What is Sales Velocity?
In simple terms, it’s a measurement of how fast your company is making money. It tells you how fast your leads are moving through your pipeline and getting converted to customers.
Why is Sales Velocity important?
The less time your team takes to convert a lead into a customer the more revenue they are clocking in. So essentially, a higher sales velocity means more revenue in less time.
Hence, it’s the most important metric that you can measure to analyse the performance of your sales force.
How to measure Sales Velocity?
The four key factors that help you determine sales velocity are as follows:
- Number of Opportunities: How many high quality leads your team is working on.
- Conversion Rate / Win Rate: The rate at which you are converting your leads. For example, if out of 100 leads 35 get converted into customers then your conversion rate is 35%.
- Average Deal Size: On an average what is the value of a deal that your team works on.
- Length of Sales Cycle: How much time does it take for you to convert a lead into a paying customer.
With the above key factors in place, the sales velocity is calculated as follows:
So for example, you have 100 opportunities in the pipeline with an average deal size of $2000 clubbed with a 25% conversion rate and a sales length cycle of 30 days then your sales velocity is:
Sales Velocity (V) = (Number of Opportunities * Average Deal Size * Conversion Rate) / Length of Sales Cycle
V = (100*2000*0.25)/30 = $1,666.67
This means you are bringing in roughly $1,666.67 revenue everyday into your business.
To increase your sales velocity you can either increase the numerator or decrease the denominator or both.
How can I improve my sales velocity?
There are 3 things you can do to start with:
- Improve your conversion rate: Make sure you are prospecting your leads correctly and working on leads of good quality with a high probability of conversion.
- Shorten your sales cycle: Audit your sales process and try to identify bottlenecks that are adding to the closure time. Try to eradicate them by revamping your process and/or use software to help speed up the process. The key is, more sales in less time.
- Optimise your deal size: We all like high value deals. However, we all know for a fact that larger deals take longer to close. So if your organisation is solely focused on high value deals alone then you will certainly see your sales velocity number plummet. Try to strike a right balance between large and small deals to enable you to derive an optimal sales velocity number.
One last thing
A high sales velocity number means more revenue in less time. However, revenue doesn’t pay bills. Cash does.
So while getting a high sales velocity number is crucial but keeping a laser sharp focus on cash flows is paramount.
Profit is an Opinion. Cash is Fact.
