It’s the beginning of the quarter and you’re digging into your sales numbers. You find that the number of sales opportunities is higher than ever, and your average deal size is over $1,500. The best news: You’re on track to meet your revenue goal of $20K at the quarter’s end. But you fall short by $5K. Mystified, you crunch the numbers again.
What happened? This question could have been answered by calculating sales velocity months earlier.
What is sales velocity?
At first glance, the term “sales velocity” sounds like the speed of sales, right? Well, yes and no.
Although it does reflect the speed at which you’re moving leads and deals through the sales pipeline, sales velocity is presented in a dollar amount. For example, a sales velocity could be $2K per month per sales rep — the value of deals each rep is closing monthly.
By knowing how fast you’re generating revenue, you understand if you need to make improvements to your pipeline to meet revenue goals.
In short, knowing your sales velocity answers the question, “Are you moving deals through the pipeline quickly enough to meet sales goals?”
How to calculate sales velocity (with examples)
The sales velocity equation is based on four key sales metrics:
- Number of opportunities — The number of deals in your pipeline across all stages over the time period being measured.
- Average deal size — The number deals in your pipeline divided by the total dollar amount of all of those deals.
- Win rate — The number of leads that turn into customers over the time period being measured.
- Sales cycle length — The average number of days it takes to close a deal (the only variable in the equation to account for time).
If you’re not sure how to find all of the above variables, we have a great sales metric resource to help you calculate each one manually. Or check your CRM to see if these numbers are pulled automatically. Once you have these variables on hand, you’re ready to calculate sales velocity.
Below, we break it down and look at two examples of sales velocity — one for a sales rep and one for a sales team — so you can see how to apply the metric to your own situation.
Note: While you can calculate sales velocity on an organizational level, you can also calculate sales velocity by customer segments, individual sales reps, product or service, and more. It all depends on what revenue goals you’re trying to meet.
Sales velocity equation
To calculate sales velocity, multiply the number of opportunities, average deal size, and win rate for a given period. Then divide that number by the length of your average sales cycle.
The top part of the equation tells you what your company can hopefully expect in revenue over a certain time period. Dividing it by the length of your average sales cycle, you find how much revenue you’ll likely bring in during that time.
Below, we look at sales velocity on a personal, sales rep level and a sales team level to help you understand how to apply this number to your sales operations.
Sales velocity sales rep example:
Maybe you’re a sales rep for a small B2B SaaS company. You have eight deal opportunities in your sales pipeline. Your average deal size is $1,500 and your win rate is 22%. Your average sales cycle length is 31 days.
Your sales velocity equation would look like this:
According to the equation, your personal sales velocity is $68 per day. That means you have a sales velocity of $2,112 per month. If one of your sales goals is to close $8,000 worth of deals by the end of the quarter, you’re going to fall about $1,600 short at your current sales velocity.
Sales velocity sales team example:
Now let’s say you’re a medium-sized SaaS company. Your sales team is bringing in 100 new deals per month. The average deal size is $5,000, the win rate is 20%, and the average sales cycle length is 1.5 months (or 45.6 days). Your sales velocity would be calculated like this:
Your sales team’s daily sales velocity is $2,192 or how much daily revenue you’re bringing in or likely to bring in. Now if you have a five-person sales team and one sales goal is to close $12,000 in revenue by the end of the month, multiply your number of team members by the sales velocity then subtract by your revenue goal.
5-person team x $2,192 sales velocity = $10,096
$12,000 – $10,096 = $1,040
Sales velocity tells you that you’re going to fall $1,040 short of your revenue goal.
If your sales velocity numbers aren’t where you need them to be, improve either one or more of the equation’s variables.
How to maximize sales velocity
Start by identifying which of the four contributing factors is weakest and adjust accordingly. After some time, if you don’t see improvements, move to the second weakest and so on. You might only need to improve one for immediate results.
For example, maybe a majority of deals are stuck in the quote stage and not converting, impacting your final win rate and sales cycle length. Maybe, too, the number of incoming qualified opportunities is low, which affects the number of opportunities variable. These factors mean a lower sales velocity and need to be improved.
Below are best practices to improve your number of opportunities, deal size, win rate, and sales cycle length.
