When Mark Roberge published his bestselling book “The Sales Acceleration Formula” in 2016 and told the world about a formula for achieving scalable revenue growth, that conversation fell on deaf ears.
Many startups go bust because they fail to scale or scale prematurely. And people still question whether you can even teach sales because it’s an art, not a science, according to many people. However, Mark led the software company HubSpot from one to hundreds of employees and grew its revenue by using a unique metrics-driven and process-oriented methodology. Balancing four main aspects—hiring, sales training, sales management, and demand-generation formulas—Mark proved a process can be replicated, and sales can be predictable.
Data-driven sales are at the core of what Teamgate—a web-based full-process sales CRM system—does, too. Teamgate puts into practice the metrics-driven, process-oriented approach to sales that Mark talks about in his book.
Below, learn Teamgate’s thoughts about one particularly interesting sales formula—the Sales Velocity Equation. This post unravels the details of this management metric and explains how to use sales velocity to accelerate your sales cycles.
What Is Sales Velocity?
Simply put, sales velocity is a marketing and sales metric used to measure the speed at which opportunities and leads turn into revenue, month over month. While normal velocity can be described as “miles-per-hour,” sales velocity represents “revenue-per-month.” Calculating sales velocity is one of the best ways to see how fast your sales team is making money and which levers you need to pull to accelerate speed.
Don’t confuse sales velocity with inventory velocity, which measures how much merchandise a retailer sells. Customer velocity is another related but different term that identifies whether customers are moving in a positive or negative direction in your sales pipeline.
There are four main factors that significantly impact how much you sell:
- The number of leads
- The average deal size
- Your conversion rate
- The length of your sales cycle
Learn more about these four variables to better understand the sales velocity equation.
The 4 Sales Velocity Variables and How To Calculate Them
The formula for calculating sales velocity is pretty straightforward: Multiply the number of leads in your enterprise or retail environment (#) by your average deal size ($) and your win/conversion rate (%). Then divide the result by the length of your sales cycle (average conversion time).
The Number of Leads (#): This is simply the number of leads your reps work with over a period of time. Your marketing team’s efforts and lead generation tactics (prospecting, lead nurturing, referrals, etc.) directly influence the number of new leads in your pipeline.
Average deal size ($). Also known as average purchase value or average customer lifetime value in subscription-based business models, the average deal size is a metric that refers to the average selling price per closed deal over a set period.
Win/conversion rate (%). Conversion rate refers to the percentage of leads that convert into paying customers over time. You can calculate your win rate or conversion rate by taking the total number of conversions within a period and dividing that by the total number of leads over the same period.
Length of the sales cycle. Also known as average conversion time. This metric measures the amount of time from the first touch point with a prospect to conversion averaged across all won deals. You typically measure the length of a sales cycle in months.
It is important to understand that these four variables have a significant impact on sales velocity in general but are also interdependent, meaning that changing one variable will most likely affect the others too. For example, increasing your prices can lead to a larger average deal size but a lower conversion rate because fewer people will be prepared to spend more.
Another critical thing to take into account when calculating sales velocity variables is consistency. There are different ways you can go about measuring these metrics, but once you decide on a method, stick to it. For instance, if you measure the average length of your sales cycle from the moment you qualify a lead, then use this same method every time you calculate sales velocity. It will help you maintain a good level of consistency and avoid unnecessary confusion in the future.
Why You Shouldn’t Only Focus on Adding New Opportunities to Your Pipeline
It’s not uncommon for sales teams to focus entirely on lead generation in hopes of accelerating sales velocity. When you think about it, filling the pipeline with more opportunities to win more business does sound like a logical way forward in the sales process. However, if you assign the same values to all variables, then it is possible to increase sales velocity quite significantly even without increasing the number of opportunities.
A very common scenario among budding start-ups when preparing for an investment round would be concentrating all efforts on generating more leads/opportunities in the hopes of achieving consistent growth of monthly recurring revenue (MRR) over six months or so. The growth ambition of 50% would be a typical target. If the plan didn’t work out, the start-up might blame its marketing division. But why not try to increase the average deal size, improve the conversion rate, streamline the sales pipeline, or shorten the sales cycle?
