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What Is Sales Velocity?
Sales velocity measures how quickly a potential customer moves through your sales pipeline and starts generating revenue.
But it’s important to note from the outset that sales velocity doesn’t necessarily center on all leads.
Instead, it primarily focuses on deals that have advanced further along the sales funnel, as three out of the four components of the sales velocity equation are particularly concerned with opportunities and later-stage deals (more on that later).
First, let’s delve into exactly why this is such a treasured metric for many sales teams.
Why Sales Velocity Is Crucial for Success
Sales leaders need to facilitate revenue generation quickly enough to keep the business afloat, making sales velocity a critical metric to keep tabs on.
It can help with the following:
- Optimizing Outreach Strategies: Reveals seasonality trends and which periods are most productive, enabling the tailoring of outreach strategies to specific days or seasons.
- Highlights Pipeline Efficiency: Shows the efficiency of your sales pipeline. When your sales process works smoothly, it can lead to a high sales velocity.
- Improving Sales Forecasts: Offers more precise projections, which helps any sales manager set quotas, coach, and provide investors with tangible evidence of your sales effectiveness.
As a sales leader, understanding sales velocity is essential for better resource planning, ensuring staffing levels, inventory, and marketing campaigns align with expected sales.
Now, let’s dive into the sales velocity formula that turns these insights into actionable strategies.
How to Calculate Sales Velocity
For sales leaders, the real difficulty in measuring sales velocity lies in how widely variable it is, with many different angles to approach it from.
Typically, it’s calculated as the product of four sales metrics rather than a single formula, so let’s start with that:
1. Number of Opportunities
What is it?
The number of opportunities is the amount of potential customers in your pipeline that are more likely to convert into actual sales than a prospect in earlier pipeline stages.
How to qualify opportunities
Not all potential customers follow predictable paths, meaning your salespeople must thoroughly vet any potential opportunity to determine their viability.
Having well-defined qualification criteria ensures consistency, which, in turn, ensures better accuracy in your calculations. For instance, use frameworks like MEDDPICC to help with this.
2. Average Deal Size
What is it?
The average deal value represents the average revenue expected from each closed sale. This sales metric helps you gauge the financial impact of each sales opportunity.
How to measure average deal size
The formula is:
Average Deal Size= Total value of closed-won opportunitiesTotal number of closed deals
For example, if you successfully close 40 deals in a given month and then generate $100,000 from these deals in that same period, your average deal value is:
Average Deal Size= $100,00040=$2,500
Note: For subscription-based services, Customer Lifetime Value (CLV) might be more suitable than measuring your typical deal size. CLV is an estimate of the total value a customer might bring to your business throughout their lifecycle and accounts for recurring revenue.
3. Win Rate
What is it?
Win rate compares the number of successful deals won against the total number of opportunities, focusing specifically on the result of sales processes.
This sales metric isn’t the same as conversion rate, which can apply to various stages of the customer journey (e.g., the percentage of newsletter sign-ups).
How to measure win rate
The formula is:
Win Rate=Number of salesNumber of opportunities100
For example, if your sales team successfully closes 40 out of an overall 100 opportunities, your calculation is:
Win Rate=40100100=40%
4. Average Sales Cycle Length
What is it?
Average sales cycle length represents the time it typically takes for a lead to move from initial contact to a closed won.
How to measure sales cycle length
The formula is:
Sales Cycle Length=Total days in sales cycleNumber of deals closed
Let’s say the total length of your average sales cycle is 160 days for every closed deal, and you closed 8 deals within this time. Your calculation is:
Sales Cycle Length=1608=20 days
Sales Velocity Formula
After calculating the four levers above, you can figure out this metric with the following sales velocity formula:
Sales Velocity=Number of opportunities Average deal size Win rateAverage sales cycle length
Using the examples above, your calculation is:
Sales Velocity=100 2,500 0.420=$5,000 per day
You can calculate sales velocity at various levels, including at an individual, team, organizational, regional, or across different channels.
Because metrics can vary so widely, businesses often calculate sales velocity by industry verticals or target segments.
