:
- Carefully analyze and evaluate their sales process & performance for areas of strength, bottlenecks, or funnel leaks
- Gain insight into what training/coaching specific sales reps need
- Create more accurate sales forecasts to improve goal-setting and investor relations
In other words, measuring sales velocity can give indicators about why some sales teams excel, and why some continue a cycle of mediocrity or failure.
While sales velocity is a great measure of the overall health, effectiveness, and productivity of the sales team, it’s a multi-layered metric with four major contributing factors. A shift in any one of them can change the calculation entirely.Eliminate the guessworkTrack, analyze, and standardize what’s working
Sales Velocity Formula
There are four standard metrics that play a role in determining sales velocity:
- Number of sales opportunities
- Average deal value/average customer lifetime value (LTV)
- Win rate
- Length of sales cycle
To determine sales velocity, multiply the first three factors, and divide the resulting product by the length of the sales cycle.
Here is the sales velocity formula written as an equation:
Sales velocity is most commonly expressed in dollar terms. It represents the amount of revenue that your team can predictably generate every day.
Although the factors in the sales velocity formula are set in stone, there is some flexibility in where you apply it.
Many sales organizations, for example, calculate their sales velocity based on team-wide metrics. This gives them a holistic view of how effectively the team, as a whole, closes deals and generates revenue.
There are other ways to apply the formula, though. You could, for example, calculate the sales velocity of an individual sales rep. Many teams also opt to calculate individual sales velocities for each separate customer segment.
The 4 Variables of Sales Velocity
In order to measure sales velocity, sales teams need to have careful data-collection and data-analysis processes in place for the following metrics:
- Number of sales opportunities
- Average deal value (SaaS companies usually use customer LTV instead)
- Conversion rate
- The average length of the sales cycle
It’s important that everyone on your team has a common and standardized understanding of how each of these metrics is measured and reported.
A “sales opportunity,” for example, is often mistakenly conflated with a lead. A lead is an unqualified contact, while an opportunity is a lead who has been qualified and has a high chance of converting to a customer.
All metrics that play a role in sales velocity should be carefully defined and standardized so that everyone on the team is on the same page about what they are measuring and how to report it.
Number of Opportunities
Number of opportunities refers to the number of potential deals open in your sales pipeline during a specified period of time.
To determine the number of opportunities, you’ll need to count the number of leads that have been qualified in that timeframe.
Here is the first area where you’ll need to work together with your team to standardize definitions.
Many teams, for example, make a distinction between marketing qualified leads (MQLs) and sales qualified leads (SQLs). Be very clear with your organization about how to define each, and at what juncture MQLs become SQLs. The difference between the two will help you define a true “opportunity.”
There are several qualification frameworks that can help your team with this process. BANT is a popular one that many salespeople rely on.
Just like the general sales velocity formula, opportunities can be measured based on the organization as a whole, or by smaller subsets like by sales rep, by region, or by product.
Average Deal Value
The average deal value is, surprisingly, the only factor that contributes to sales velocity that deals directly in dollars.
The average deal value is calculated by dividing the total revenue generated in a given time frame by the number of deals in that time frame.
Most SaaS companies use the sales metric average customer lifetime value (LTV) to represent this metric. Unfortunately, this metric is not as straightforward as most sales professionals would like it to be. Customer acquisition costs (CAC) play a factor in average deal value and need to be considered when calculating the average deal size and customer LTV.
The conversion rate, also known as a team’s win rate, represents the percentage of leads that converted to customers during a specified time period.
In simple terms, the conversion rate represents the percentage of leads that convert all the way down the pipeline and ultimately become a paying customer.
To determine this metric, divide the number of closed-won deals by the number of opportunities available during that time period.
As expected, this metric also has some sneaky contributing factors that need to be considered. Pay attention to leads who became qualified before the time period started, but closed within it. On the flip side, also take notes of leads who qualified within the timeframe, but closed outside of it.
