Published Date: December 25, 2024
A vehicle moving in a particular direction, a rocket shooting toward the sky, or a lead moving in a pipeline illustrates the concept of velocity, i.e., the speed at which an object or entity moves in a specific direction.
If you were ever asked how you would evaluate your business’s profitability, you would probably associate it with the speed at which leads are transformed into conversions and generate money for you.
That’s precisely the concept of sales velocity.
Sales velocity measures how fast leads move through the pipeline and convert into paying customers. It determines how quickly a sales team closes a deal and how much value the closed deal provides to your business in a specific period.
In this blog post, we have explained sales velocity, how it is calculated, the factors affecting it, and its effects on business growth.
All of your sales and marketing efforts boil down to one thing: ‘How much revenue is your business generating over a specific period?’ Sales velocity is one of those metrics that highlights how quickly your products and services are selling and how efficiently your business generates revenue. For example, higher sales this month mean that your sales velocity is higher than the previous month, and hence, more revenue is coming in.
Put simply, sales velocity is the speed at which a lead moves through the sales pipeline, converts into a customer, and generates revenue for the business. The value measured through the sales velocity equation determines the health of your sales process and the productivity of your sales team.
If you have specified your sales goals for a specific period, the value of sales velocity can help you determine whether your goals are accomplished. It can also help you analyze the health of your business and pinpoint stagnant deals, slow-moving pipelines, or any other potential barrier.
Recommended read: What is sales pipeline?
Calculating sales velocity is essential not only for evaluating revenue generated over a period but also for multiple other reasons that contribute to the overall success of your sales process.
By determining sales velocity for a specific period, you can accurately forecast sales — the sales predictions for the future help in better planning and resource allocation.
Calculating sales velocity can help you optimize your sales processes and strategies, such as lead generation, qualification, and closing.
One noteworthy benefit of sales velocity is that it helps sales teams set and achieve sales targets. When you know your business’s sales velocity, you can create achievable milestones and determine the steps toward achieving these milestones.
With the right predictions in hand, you can manage your resources efficiently. You can manage the sales team’s time, allocate resources to high-priority opportunities, and accomplish your goals faster.
You can get a competitive advantage through quick customer acquisition and efficient deal closure by accelerating the sales velocity. Not only is the business revenue boosted, but you also capture a significant market share.
Increasing the number of sales opportunities and decreasing the sales cycle can generate better revenue and improve overall business health.
For higher sales velocity, the sale processes are designed to be more efficient, which leads to improved customer experiences. When potential customers are facilitated with rapid customer support, their satisfaction level increases, increasing the chances of conversions.
When a business acquires high sales velocity, it appears profitable for potential investors. This indicates that the business has the potential to grow and, hence, becomes a profitable investment opportunity.
Now that you know how accelerating sales velocity can benefit your business, let’s understand its formulation.
Sales leaders and marketers widely use sales velocity to forecast and speed up their sales processes. Certain factors influence sales velocity and help make informed decisions.
The equation that is used to measure the sales velocity is as follows:
Sales Velocity = No. of Opportunities x Deal Value x Win Rate / Sales Cycle
Let’s fill in the equations with the sample measurements.
Example 1
A sales team has 300 opportunities in the pipeline, with the average deal size is $1500. The conversion rate is estimated to be 30%, and the time it takes to close a deal, i.e., the sales cycle length, is 24 days.
Now, let’s put the values in the equation:
Sales velocity = (300 x $1500 x 0.30) / 24 days
Sales velocity = $135,000 / 24 days
Sales velocity = $5,192.31 per day
The value of the sales velocity indicates that the sales team generates $5,192.31 in revenue per day.
Example 2
Let’s take another example of a SaaS company that has 100 qualified opportunities in the pipeline, a 30% win rate, and an average sales cycle length of 60 days. For SaaS businesses, the average customer lifetime value is used instead of the average deal size, and its value is $8000.
Now, putting the values in the equation:
Sales velocity = (100 x $8000 x 0.30) / 80 days
Sales velocity = $240,000 / 80 days
Sales velocity = $3000 per day
The value indicates that the company is generating $3000 in daily revenue.