For instance, a software company might serve multiple industries, such as healthcare, finance, and manufacturing, each with different customer needs, sales cycles, and deal sizes.
How Often Should You Measure Sales Velocity?
Measuring sales velocity regularly is crucial, although your specific business needs and sales cycle dynamics will set the pace.
Here are some approaches:
- Monthly: Many businesses measure sales velocity on a monthly basis. This allows for consistent tracking and the identification of trends over time.
- Quarterly: Some organizations with longer sales cycles may choose to measure sales velocity on a quarterly basis to account for seasonality and to avoid overly frequent adjustments.
- On-demand: In some cases, you can measure sales velocity as needed. For example, when you’re implementing significant changes to your sales strategy, campaigns, product usability, or onboarding processes and want to assess the impact of specific initiatives.
Additionally, consider the length of time you analyze. Measuring sales velocity for an extended period (e.g., six months) can account for variables like seasonality or longer-than-usual sales cycles.
The key is to strike a balance between monitoring sales velocity frequently enough to stay responsive to changes without overburdening your team with excessive data collection.
Sales Velocity Benchmarks
No two companies are the same, so there aren’t any precise benchmarks, even within specific markets. Many factors are at play, including industry, company size, business model, product complexity, target market, and sales strategies.
Instead, compare your sales velocity against past performance.
For example, if Q1’s sales velocity was $2,000 per day, and it fell to $1,500 per day in Q2, you need to uncover the reason and address it.
And remember, while a high sales velocity seems great, you must be able to sustain it.
For example, if large deal values are primarily driving your high sales velocity rather than a steady inflow of leads, even a slight shrinkage in your pipeline could significantly impact your overall sales performance.
In addition, it’s important to recognize that sales velocity is only one facet of sales performance.
For a more comprehensive understanding of sales effectiveness, consider additional metrics in conjunction with sales velocity.
5 Other Relevant Metrics & Their Relationship with Sales Velocity
You’ll want to use pipeline metrics that address various aspects of sales and marketing efficiency, from initial lead generation and qualification efforts to revenue generation and resource allocation.
Consider the following:
- Lead Velocity Rate (LVR): The number of leads generated in the current period compared to the previous one. It’s crucial for understanding the speed and effectiveness of your lead generation efforts.
- MQL-to-SQL Conversion Rate: The percentage of marketing qualified leads your team has successfully converted into sales qualified leads. It indicates the overall efficiency of your lead qualification and nurturing process.
- Sales per Rep: The total revenue each representative generates for a period. You can also measure sales by other variables, such as team, region, product or feature, etc.
- Customer Acquisition Cost (CAC): The overall cost of getting new customers, including marketing and sales costs. It provides valuable insight into the profitability of your sales efforts.
- CLV:CAC Ratio: This metric compares customer acquisition costs to customer lifetime value. It offers valuable insights into your sustainability, revealing whether a customer’s average value exceeds the cost of acquiring them.
Now, let’s delve into how you can leverage these insights to drive informed decisions and optimize your sales strategies.
Leveraging Actionable Insights from Sales Velocity Data
A sales manager must know how to extract meaningful insights from existing data. You can achieve this through the following methods:
- Identify High-Performing Segments: Analyze historical sales velocity data to pinpoint customer segments or industries that consistently exhibit a faster sales cycle and larger deal size. Focus your sales efforts on these lucrative segments to maximize results.
- Customer Behavior Patterns: Dive into your data to uncover patterns in customer behavior during the sales process. Identify common triggers that accelerate conversions and tailor your sales strategies to capitalize on these insights.
- Evaluate Individual Sales Rep Performance: Assess individual sales team members’ performance and identify top performers to understand their tactics. Provide sales coaching and training to other team members based on these insights.
And if you notice any concerning trends, luckily, there are steps you can take to get a higher sales velocity. Let’s get into increasing sales velocity.
How to Increase Sales Velocity: 4 Easy Ways
Increasing sales velocity effectively involves these four straightforward yet impactful strategies.
1. Boost Number of Opportunities
Emphasize quality over quantity.
