How to Calculate Sales Velocity: Definition, Formula, Examples

This is how to calculate sales velocity and use it as a powerful tool to optimize your sales process.

Rory Sadler
August 22, 2023
February 24, 2024
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This is how to calculate sales velocity and use it as a powerful tool to optimize your sales process.

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Sales, the lifeline of any business, can be a challenging game to master. One crucial aspect that can make or break your success is understanding and effectively managing your sales velocity. This concept is a powerful lens through which you can analyze your sales performance and find ways to boost your bottom line.

Whether you're a seasoned veteran or new to the world of sales, this comprehensive guide will help you understand the ins and outs of sales velocity, how it impacts your business growth, and how to supercharge it for maximum results.

What's the Deal with Sales Velocity?

In the simplest terms, sales velocity measures how quickly opportunities move through your sales pipeline and convert into revenue. It's a crucial yardstick that helps you gauge your sales team's efficiency and the health of your business's revenue generation.

By understanding your sales velocity, you gain insights into your potential revenue over a specific period. This information is invaluable for efficient budget allocation, sales forecasting, and identifying areas for improvement. In essence, a higher sales velocity signifies a more financially robust and efficient organization.

Decoding the Sales Velocity Equation

Understanding sales velocity requires a deep dive into the equation that determines it. At its most basic, the sales velocity equation divides new revenue by the length of the sales cycle:

Sales Velocity = Revenue / Sales Cycle Length

However, a more comprehensive version of the equation takes into account three key metrics—number of qualified opportunities, average deal size, and conversion rate—before dividing by the average sales cycle length:

Sales Velocity = (Number of Qualified Opportunities x Average Deal Size x Conversion Rate) / Average Sales Cycle Length

This longer form of the equation provides a more nuanced understanding of the factors influencing sales velocity.

How to Calculate Sales Velocity: A Step-by-Step Guide

Calculating sales velocity involves dividing the total revenue generated by the number of deals closed during a specific time period. To do this, you'll need to understand four key terms:

1. Number of Qualified Opportunities

Having a pipeline full of opportunities is good, but having it brimming with qualified opportunities is even better. This is where the BANT framework comes into play, which considers four factors:

  • Budget: How much is the prospect willing to spend?
  • Authority: Does your contact have the decision-making power?
  • Need: Does the prospect need your solution?
  • Timing: When is the prospect planning to make a purchase?

There are other techniques to help you determine if a prospect is a good fit, such as the MEDDIC methodology and the Sandler Selling System. Accurately qualifying (and disqualifying) leads is crucial for a healthy sales velocity.

2. Average Deal Size

The average deal size is the average dollar amount of a sale. You can calculate it by dividing the total revenue in a given time frame by the number of deals:

Average Deal Size = Total Revenue in Given Time Frame / Number of Deals

While this calculation is straightforward, remember that the average deal size doesn't always give the complete picture. For instance, factors like customer acquisition costs shouldn't be overlooked at this stage.

3. Conversion Rate

The conversion rate, or win rate, is the percentage of opportunities that convert into paying customers. It reflects the efficiency of your lead qualification process and the successes and pitfalls of your selling approach.

You can calculate your conversion rate using this formula:

Conversion Rate = Total Number of Closed-Won Deals / Total Number of Qualified Opportunities

4. Average Sales Cycle Length

The average sales cycle length is the average number of days it takes to convert a lead into a paying customer. You can calculate it by dividing the total sales cycle time by the number of deals in the designated period:

Average Sales Cycle Length = Total Sales Cycle Time / Number of Deals in Designated Period

Explaining with an Example

Let's consider a sales team with 75 deals in the pipeline, an average deal size of $5,000, a win rate of 25%, and an average sales cycle of 80 days. In this case, the sales velocity would be:

Sales Velocity = (Number of Qualified Opportunities x Average Deal Size x Conversion Rate) / Average Sales Cycle Length

- Leads = 100

- total deal size = £10,000

- average win rate = 40%

- average deal cycle = 40 days

100 x £10,000 = £1,000,000 ÷ 40% = £400,000

£400,000 ÷ 40 = £10,000

Setting Sales Velocity Benchmarks

Establishing benchmarks for sales velocity can be tricky due to variations across companies, industries, and market sizes. However, a few general benchmarks can guide you:

Average Sales Cycle Length

According to research by HubSpot, the average sales cycle length for SaaS companies is 84 days. For B2B companies, a healthy sales cycle is around 3-9 months.