You can achieve a lot simply by creating obvious upsells, value-add extras, and product bundles, focusing on high-velocity customer segments, adopting a more consultative closing technique, or shortening your trial offer.
Focusing only on adding new opportunities is not the best strategy, mainly because ramping up lead generation efforts eats into resources and leaves less time for other variables. Essentially, it’s simple math. If there are four equally important variables in one equation, and you dedicate all resources to improving only one of them, the result must be exceptional to make a significant impact.
Measuring sales velocity can give you a unique insight into those sales and marketing processes that either drive acceleration or dampen your sales growth potential. And to get an even clearer picture, you can measure sales velocity across different customer cohorts. That helps you learn more about salespeople, deal value, customer pain points, and the number of sales required for your business to thrive.
Generate Higher Sales Velocity by Measuring Different Customer Cohorts
Since there are different levers directly influencing the speed of your pipeline, it is good practice to look at various data sets to get fresh perspectives on sales velocity.
Open, Won, and Lost
Every successful business makes pipeline analysis one of its key priorities. Understanding how leads progress in your sales funnel and why some deals are won while others are lost can give your sales team a one-of-a-kind insight into parts of their processes that need improvement. If you take your won deals as a benchmark for measuring sales velocity, you will quickly be able to form and test various hypotheses that improve it.
Questions that often arise when analyzing open, won, and lost deals include:
- Where do high-quality leads come from?
- At what stage do you lose most of your deals?
- How likely are you to close a deal if a lead spends this much at this stage?
- Do “won” deals have certain shared characteristics that make them easier to recognize at this stage?
- Do you know the red flags for each stage of the funnel? What is average for your company, and how far over average can an opportunity go before you deem it “lost”?
Ensuring your sales team keeps close track of what’s happening in your pipeline and, most importantly, why some deals are lost will help you adjust the levers and kick your velocity into speed.
New, Renewal, and Upsell
Using the sales velocity formula across different cohorts is crucial to identifying optimization opportunities and getting a realistic view of your sales funnel. Take, for example, new business, renewal, and upsell deals. Although they share one important characteristic (they are all won deals), throwing them into the same bucket of data would be a mistake as conversion times differ drastically. Comparing renewals of long-term contracts with your average won deals or quick upsell opportunities will only mess up your final calculation.
Segmentation, Sales Velocity, and Opportunity Analysis
If you go with broad segmentation—such as dividing your won business into large, medium, and small deals and measuring sales velocity for each one—that might be enough to uncover the most promising segments, industries, or regions. Other factors you can look at include location, channel, industry, sales cycle stage, and sales agent. Digging deeper into your data will help recalibrate your team’s efforts and throw resources at segments with the most potential.
Suppose you discover that large hospitality customers take much longer to make a purchase due to the number of stakeholders involved, while mid-sized technology companies progress through the funnel much faster because they’re ready to buy now. You can set up a separate high-velocity sales closing workflow to target these types of customers and accelerate your growth in a shorter time frame.
By measuring sales velocity for different segments as well as analyzing the opportunities sitting in your pipeline, your sales team will be able to devise a specific action plan and prioritize and address those opportunities with the most potential. A data-driven approach to sales is the only solution for companies seeking fast but steady growth.
Read more: The Ultimate Guide to Sales Qualification
The sales velocity equation is a simple but effective management metric that allows businesses to better understand and observe each variable and the impact on revenue that changes to those variables might have. Discovering a way to make your qualified leads enter and leave the funnel faster might take a bit of tinkering, but it’s always worth the effort.
How Teamgate Can Help
Teamgate is the sales CRM software that can help you boost sales velocity:
- Teamgate’s Sales Dashboard provides unparalleled intelligence about sales performance in your organization. View conversion rates, win ratios, the average length of deals, the average length of sales cycles, and other metrics.
- Insights lets you view these insights via graphs, charts, and other visualizations.
- A lead scoring solution identifies the most lucrative leads in your pipelines.
- Manage the deals that generate the most revenue for your organization.
- Boost sales velocity further with Teamgate’s extensions and integrations.
Teamgate powers sales velocity in your enterprise. Start a free trial now!