Sales velocity is one of the most important KPIs for sales business leaders and investors alike, a multifaceted instrument created to maximise sales effectiveness which is becoming an increasingly important indicator in the world of sales.
With the help of this measurement and the right technology, organizations may better understand the dynamics of their sales process, which will help them make more informed decisions that will ultimately result in higher income.
ValueWorks provides this analysis out-of-the-box, with only little effort to integrate the CRM like Salesforce or Hubspot.
Settling on a Sales Velocity
How rapidly leads pass through your sales pipeline and turn into money is known as sales velocity. The formula used to calculate it is as follows:
Sales Velocity = Number of Opportunities * Average Deal Value * Win Rate / Sales Cycle Length
This equation consists of four main parts, or “pillars,” each of which offers insightful information about the effectiveness and efficiency of the sales process.
The Four Foundational Elements of Sales Velocity
###1. Opportunities Available
A company’s potential sales velocity will increase with the number of leads or prospects in its pipeline. However, it’s not just about number; quality is equally important. Your sales velocity can be optimised by nurturing leads with a high likelihood of becoming customers.
A company’s potential sales velocity will increase with the number of leads or prospects in its pipeline. However, it’s not just about number; quality is equally important. Your sales velocity can be optimised by nurturing leads with a high likelihood of becoming customers.
A deal’s value is #2
The average deal value is the typical amount of revenue generated by each closed contract. Assuming all other variables remain constant, the sales velocity increases with deal size. Upselling or cross-selling to current clients is a successful way to raise deal value.
Conversion Rate: #3
The percentage of leads that become customers is referred to as the conversion rate. Sales velocity can be considerably increased by high conversion rates. However, a poor conversion rate points to inefficiencies in the sales procedure and may highlight the need for improved lead quality or sales training.
#4. Sales Cycle Length
The average amount of time it takes for a lead to convert into a customer is known as the sales cycle duration. The higher the sales velocity, the shorter the sales cycle. It’s critical to locate and remove any bottlenecks in your sales process if you want to shorten the length of your sales cycle.
A deal’s value is #2
The average deal value is the typical amount of revenue generated by each closed contract. Assuming all other variables remain constant, the sales velocity increases with deal size. Upselling or cross-selling to current clients is a successful way to raise deal value.
Conversion Rate: #3
The percentage of leads that become customers is referred to as the conversion rate. Sales velocity can be considerably increased by high conversion rates. However, a poor conversion rate points to inefficiencies in the sales procedure and may highlight the need for improved lead quality or sales training.
#4. Sales Cycle Length
The average amount of time it takes for a lead to convert into a customer is known as the sales cycle duration. The higher the sales velocity, the shorter the sales cycle. It’s critical to locate and remove any bottlenecks in your sales process if you want to shorten the length of your sales cycle.
Interpretation and communication of sales velocity
While the quantitative representation of the funnel or sales velocity KPI can give you insights, especially when relating to a benchmark, there are also adjacent things that can be looked at. In this graphic the color of the percentage in the last three rows indicated whether it’s a good ratio, a normal ratio or a bad ratio.
The graphical representation shows in an easy to grasp way how the funnel changes over time, showing new opportunities, moved opportunities, won opportunities and lost opportunities. In a successful company, there should be a lot of new opportunities, moved opportunities and won opportunities, while, obviously, you want to minimize lost opportunities.
The new opportunity rate indicates how much of the existing funnel are new opportunities, resulting in the equation: new opportunity rate = New opportunities / all opportunities. The win rate is calculated taking the won opportunities and dividing these by all the closed opportunities (which are basically all lost and won opportunities).
The graphical representation shows in an easy to grasp way how the funnel changes over time, showing new opportunities, moved opportunities, won opportunities and lost opportunities. In a successful company, there should be a lot of new opportunities, moved opportunities and won opportunities, while, obviously, you want to minimize lost opportunities.
The new opportunity rate indicates how much of the existing funnel are new opportunities, resulting in the equation: new opportunity rate = New opportunities / all opportunities. The win rate is calculated taking the won opportunities and dividing these by all the closed opportunities (which are basically all lost and won opportunities).
Graphic 1: Sales velocity illustration from ValueWorks
Influence of Sales Velocity
Increasing sales velocity and tracking it can have the following advantages:
- Efficiency: Rapid and successful lead-to-customer conversion implies an efficient sales process when there is a high sales velocity.
- Forecasting: Accurate revenue estimates are made possible by sales velocity.
- Strategy Modification: Using this indicator, you may pinpoint where in your sales process there are gaps and where improvements are needed.
Increasing Sales Velocity: Success Strategies
Working on its four elements is necessary to increase sales velocity. Following are some doable actions advised by Zendesk and Hubspot:
- More Opportunities: Enhance your lead generation plan by improving your marketing strategy or by utilising solutions like CRM software to more efficiently find and track leads. Increase the Deal Value: Upselling and cross-selling to current clients can help you raise the average deal value dramatically.
- Increasing conversion rates: Make sure that your marketing and sales efforts are coordinated, give your sales personnel useful tools, and improve their abilities through training.
- Cut the Sales Cycle Off: To shorten the sales cycle, automate duties whenever you can, optimise the sales procedure, and stay in constant contact with prospects.
