What Is Sales Velocity?
Sales velocity refers to the metric that shows how quickly leads and opportunities convert into sales and generate revenue for the company. It indicates the overall productivity of your sales department and helps identify which aspect of your sales process needs improvement.
There are four components that make up the sales velocity equation – the number of opportunities, average deal value, win rate, and sales cycle length. It helps in predicting future revenue so companies can appropriately allocate their budgets over a specific period of time.
Four Components of Sales Velocity
- Number of Opportunities: Opportunities refer to the qualified leads(by marketing and sales teams) in your pipeline, who have a higher chance of conversion.
- Average Deal Value: Deal values refers to the average deal size of your product or service your prospects buy.
- Win Rate: It is percentage of the total number of sales divided by the number of opportunities.
- Sales Cycle Length(in days): It is the total time taken (in days) for a lead to become a paid customer.
Calculating Sales Velocity
The formula for calculating sales velocity is:
Sales Velocity = [Number of Opportunities x Average Deal Value x Win Rate] / Sales Cycle Length
For instance, if the number of opportunities is 150 with an average deal value of $25000, with an average win rate of 35% and if the sales cycle length is 60 days, then:
Sales Velocity = [150 * $25000 * 35%] / 60 = $21,875
$21,875 is the amount of money that passes through your sales pipeline every single day.
Importance of Calculating Sales Velocity
1. A high sales velocity means you will gain more sales and revenue in less time. It helps understand the lead engagement strategies, know what’s working and what’s not.
2. Sales velocity helps you compare your business sales against other companies, measure your reps’ effectiveness, and strategize accordingly to improve your team’s productivity.
3. Sales velocity helps accurately predict the future sales and determine how much resources need to be allocated to maximize output.
4 Ways to Increase Sales Velocity
By improving the four factors that affect sales velocity, you can increase your sales velocity rate.
#1: Increase Sales Opportunities
Opportunities are qualified leads who are most likely to become a customer based on certain criteria. Focusing on high-quality leads rather than worrying about the number of leads will increase the chance of closing more deals. You can source quality leads through various strategies, including running ads, email marketing, and others.
#2: Boost Average Deal Size
Increasing average deal size doesn’t simply mean increasing the price of your product – you will end up losing prospects. Instead, focus on identifying their pain points and figuring out the best bundle for them to increase the deal size.
#3: Improve Your Win Rate
To improve your win rate, you need to capture and nurture high-quality opportunities. Besides, you can find out why prospects in your pipeline aren’t buying. Define clear steps for qualified leads, and address the pain points of your opportunities more effectively to improve win rates.
#4: Shorten the Length of the Sales Cycle
Adopt suitable strategies to shorten the time it takes to close the deal. It doesn’t mean that you will push the prospects through the pipeline but rather, invest time in building relationships and train your sales team to become efficient in what they do. For instance, you can automate repetitive tasks, have a list of common customer objections and the ideal rebuttals, identify where the leads get stuck and take suitable actions to move the deals forward, and others.
Determine the speed at which your business is generating revenue and identify ways to increase your sales velocity with this Google Sheet Template.
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