Deal Close Rates

The average conversion rate for B2B leads is 4.79%, with top-performing companies achieving conversion rates of 12.44%, according to MarketingSherpa's 2020 B2B Marketing Benchmark Report.

Sales Velocity by Business Type

Sales velocity can vary significantly depending on the business type. For instance, SalesHacker's research shows that the average sales velocity for B2B companies is around $583 per day.

Why Prioritizing Sales Velocity is a Smart Move

Sales velocity is a critical metric for businesses looking to ramp up their revenue. Here's why it should be a top priority:

  • Better Resource Allocation: Understanding sales velocity helps businesses identify bottlenecks in their sales process. Once these bottlenecks are identified, resources can be allocated more effectively, leading to a more efficient sales team.
  • Improved Lead Management: Tracking sales velocity can help you better manage your leads, from lead scoring to nurturing and segmentation.
  • Enhanced Customer Satisfaction: Faster sales cycles can lead to increased customer satisfaction. When deals close quickly, customers experience quicker time to value, which builds stronger relationships from the get-go.
  • Competitive Advantage: A fast and efficient sales process can give your business a competitive edge in the market.

When to Prioritize Sales Velocity

While sales velocity is always important, there are certain scenarios when it should take the center stage:

  • Startup Phase: For companies in their early growth stages, a high sales velocity can help establish a solid customer base and generate revenue.
  • Product Launches: When launching a new product, a high sales velocity can generate initial sales momentum.
  • Revenue Growth: Companies looking to scale may prioritize sales velocity to increase their revenue.
  • Saturated Markets: In fiercely competitive markets, a high sales velocity can help a company capture a larger market share.
  • Seasonal Fluctuations: Companies in industries with seasonal demand fluctuations, like tax preparation software or sporting equipment, can benefit from a high sales velocity during peak periods.

Tips for Turbocharging Your Sales Velocity

Now, let's look at some practical ways to increase your sales velocity:

1. Generate More Opportunities

Increasing the number of sales opportunities in your pipeline is one of the most effective ways to boost sales velocity. Here's how:

  • Expand Sales Channels: Boost your brand exposure to increase inbound leads. This can be achieved through organic and paid search, social media, review sites, and word-of-mouth referrals.
  • Align Marketing and Sales: When your marketing and sales teams are aligned on the ideal customer profile (ICP), you'll see more high-quality leads in your pipeline.
  • Improve Marketing Conversion: Understand your audience before undertaking any marketing efforts. Then focus on tailored messaging, high-quality content, website optimization, and continuous refinement.
  • Prioritize Speed: Prompt follow-ups with inbound leads are crucial for securing more conversions.

2. Increase Your Average Deal Value

Focus on securing the highest possible spend from each customer. Here are a few strategies:

  • Move Upmarket: Target larger and more established businesses that often have bigger budgets.
  • Improve Retention: Retaining customers is an effective way to increase the average customer lifetime value (CLV).
  • Upsell: Understand the customer's needs and demonstrate the added value of the more expensive option.

3. Boost Your Win Rate

Making it easier for customers to buy is a surefire way to win more. Here's how:

  • Enable Buyers: Equip buyers with the information and tools they need to champion your product internally.
  • Build Strong Relationships: Regular communication and excellent customer service can help build trust, making it more likely for a buyer to invest in your solution.
  • Qualify Effectively: Focus your efforts on leads with the highest likelihood of closing.
  • Clarify the Process: Reduce friction by putting all the essential information in one place.

4. Reduce Sales Cycle Length

The faster you close a deal, the more time you have to focus on the next one. Here's how to achieve that:

  • Templatize Follow-Up/Sales Content Delivery: Faster follow-up means a higher close rate. With a set follow-up template, you can send content to your leads in no time.
  • Use Mutual Action Plans: These plans contain a buyer's pain points, goals, stakeholders, and hesitations, all in one place. This can help establish next steps and remove roadblocks.
  • Make Saying "Yes" Easy: Reduce the back-and-forth so it's easy for buyers to say "yes."
  • Get Ahead of Roadblocks Like Security Reviews: Start the security conversation early and make sure you understand the buyer's requirements from the start.

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