Have you been in an interview and asked your prospective employer which sales metrics they value most? That answer is probably, "Yes."
What if I asked you if you'd ever questioned your interviewer about their sales velocity? If you answered "Yes" again, you already know how important this calculation is to understand the growth mindset and overall health of a sales organization.
If you've never thought much about a company's sales velocity, take a moment to brush up on this important equation — and go beyond KPIs to impress your manager or future manager the next time you meet.
So, what is sales velocity?
The results of the sales velocity equation reflect the health of the business, the overall effectiveness of the sales team, and where the team can increase sales productivity to positively impact revenue goals.
HubSpot Director of Sales Dan Tyresays, "Every sales manager lives in fear their sales pipeline is a bunch of fluff. In today's instant gratification world, uncovering a sense of urgency and establishing sales velocity is important because it uncovers a slow-moving or, even worse, stagnant pipe."
Now that we know what sales velocity is and why it's important, how do we calculate it?
To accurately calculate an organization's sales velocity, start by separating small, mid-market, and enterprise pipelines. Your company likely has its own nuanced definition of what constitutes each of these segments and you should divide them accordingly.
Once you've divided your market segments, run a sales velocity equation for each one.
Sales Velocity = Number of Opportunities x Deal Value x Win Rate / Length of Sales Cycle
The four variables that make up sales velocity are all metrics that your CRM should already be tracking, and they comprise of:
Let's break down what each of these are and how to use them to pilot your organization's planning and goal setting.
First, if the results of your sales velocity equation point to a need for increased sales effectiveness, work to increase your number of opportunities, average deal value, and/or win rate.
Generally speaking, you can suffer from the numbers above the line (the numerator of the formula) and still run a successful sales organization. When you have a problem with the length of your sales cycle (the denominator), however, your business may suffer.
Dan Tyre explains, "I worked with a portfolio company that had a big, fat pipeline going into the last quarter of the year. But we quickly saw that we were in trouble when none of the deals were progressing to the evaluation stage."
He continues, "Not taking careful account of how quickly something went from opportunity to opportunity to demo to price negotiation to contract really hurt us." Having a calculated sales velocity helps companies like this one plan for a longer sales cycle and analyze how to shorten it moving forward.
Second, the longer the length of time you analyze, the better. Measure the sales velocity of at least a quarter and as much as six months to one year. This extended sample period accounts for variables such as seasonality or an unusually long deal.
Third, keep your variables and definitions consistent while calculating sales velocity. For example, when do you consider a lead to be a quality opportunity? Does it start when a lead fills out a specific form? Is it when they read a specific blog post on your site? Or is it not until they've scheduled their first phone call? Define these criteria early and keep them consistent when measuring sales velocity.
Once you have the metrics to calculate sales velocity, you can then work on improving it. Thinking about the four factors above that you use to determine velocity, it stands to reason that improving velocity means improving those four metrics.
To boost sales velocity, consider sourcing high-quality leads — even if that means attracting fewer total leads. Tyre says, "It's better to see opportunities show up and then terminate, rather than see the same tired pipeline week after week." For salespeople, bad leads are a fact of life, but moving on from them quickly benefits your sales velocity and your revenue.
You can source high-quality leads using many different strategies such as:
Improve your win rate by capturing and nurturing high-quality opportunities like referrals or prospects who've already demonstrated high intent to buy. To do so, you should:
Never force a product or service on a buyer who doesn't need it — that's a recipe for losing prospects and churning new customers. Instead, uncover hidden pain points of theirs and offer more than what they expect like:
The more efficient your team operates, the quicker sales can be closed. Shortening your sales cycle can be done in a multitude of ways, such as:
Now that we’ve gone through some methods of increasing sales velocity, let’s discuss how discounts can affect it, too.
Discounts aren't always the answer to increasing revenue, but by offering your prospects incentives to close earlier, you can potentially decrease the length of your sales cycle — and positively affect your sales velocity.
Make sure your reps are well trained on how to use discounts to benefit deals instead of stunting your company's growth and serving as a crutch to struggling sales teams.
A healthy pipeline or bigger sales team isn't enough to keep an organization growing — in fact, it can have the opposite effect. Measure your sales velocity, know what the results mean, and have actionable steps in place to improve upon it quickly.
Editor’s note: This article was originally published in May 2019 and has been updated for comprehensiveness.