Understanding your sales velocity can unlock barriers to generating revenue and help you to improve your sales performance. It gives you important insights into your business health and can even help with sales forecasting.
Sales velocity is one of the most useful metrics for pinpointing weaknesses in your sales cycle and, therefore, optimizing it going forward. In this article, you’ll discover how to measure sales velocity and best practices for calculating it.
But first, let’s take a look at what sales velocity is.
What is Sales Velocity?
Sales velocity measures how quickly a prospective customer generates revenue. It indicates how efficient your business is at selling your products and services.
Tracking your sales velocity over time can highlight strengths and identify barriers in your sales process. It can also be useful for sales forecasting since it helps you understand how quickly a customer moves through the sales pipeline.
How do you Calculate Sales Velocity?
In order to calculate sales velocity, you need to consider four key metrics. They are:
- Number of opportunities
- Average deal size
- Win rate
- Length of sales cycle
You can calculate sales velocity with the following equation:
Sales velocity = Number of opportunities x Average deal size x Win rate ÷ Length of sales cycle
However, before calculating sales velocity, it is essential that you fully understand the metrics included in the formula. So, let’s take a closer look at each one in turn.
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Number of opportunities
This refers to the number of qualified leads in your sales pipeline. Qualified leads are those that have a good chance of conversion. Instead of using all leads available, including only qualified opportunities ensures you have a more accurate measure of sales velocity. After all, low-quality leads may not actually move through the sales funnel.
To define a qualified or high-quality lead, you may use a variety of criteria depending on your business or target market. However, common qualification criteria can include:
- Expressed interest
- Demographics
- Budget
- Decision-making power
To gather this information and define your leads, you can use data from your surveys, forms, phone conversations, or even video calls. Across each touchpoint you should be keeping track of the information above and, ideally, compiling it using your customer relationship management (CRM) software.
Average deal size
Sometimes referred to as average deal value, your average deal size is the average monetary value of each of your individual sales or deals closed. It is reported in your main currency and is calculated by dividing your total revenue by the number of sales or deals.
If you sell products at set prices, you can consider calculating the sales velocity of individual products. Otherwise, you can use your average purchase amount across all of your products or services.
For subscription-based businesses, you can use your average customer lifetime value (CLV) here instead. This will give a better reflection of the total value of your sales, since each customer generates ongoing revenue.
Win rate
Before you can measure sales velocity, you must first calculate and understand your win rate. This is your total number of sales won divided by the number of sales opportunities. It is reported as a percentage, and essentially measures how successful you are at converting leads into sales.
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You can calculate the win rate by using the following formula:
Win rate % = Number of deals won ÷ Total number of opportunities x 100
For example, if the sales team across a virtual call center had 25 opportunities and, of those, they closed 15 deals:
Win rate % = 15 ÷ 25 x 100
Win rate % = 0.6 x 100
Win rate % = 60%
If you can increase your qualified leads and turn those into sales, your win rate percentage will increase as a result.
Length of sales cycle
The final metric in the sales velocity equation is the length of your sales cycle. This is measured in months and is the only sales velocity factor you don’t want to increase. It refers to the length of time it takes your business to close a deal, starting from the first time the prospect engaged with the business.
Ideally, your sales cycle will be as short as possible. A shorter sales cycle indicates a more efficient sales process and means you are closing deals faster. If you are closing deals quickly, your sales team is able to move on to other prospects.
Best Practices for Measuring Sales Velocity
Once you understand the four key factors of sales velocity, it is fairly straightforward to calculate. However, there are several best practices you can follow to ensure your calculation is accurate, useful, and positively impacts your business outcomes.
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Gather accurate and up-to-date information
When calculating sales velocity, it is essential that you have up-to-date, reliable, and accurate data for each of the factors we explored above. If any of the sales velocity metrics are inaccurate, your calculation will not be reliable.
The best way to ensure your data is current and accurate is to use technology such as a CRM tool or other lead management software. You might also consider integration architecture to ensure different software applications in your tech stack communicate effectively.
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Be consistent
It is essential that you define the components of sales velocity and keep them consistent. As we discussed earlier, for example, you need to determine what you mean by a qualified lead for your organization.
You should also define the timeframe you will use to measure sales velocity and ensure it remains consistent over all of your calculations. This enables you to accurately determine trends over time.
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Measure sales velocity over a long period of time
Speaking of timeframes, it is best practice to calculate sales velocity for a fairly long period of time. Consider measuring your sales velocity over a period of at least a few months, but not as long as a year.
In doing so, you can account for seasonal changes and develop a better understanding of how your business is performing over time.
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Use sales velocity to delve deeper
While sales velocity can be calculated for your business as a whole, it can also be hugely insightful to break down the calculation further.
For example, you could calculate sales velocity for a particular department, product, region, or customer segment. A communications business might want to determine the sales velocity for their business phone service, or an international company may want to compare sales velocity in different countries. You may even find it useful to calculate it for individual sales professionals in your team.
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By breaking the calculation down like this, you can really begin to understand where your strengths lie and where you need to focus your sales efforts. These valuable insights are integral in taking your business to the next level and giving you the competitive edge you’ve been looking for.
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Remember to look at the big picture
As you can see, sales velocity is an important and useful metric for sales professionals to understand. However, it is important to remember that it is not the only way to measure your sales performance.
Do not measure sales velocity in isolation. Use it alongside other key metrics to determine the effectiveness and efficiency of your sales pipeline.
Conclusion
Sales velocity is an effective tool to measure how effectively and efficiently you move potential customers through the sales funnel. Understanding your sales velocity can unlock barriers to improving your sales potential and give you a competitive edge.
Ensure your data is accurate and that your variables are consistent, and you will be well on your way to a stronger and more efficient sales process.
Frequently Asked Questions
Can sales velocity be applied to different types of businesses?
Yes, sales velocity can be applied to all types of business, whether B2B or B2C. But, remember that while the principles remain the same, you will likely want to adjust your specific metrics and strategy according to your industry and business model.
How often should sales velocity be measured?
Sales velocity should be measured regularly, ideally on a monthly or quarterly basis depending on your sales cycle. This is because frequently measuring your sales velocity will allow you to track performance trends, make timely adjustments, and continuously improve your sales processes.
Originally published Aug 13, 2024