The four data points that influence the sales velocity are as follows:
Number of Opportunities: The number of qualified leads in the pipeline with a high chance of conversions. The ‘opportunities’ are the ‘qualified leads, ‘ not the ‘unqualified contacts. ‘ If your pipeline has several unqualified leads, it clutters it and makes it difficult to focus on high-converting opportunities. Lead forms and surveys are typically used to determine whether a lead qualifies.
Average Deal Value: The average deal size or deal value is the average amount you make with a closed deal. For service-based businesses, it accounts for customer lifetime value, not the average deal value. This is because the revenue is generated on a recurring basis and not one-time. The average deal value is obtained by dividing the revenue from closed deals by the total number of deals in that specific time frame.
Win/Conversion Rate: The percentage of leads that successfully convert into customers during a specific period. So, the win or conversion rate takes in those leads that move across the pipeline stages and ultimately convert into paying customers. It is obtained by dividing the closed deals by the total number of leads present during that specific time.
Length of Sales Cycle: One of the simplest metrics in the sales cycle represents the time it takes for a lead to convert into a paying customer. For a high sales velocity, the sales cycle length should be short, which means that the lead should take less time to move through the pipeline stages to become a customer.
Although sales velocity can be measured with a straightforward equation, there are a few best practices that you may follow to get accurate measurements.
The CRM tool you use should have accurate and up-to-date data that you can use to fill in the equation. Inaccurate data leads to incorrect decision-making and misleading information about the business’s health.
Specifying the period is crucial when calculating sales velocity over a month or year. Use this specified time frame for all calculations.
Tip: While sales velocity can be measured for any period, it is best to calculate it for longer periods for more accurate results.
You should be clear about the sales velocity terms and the criteria you follow to define them. For example, some businesses consider a lead a qualified opportunity when it fills in a form, while some consider it when it schedules a call with them. When measuring sales velocity, it is critical to define these criteria to save yourself from any uncertainty.
In the modern, fast-paced world, every business wants to thrive by prioritizing more sales and increased revenue. There is nothing wrong with quickly selling your services and products and generating increased revenue. However, sales velocity is not only about making more money; it encompasses optimizing your sales processes for long-term success.
We have unveiled some beneficial tips for increasing sales velocity and improving internal effectiveness in business processes.
The more opportunities you have in your sales pipeline, the better conversion rates will be.
Keep in mind that opportunities ≠ lead. A lead is the first interaction of a potential customer with your business, i.e., a random contact in the early stage of the sales process who has shown some level of interest in your business by clicking on an ad, downloading a resource, or inquiring about a product. Opportunities yield from qualified leads, i.e., when a sales rep analyzes the lead potential to become a customer based on specific qualification criteria.
You don’t need many leads in the pipeline for a high sales velocity. Instead, you need opportunities.
Expanding your customer base, exploring new demographics, and tapping into hidden opportunities can help you find new opportunities. You can also reach out to your prospects by tailoring marketing strategies that resonate with their pain points, refining your marketing strategies, and leveraging the power of analytical tools.
You cannot only increase revenue by just increasing the price of your products. Instead, you need to offer value to your customers rather than introducing price hikes. If you create bundles that provide value for money and emphasize the tangible benefits of bundles, you can easily encourage customers to buy more. This boosts your average deal size, and by doing so, the sales velocity quickly accelerates.
Identify opportunities to cross-sell and upsell and foster customer satisfaction. This will boost the average deal size and build customer loyalty.
Most of the time, the prospects leave the pipeline without any noticeable reason. If the leads continue exiting the pipeline consistently, it affects the bottom line and your sales team’s productivity. As a result, the sales velocity is compromised. However, it is critical to focus on why people are not buying from you to stay at the top of the digital landscape and improve your sales velocity. Analyze the sales cycle stage at which the prospects exit, address their problems, and maximize their conversion chances.
Equip your sales team with proper training and the latest sales tools and techniques. Address customer feedback throughout the sales process through active listening and communicating with them in real time. Keep all of your interactions with the Kemo SaaS CRM tools and improve customer experiences.