You can factor these in according to what makes most sense for your business and specific sales cycle; the important thing is that you have a common understanding across the entire team.
Length of Sales Cycle
Sales cycle length is perhaps the most straightforward in the formula. This metric is represented by the amount of time it takes for a lead to move all the way through the sales pipeline and become a paying customer.
Simple math will show that a shorter sales cycle inherently leads to a higher sales velocity.
While it’s true that an optimized sales cycle is not a minute longer than it needs to be, “shorter” does not necessarily directly correlate to “better.”
Many big-ticket products — or deals that require input from many decision-makers and stakeholders — have a naturally longer sales cycle. Do not hasten these processes simply for the sake of increasing sales velocity. Do not cut corners for the sake of shortening the cycle.
Focus instead on optimization — tweak the process until it is only as long as it needs to be.
To calculate the length of your organization’s sales cycle, find the total number of days it took to reach all deals, and then divide it by the number of deals for that specific time period. Data that helps you sell smarterDaily activity, engagement data, and outcomes
How to Increase Sales Velocity
Any sales organization that pays attention to this metric will want to increase their sales velocity. And why wouldn’t they? A higher sales velocity means more money coming in.
Fortunately, there are a number of specific and targeted action items a sales team can tackle if they want to improve sales velocity.
As with any sales metric, it’s important to make sure you’re measuring this data and tracking your progress on a regular and standardized basis.
Increase Number of Opportunities
First thing’s first — if you want higher velocity, you need to win more deals. The obvious answer to this challenge is to increase the number of opportunities coming into your pipeline.
Be careful here, though — more leads does not always mean more success. The quality of leads is far more important than quantity.
In fact, many sales reps and marketers report that finding qualified leads is one of the biggest challenges in lead generation.
To successfully increase your number of opportunities, your team will want to focus on developing well-researched and detailed ICPs and buyer personas so that you’re attracting the right leads in the first place. If you can fill the top of your sales funnel with more and more prospects that closely match these profiles, you will see an increase in the number of opportunities available to your team.
Boost Average Deal Size
The most important factor in growing your average deal size is ensuring that your offering is priced fairly according to the value it offers to the market.
In other words, you want to make sure that you’re taking a value-based selling approach.
You can do this by carefully mapping your product offer and marketing initiatives alongside your customer’s pain points. The more closely you can speak to the customers’ needs, the more valuable your offer will be to your target audience.
The following tactics will also help increase your deal size:
- Spend time creating tailored sales pitches and content offerings
- Balance the way you allocate your team’s resources between “whale” deals and smaller value, easier-to-close ones
- Focus on cross-sells and upsells to increase the value of customers who have already signed with your company
The common thread between all of these strategies is to create authentic and trusting relationships with prospects.
In order to optimize conversions, teams need to analyze the effectiveness and efficiency of their sales pipeline.
The idea here is to figure out the needle-movers in both directions: What kinds of things make prospects convert quickly? What are the points during which a high percentage of prospects funnel out?
Your conversion rate is also a good indicator of how well your leads are currently being qualified. An overall low conversion rate may indicate that you’re attracting the wrong leads, so be sure to look carefully at the conversions for each stage, as well as the overall rate.
Shorten Length of Sales Cycle
Fortunately, there are a few concrete steps that teams can take that can easily improve the length of the sales cycle.
First, make sure that your sales reps are prepared to follow up quickly. Research shows that reps who are faster to follow up are more likely to close; this alone will give your team a huge advantage.
You can nail the follow-up by having relevant content ready and waiting for when you make contact.
There’s also evidence that shows that most prospects require at least 1 follow-up before closing, with many needing as many as 4 or 5. Unfortunately, most salespeople fail to go all the way with most of these leads.
The right sales technology tools can go a long way in helping teams achieve these targets. A well-adopted CRM system, for example, is imperative to an optimized sales cycle length.
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