Understanding Sales Velocity allows your company to rethink its sales pipeline and process in order to increase lead conversion and revenue. Determining sales velocity will unveil the achievement of your pipeline, sales team, and overall business health.
What Is Sales Velocity? Why should you care about SV?
Although the concept of Sales Velocity (SV), sometimes called funnel velocity, is relatively new, many businesses have already adopted it. These businesses use SV as a key metric to assess their performance. The concept is simple, but it is critical to understand what it means and why it is so important. It is defined as the total number of leads generated and closed in a given period.
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HubSpot defines Sales Velocity as the rate at which deals move through the sales pipeline and generate revenue. An SV equation determines a company's sales velocity and how much revenue it can expect to generate over a specific period. It uses four metrics: number of opportunities, average deal value, win rate, and sales cycle length. Knowing the sales velocity is critical because it helps you understand a sales organisation's growth mindset and overall health.
What you need to know before SV calculation
For big companies with multiple markets, performing segmentation of their sales pipeline is advisable before calculating the SV. Segmentation of the pipeline is either by industry or territory. This process will allow you to calculate a more precise SV for your target market. How you segment your pipeline will differ from organisation to organisation, but it is critical to do so because variables for each segment can vary dramatically. Each company has its definition of what constitutes each of the elements. This measurement allows you to determine the stages where your prospects drop out and never convert. This will enable you to analyse your pipeline, lead nurturing strategy, and optimise them accordingly.
Why should you monitor sales velocity? Sales velocity is critical to your company's ability to thrive and grow. The faster prospects move through your pipeline, the faster you can close more deals. A higher sales velocity implies that you are generating more revenue in less time.
How do you measure SV?
SV is the most crucial metric in a company; it tells you how well your sales team is performing. As mentioned above, its four metrics constitute the number of opportunities, average deal value, win rate, and sales cycle length.
After segmenting the pipeline into small, mid-market, and enterprise pipelines, the SV can be estimated accurately. The more deals your team closes during a fiscal period, the higher your sales velocity rate.
The Four Metrics of Sales Velocity
- Number of Opportunities: There are consistently several opportunities in your pipeline. Make sure that they are qualified leads. You will be at a loss if your bottom line is clogged with deals that have no chance of closing successfully.
- Win/Conversion Rate: The average win rate is directly proportional to the number of quality leads you generate. To get this rate, divide the number of sales won by the total number of sales opportunities.
- Average Deal Size: Every prospecting requires the most valuable resource from both parties: time. Make sure you're making the most of this resource for your prospect and yourself. Introducing offers or add-ons that will make your prospect's life easier while increasing your average deal value and sales velocity is essential.
- Length of Sales Cycle: This is the average time it takes from your first contact with a prospect to closing the deal. The average sales length helps with predictivity in sales forecasting. You will know your sales figures in a few days, weeks, or months if you receive a certain number of leads. In addition, if you set a KPI to reduce your Average Sales Cycle Length, you can accelerate revenue growth, a common strategy for high-growth companies.
To calculate this sales velocity in your company, track the four factors (from above) and insert them in the equation below:
It will give you an average for each representative, helping you identify any weaknesses or strengths in your current strategy. Each of the above metrics can be estimated in any unit (e.g., days, weeks, or months) as long as you use the same unit to track changes in velocity over time.
How To Boost Your Sales Velocity
After looking at the factors influencing your sales velocity, you know which path to take to improve this metric. We'll go over some practical suggestions for each brand below.
- Re-define your lead generation strategy: This step should be the first step in your pipeline. To source leads, you should examine your most profitable or high-quality opportunities.
- Improving your win rate: Increase your win rate by acquiring and nurturing high-quality opportunities, such as referrals or prospects who have already shown a strong interest in your product and intent to close a deal. Improve this rate by defining clear next steps for high-quality prospects.
- Increasing average deal value: It's not difficult to increase your average deal size, but it's also not easy. It is necessary to consider the value your product provides rather than the cost of its features and benefits. However, you mustn't become greedy and raise your price simply because you can. In fact, an overpriced product is frequently a sales blockage. Discover your clients' hidden pain points and provide more than they expect, e.g., add-ons to improve usability.
- Reducing the sales cycle: To save time for nurturing each lead, automate repetitive processes and focus on the highest-performing channels. The more efficient your team is, the faster you can close sales.
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Conclusion
Sales teams should work towards increasing sales effectiveness. If your Sales Velocity equation results indicate that you need to improve your sales significance, work to increase your number of opportunities, average deal value, and win rate.
It is best to measure the Sales Velocity after a more prolonged period. Compute it for at least a quarter and up to six months to a year. This extended sample period accounts for factors such as seasonality or a particularly long transaction.
Sales Velocity is a lagging indicator that measures outcomes rather than actions. While your actions ultimately create your results, you will have more control over your actions than your results.