Aggressive sales do not guarantee long-term success. One great way to speed up your sales velocity is to shorten your sales cycle, i.e., the time it takes a lead to convert into a customer. However, this does not mean pressuring your prospects to purchase from you. You need to deal with your prospects intellectually and not bombard them with marketing ads or undesired conversations.
If your prospects have concerns, try to address them as soon as possible. You don’t have to speed up the lead conversions; instead, you need to speed up the time between each interaction so the lead is not lost. Prepare yourself to answer all the objections promptly.
You cannot always increase the revenue if you keep introducing discounts randomly. However, you may offer incentives to prospects to encourage them to close the deals earlier, thus shortening the sales cycle. With a shortened sales cycle, the sales velocity accelerates.
Discounts should not affect your business growth; your sales team should use discounts to benefit earlier deal closing. If discounts are offered at the right time, they quickly build prospects’ interest in your business and make them pay in seconds. However, this strategy should not devalue your business offerings.
Automation can accelerate sales velocity by streamlining the sales processes and providing valuable insights. Use automated tools to capture leads from multiple resources such as web forms, ads, social media, etc., and qualify them as opportunities. Automate reminders for lead follow-ups and send automated emails and notifications to the customers.
When repetitive tasks are automated, the sales team spends less time capturing leads manually and more time on high-value activities. More sales are generated, and the leads don’t go lost with timely automated follow-ups.
One possible reason for a low sales velocity is that not enough sales reps are working on the team or are not provided with enough resources to fulfill the prospects’ requirements. If everything is working fine, but your targeted sales velocity is still not achieved, you may consider hiring more sales reps.
With more trained salespersons on the team, you can expect efficient prospecting. The more qualified leads fill your pipeline, and you can assign every sales rep a specific task based on their availability and skillset. They can bring in more chances to upsell and cross-sell, which leads to increased average deal size. With a sufficient and more efficient sales team, the follow-ups are performed quickly, which eventually reduces the sales cycle length.
Sales velocity is an effective way of measuring a business’s health. You can use this metric to determine how fast your business generates revenue and how quickly the sales team closes the sales. By optimizing your sales pipeline, you can improve the sales velocity and ensure consistent busiess growth. You should have a robust CRM database and analytical tools to accurately evaluate sales velocity and other aspects of sales processes. Sales velocity calculations eliminate the guesswork and help in sales forecasting and budget distribution.
Schedule a demo with Kemo SaaS to learn how you can create and customize the sales pipeline, streamline your sales processes, and close more deals efficiently.
Sales velocity is the speed with which leads move through the pipeline and convert into paying customers. It is one of the important sales metrics used to evaluate business revenue generated over a specific time. The value of sales velocity depends on certain factors, including the number of opportunities, average deal size, conversion rate, and sales cycle length.
Sales velocity helps businesses predict sales during a specific time period, identify potential bottlenecks, and create effective sales strategies to maximize revenue. It also helps determine how quickly a business acquires new customers, the time the lead takes to convert into a customer, the performance of the sales teams, and better resource allocation.
Some may call it sales velocity, while for some, it’s the funnel or pipeline velocity. Whatever term you use refers to almost the same concept, i.e., how quickly the leads move inside the pipeline. Whatever term you are using to define the metric, keep it consistent across your sales team to avoid any confusion.
Honestly, there is no such thing as an ideal sales velocity rate. We know businesses thrive in garnering high sales velocity, but what looks good on paper does not guarantee long-term success. For example, a sales team successfully achieves the targeted revenue of $50,000 a month, but the customer retention and resource allocation are not up to the mark. In this situation, the company won’t be able to hold on to the revenue in the long run. The focus should be on generating quality sales. The sales velocity guides businesses to set realistic milestones. If a business achieves 60 to 70% of sales quotas every month, it has achieved its target.
No, these are different terms. Sales velocity is the speed at which a lead closes into a paying customer, while inventory velocity is the speed at which a product’s inventory is sold within a specific period.
You can accelerate sales velocity by increasing the number of opportunities in the pipeline, implying ways to improve the win/conversion rate, increasing the average deal size, and shortening the sales cycle.
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