The higher your sales velocity, the faster you’re making money.
Running your deal velocity numbers can also reveal some important truths about the health of your pipeline, your team’s performance, and help you predict how much you’ll sell and how long it’ll take you to do so.
So, what is sales velocity, anyway? Essentially, it’s a metric that measures how long it takes for deals to move through the pipeline and start generating revenue.
In this article, we’ll offer up a basic sales velocity definition and from there, look at how to calculate deal velocity and use that equation to accelerate your pipeline.
Sales velocity definition
Sales velocity was developed by Altify back in 1988 to help companies focus on four main “levers”, or metrics that contribute to sales effectiveness.
- Opportunities in the pipeline. How many leads are the sales team able to work through over a specific period of time? To work out individuals’ productivity, you can also break this metric down by salesperson. You might also further break this down by looking at the number of opportunities by region or customer segment if you’d like to get more granular.
- Average deal size. Average deal size represents the dollar value of your average sale. For companies working on a subscription-based model, you can use customer lifetime value instead. Here, you can improve sales velocity by offering upgrades, add-ons, or focusing on convincing buyers to opt for a more expensive package when they sign a contract.
- Conversion rate. Obviously, conversions mean money, but beyond that, your average conversion rate can give you a good sense of how effective your lead qualification process is, and on a holistic level, gives you an idea of how successful your entire approach to selling is. If your conversion rates seem on the low side, it could indicate that there’s a hole in your funnel.
- Length of sales cycle. The last item on this list is the length of your sales cycle. This will depend on a number of factors, including how many steps are in your sales pipeline, how long, on average, does it take for prospects to move through each step, how much does your solution cost, and how complex is your offering?
The idea is, changing any one of these variables can impact your velocity. As such you’ll want to make sure you pay close attention to each variable so that you can fine-tune your sales process and get better results.
How to calculate sales velocity
To calculate sales velocity, you’ll multiply the number of opportunities in your pipeline by your average deal size and conversion rate. Then, you’ll divide that amount by the length (in days) of your average sales cycle.
If you’re having trouble picturing this, here’s an example of how you’d set up the math.
So, the top half of the equation represents the variables that impact how much revenue you can expect to bring in, while the bottom half represents the length of the sales cycle.
By dividing the top number by the length of the sales cycle, you’ll get an estimate of how long it will take your sellers to bring in X amount of money.
How to increase sales velocity
Organizations can increase sales effectiveness by increasing the variables above the line or shortening the sales cycle. By focusing on just four levers, sales teams can focus on one or two main areas that stand to have the most impact on the pipeline.
That said, within each of those levers, there are several things to consider.
In these next few sections, we’ll go over some of the ways you can increase deal velocity, broken down by each of the four levers.
Increase number of opportunities in the pipeline
Now, the most obvious way to power up your pipeline is by bringing in more leads. After all, the more leads you have to work with, the more chances you have to generate new business.
Of course, one of the pitfalls of increasing the number of leads in your pipeline is making sure that you don’t sacrifice quality in the service of quantity.
- Start with your lead gen strategy. If your sales team isn’t closing many deals, the best place to start is your lead gen strategy. Take a closer look at the channels you’re using to generate leads. Maybe you need to rethink your social media strategy, bump up your Google Ads budget or audit your targeting strategy to ensure that you’re going after leads that match your target personas.
- Refine your qualification process. Adding more leads to your pipeline won’t do much for your bottom line if you’re loading up on low-quality opportunities. Revisit your lead qualification process and lead scoring system to make sure you’re on the right track.
- Be realistic when prospecting. Keep your ideal customer in mind as you do your research. In other words, don’t chase Amazon if your typical customers are SMBs. Sales reps often pursue companies outside of their ideal customer profile in the hopes of landing a big fish account. The problem is, they might not have the resources to support those types of customers. Instead, make sure your team stays focused on the types of customers who stand to get the most value from your product/service.
Increase average deal size
You might try increasing your average deal size by chasing larger accounts, however, it’s worth noting that that shouldn’t be the core focus.
The challenge with big-ticket deals is, because there are usually more stakeholders in the mix and more money on the line, these deals can take a long time to close, thus potentially slowing down your velocity.
Instead, you’ll want to strike a balance and focus on taking advantage of cross-sell opportunities, upgrades, and increasing your customer lifetime value by offering valuable solutions that speak directly to customer pain points.
Here are a few ways to bump up deal size and bring more money into the pipeline.
- Understand your customers’ pain points & goals. According to the 2019 Salesforce’s State of the Connected Customer report, 73% of customers say they expect salespeople to understand their needs and expectations. As such, one of your primary actions should be gaining a deep understanding of your audience’s needs and pain points. Make sure you tailor content and communications to each customer, presenting your solution in a way that speaks to their most pressing pain points.