Improve quantity and/or quality of leads
The higher the number of qualified leads, the higher your sales velocity. Period. So, calculate how many opportunities you currently have in your pipeline and identify which prospects are most likely to purchase:
- Check quantity of leads. If your number of leads is low, your pipeline might not have enough opportunities to sustain revenue goals. Up your number of leads by implementing customer-centric lead generation strategies.
- Assess quality of leads. Qualified leads — those who have a need for your product or service and are willing to pay for it — generate higher revenue than leads that don’t really need your product or service. Check out these resources on best qualification practices such as lead scoring and creating buyer personas.
You might have a sales pipeline chock-full of leads, but if most are unqualified, they waste valuable rep time and resources. Balance quantity with quality.
Increase your deal size
Deal size is based on the price of your product or service — something that is difficult to change, especially if you’re in a competitive industry. However, even if you can’t charge more for your product or service, there are other ways to secure valuable deals:
- Balance low-value and high-value deals. Your team might be closing ten low-value deals for every high-value deal. Test to see whether sales velocity improves by directing more resources toward higher-dollar-value accounts, and adjust your strategy based on the results. Or vice versa. Balance low-value and high-value deals as they both have their advantages or disadvantages (e.g., larger deals can take longer to close, which affects your sales cycle length).
- Hone in on your value proposition. Does your product or service match the value that you advertise? During sales presentations, communicate how your product or service solves a specific need, as well as what other customers have purchased based on this information.
You can also increase deal size through strategies such as discounts, upsells, and cross-sells.
Improve your win rates
If your win rate is low and affecting sales velocity, find out why. Are deals not being won because you aren’t communicating with prospects during product trials? Or are you focusing more on what you need rather than what the customer needs?
Whatever the case, here are a couple of ways to improve win rate:
- Build your customer relationships. You can’t close a deal if the buyer doesn’t trust you. Create an environment of trust early on in the prospecting stage. Engage on social media. Send resources that solve customer pain points. Show that you care about their success more than just closing the deal.
- Train your sales team. It’s difficult to improve win rates if reps aren’t able to handle objections, pinpoint decision-makers, or give a proper demo. Look at sales performance for each rep or by team to see what areas they are struggling with. Create a culture of safety for reps to improve. Communicate where they need assistance and offering training accordingly. This could be as simple as peer-to-peer coaching or weekly seminars.
Winning deals doesn’t happen by accident. Calculate conversion rates between sales stages and identify which ones need more attention so you can increase your chance of winning the deal in the end.
Shorten the sales cycle
A shorter sales cycle means that you’re able to earn revenue more quickly, which equals a higher sales velocity. However, you can also use sales velocity information to improve your sales cycle.
For example, calculate sales velocity for a specific customer segment like company size. You’ll probably find that it takes longer to move enterprise deals through the pipeline compared to SMB company deals. Identify the sales cycle length for each segment to learn which to give extra attention to.
Here are a couple of ways to shorten the cycle.
- Look for bottlenecks in your sales process stages. Similar to improving your win rate, review each one of your sales stages and conversion rates. For example, if it’s taking a significant amount of time to move a deal from prospecting to the qualified stage, it might be time to revamp your qualification process.
- Take advantage of sales automation tools. Your sales cycle length can often be decreased by implementing efficient tools such as a sales CRM. For example, instead of manually inputting lead information, reps can use a CRM to automatically create lead information. They can then focus on other sales activities.
Track sales velocity on a regular basis to see if improvements to your sales activities are making a difference.
For example, based on a low sales velocity in September, you pinpoint that win rates are low because reps aren’t following a formal sales process. You implement specific sales stages to fix the problem. In December, you notice that your sales team sales velocity rose by $1,000 — at this rate, you’re on track to meet your quarterly sales goal of $20K!
Don’t underestimate sales velocity
It’s tempting (and comforting) to assume that just because you have a large number of leads means that you’re going to meet revenue goals. You now know that’s not the case. Calculate your or your team’s sales velocity to know for sure.
If you do implement our tips to increase your sales velocity, but aren’t experiencing change, fret not. Here are additional resources to help you make the most of sales velocity:
- Sales Velocity 101: Why Sales Velocity is the Ultimate Marketing-Sales Alignment Metric
- How to increase sales velocity with sales operations
- Your Sales Velocity: Why It Matters
An excellent advantage of Sell’s sales CRM is that it offers a sales velocity report. Key equation metrics are automatically pulled into the report and generate a sales velocity visual. Give Sell a free try today!