Remember, an opportunity is more likely to close than a regular lead.
Develop specific ICPs and buyer personas to ensure you’re attracting the most suitable leads. By populating the top of your sales funnel with prospects that closely match these profiles, you’ll see an increase in the number of opportunities available to your team.
2. Increase Your Average Deal Size
To increase your typical deal size effectively, avoid the simplistic approach of merely raising product prices.
Instead, consider adopting a value-based pricing strategy, focusing on creating pricing and bundling options that balance value and cost. Gaining a deeper understanding of customer pain points is crucial for offering tailored sales pitches, content, and bundles.
Do this by conducting needs assessments, actively communicating with each prospect, and collaborating with marketing, customer support, and product development.
Also, push smaller deals through the pipeline faster to free up time for “whale” (larger) deals — but don’t jeopardize smaller sales either. Focus on cross-sells and upsells to increase the deal value of existing customers.
3. Optimize Conversion Points
Pay attention to conversion rate to identify precisely where and why prospects are disengaging in the sales cycle.
This process involves analyzing drop-off points and understanding the underlying reasons, be it price sensitivity, unmet needs, or other factors.
Equally important is to ascertain the elements that drive prospects to convert swiftly. By gaining insights into both these aspects, you can tailor your sales strategies to address any issues promptly and capitalize on what works, ensuring sales effectiveness.
4. Shorten Your Sales Cycle
Shorter sales cycles go hand-in-hand with a higher sales velocity.
Prompt follow-ups are crucial, but balance is key.
Above all else, you should prioritize building relationships over aggressive sales tactics.
Address inquiries quickly and keep essential company materials readily accessible for any prospect near the decision stage. You might also consider hiring more salespeople to increase outreach, follow-up speed, and overall capacity.
Utilizing a CRM system can be particularly effective in speeding up the duration of your average sales cycle. It assists with sales automation, lead tracking, timely follow-ups, and streamlined communication, ensuring that no opportunities are missed and that prospects move through the sales process more swiftly.
However, keep in mind that traditional CRMs aren’t without their issues.
A CRM add-on might be needed to simplify the process.
How Scratchpad Can Help You Accelerate Sales Velocity
Elevate your Salesforce experience and prevent crucial data from slipping through the cracks with Scratchpad!
Say goodbye to depending on multiple platforms — Scratchpad is the only Salesforce add-on you need to maintain an organized and visually intuitive pipeline without overhauling your existing practices.
This newfound clarity liberates your sales team to channel their expertise toward what truly matters: sealing deals with confidence.
Make updates to relevant fields, automate the forecasting process, and conduct in-depth assessments of deals from various perspectives with ease.
Let’s take a deeper look:
- Streamline updates with advanced views, enabling quick and easy modifications to fields, objects, or next steps in Salesforce.
- Create workflow tiles for shortcuts to essential data.
- Identify gaps in your sales pipeline with deal spotlights, get alerts about missing fields, and ensure your deals accurately align with close dates and forecasts.
- Connect your Salesforce workflows to your notes and seamlessly edit, share, and templatize them for future use.
- Set up automations in Slack and transform tedious manual processes into effortless workflows — no coding required.
- Automate forecast roll-ups from the sales rep to leadership level to see which data points and past changes are tied to opportunities.
- Get a simple breakdown of your forecast changes and decipher the reason behind them with Waterfall Analytics, ensuring accurate sales forecasts that align with your pipeline.
- Use trends analytics and daily snapshots to visualize forecasts based on historical data, track deal progress, and ensure you hit your quota.
Maximizing Sales Performance through Sales Velocity Insights
Sales velocity isn’t just a metric.
It’s a compass, guiding businesses toward greater efficiency and profitability.
By meticulously tracking sales velocity and optimizing each component, companies can gain valuable insights into their sales process, enabling them to make data-driven decisions for continuous improvement.
But how do you accelerate your sales cycles and master this metric?
Try Scratchpad for free today or schedule a demo to learn how you can unlock the power to accelerate revenue growth, enhance customer relationships, and secure a competitive edge in the ever-evolving marketplace.