- Channel your inner “consultant.” When prospective buyers have hundreds, even thousands of solutions to choose from, being seen as a trusted advisor can have a massive impact on the bottom line. You might focus on emphasizing relationship-building skills into your training program or getting reps to prioritize cross-selling. Additionally, arming your team with on-demand, persona-specific content can help here, too.
- Optimize your time. Segment your customers to ensure that sellers can focus the bulk of their time and energy on large, complex deals, and look for ways to close smaller deals in real-time. Can you improve self-serve options or build out your knowledge base? It’s also worth mentioning that optimizing your time also means looking outside of your core salesforce. Instead, work with the marketing team and influencer/affiliate partners to take on more of the selling.
Shorten your sales cycle
According to research by CSO Insights, 27% of sales reps say that long sales cycles are one of their biggest barriers to sales effectiveness. To reduce this variable, look for opportunities to streamline the sales process.
Here are a few things you can do to pull the sales cycle lever to move the needle in your favor.
- Respond ASAP. The Salesforce report mentioned above also found that 71% of customers expect companies to communicate with them in real-time. If a new lead is qualified, be sure to reach out right away. For those further along in the pipeline, make sure you address objections as they come in, and make it a top priority to share relevant information as quickly as possible. Tools like chatbots and automated routing are also essential, here, as they’ll help you make sure that leads don’t slip through the cracks when your reps aren’t around.
- Have relevant content at the ready. Salesforce also found that 56% of customers expect to find whatever they need from a company in three clicks or less, and 68% would rather use self-service channels like knowledge bases to find answers to basic questions or to troubleshoot an issue. On the self-serve front, you’ll want to make sure that your site has blogs, how-tos, guides, and other resources that will help customers find the information they need, and eliminate the back and forth with questions and answers. The second part of this is making sure reps have information at their fingertips to share with prospects during communications.
- Fill your pipeline with a diverse range of opportunities. While closing larger accounts can help you hit multiple months’ worth of targets with a single contract, they also take a long time to close. As such, you’ll want to make sure your pipeline contains a healthy mix of big-fish, mid-size deals, and smaller deals that you can close fast, that way, you’ll be able to keep revenue coming in on a consistent basis instead of relying on the feast or famine cycle.
- Use sales tools to keep deals on track. Tools like Revenue Grid can have a big impact on the length of deal cycles by reminding reps to execute tasks at the right time and alerting them immediately to any important developments. By eliminating human error, deals are better cared for and nothing slips through the cracks.
Increase conversion rates
Increasing conversion rates is a lot more than improving your ability to convince a buyer to sign a contract. Most deals fail much earlier in the sales process, whether that’s because leads are a bad-fit, reps aren’t following up, or there’s something off about your communication.
Here are a few areas that could help you turn things around.
- Analyze your process. Look at your sales process to uncover where customers are abandoning your funnel. Are leads jumping ship after receiving a specific piece of content? Are reps disqualifying leads during sales calls? Depending on your findings, you might need to improve your lead qualification process or work with reps on their discovery call strategy or closing techniques.
- Are you targeting the wrong people? The first step toward closing more deals starts right at the beginning, with targeting. Are you going after leads that stand to get the most value from your solution or chasing accounts that only “kind of” fit? Remember, leads that fall outside of your ideal buyer profile might take longer to close—and may end up churning within a few months of closing.
- Don’t forget to follow up. According to Marketing Donut, 80% of deals require five follow-ups before the close, yet almost half of all reps throw in the towel after one rejection or attempt to connect. By not following up, sellers are leaving cash on the table. Take a closer look at activity metrics like emails sent, calls made, etc. to see if the problem might be linked to a lack of follow-ups.
Sales velocity calculator
Now, calculating sales velocity is something you can do by hand, the old-fashioned way.
There’s also plenty of free Excel templates that can handle this task as well, which gives you a simple way to play around with the variables so that you can understand what might happen if you ramp up your lead gen efforts or focus on increasing deal size through an upsell initiative, and so on.
That said, modern sales organizations can’t afford to have data locked up in a spreadsheet.
These days, most CRMs and other types of sales tech come with built-in sales velocity calculators that can tell you exactly where you’re at now—and model some future outcomes that can help you determine which lever to pull for the greatest impact.
Sales velocity is as critical a metric in 2020 as it was in 1988.
This calculation offers a framework for evaluating the health of your sales process through a set of four well-defined variables that help pinpoint which strategies are working—or not.
Still, it’s worth noting that the four levers of deal velocity should be considered a starting point for your investigation, and you’ll need to do some digging to find out what’s really slowing down your revenue engine.