When you’re growing a B2B company or SaaS business, you need to pay close attention to sales metrics, and there are few more useful than Lead Velocity Rate (LVR).
This article will review what Lead Velocity Rate means, the difference it makes in supporting business and revenue growth, and how to use it to maintain consistent and sustainable lead generation.
What Is Lead Velocity Rate (LVR)?
Lead Velocity Rate (LVR) measures the real-time growth in the number of qualified leads your business generates month to month. Your LVR percentage is an indicator of your pipeline’s efficiency and your company’s long-term growth potential.
Rather than looking at revenue-related metrics that are prone to fluctuation, LVR allows you to see whether your pool of qualified leads is reliably increasing, which is typically a better sign of future business growth.
LVR is a solid foundation to project and plan more accurately for growth and scalability with less need for “guesstimating.” (However, if your revenue growth isn’t commensurate with your lead growth, you’ll have to dig deeper to understand the levers that are affecting your conversion rates.) This holds true even for business models that depend on recurring revenue, such as subscription-based SaaS companies.
Another important note: It’s crucial not to confuse Lead Velocity Rate with sales velocity rate. As we covered in a previous article, sales velocity identifies how quickly sales deals move through the pipeline from an opportunity to a closed deal. It’s a measure of speed rather than growth or shrinkage, and looks at factors like number of deals, average deal size, win rate, and sales cycle length. That said, even though they serve different purposes, both sales metrics deliver valuable insights to improve your sales and marketing process.
How To Calculate Lead Velocity Rate
LVR focuses solely on month-to-month lead generation, so to calculate it, you simply compare the number of qualified leads acquired during the previous month and the current month.
Here’s the LVR formula:
Lead Velocity Rate = (Number of qualified leads in the current month – Number of qualified leads last month) ÷ Number of qualified leads last month x 100
Suppose a sales team currently has 250 qualified leads in their pipeline and had 216 qualified leads last month, a jump of 34 leads month to month. Their lead velocity is roughly 15.7%.
What Is a Qualified Lead?
It’s important to get the “qualified lead” part of this metric right. Most businesses have different definitions, but in a nutshell, a qualified lead is any prospect that’s shown interest in your business and taken certain qualifying steps, such as filling out a form or clicking a link.
From a marketing perspective, marketing qualified leads (MQLs) are prospects who have shown an interest in the company’s product or service, often through engagement with a marketing channel or campaign.
From the sales perspective, a sales qualified lead (SQL) is typically a former MQL that’s been handed off to a sales rep. SQLs are potential customers who are vetted even further and then deemed “ready” to enter the sales funnel.
Regardless of how you define MQLs and SQLs, it’s imperative that you have a clean, reliable, data-driven way to determine lead quality for your LVR calculation.
What’s a Good LVR?
Lead Velocity Rate varies significantly depending on the industry, type of product, and target market. While an increase is undoubtedly a positive signal, it doesn’t speak to how many of those qualified leads are ultimately converted and produce actual sales or revenue.
What LVR Tells You About Your B2B Company
As we’ve covered, Lead Velocity Rate measures pipeline development and can reveal actionable insights for your business. Here’s a brief overview of how LVR helps you optimize your sales and marketing strategies.
Strong Predictor of Future Revenue
LVR offers a more accurate revenue forecasting tool. Companies can also pair it with lead conversion rate, which tracks the ratio of qualified leads (MQLs and/or SQLs) that actually become customers, to illustrate their ability to successfully close, grow, and generate revenue.
Keep in mind that LVR doesn’t include customer churn rate, or the number of customers who leave your B2B company in a given period. If it’s too high, your LVR can’t compensate for user loss. For this reason, LVR is also paired with monthly recurring revenue (MRR), the lifeblood of many SaaS companies.
Real-Time Snapshot of Sales Performance
As a leading indicator, LVR maps a necessary and real-time figure, i.e., the number of prospects you’re actively attracting. On the other hand, lagging metrics such as Monthly Recurring Revenue (MRR) or Actual Sales Revenue (ASR) require lag time to provide useful insights. Lagging indicators are calculated after the fact and are best for understanding the effectiveness of current output and performance.
Fast Strategic Adjustments
Using only revenue metrics can fail to spot lead qualification or lead generation issues when the average deal value increases. LVR, on the other hand, can rapidly show growth rate changes, ensuring your marketing and sales teams can adjust their tactics rapidly.
Before You Start Measuring and Analyzing LVR
Make sure you’re getting the most from this metric by checking off the following steps before you start calculating LVR or acting on your findings:
- Without a reliable system of tools and steps to ensure lead quality, LVR calculations will be inaccurate. You need to clearly define qualified leads and remove unqualified or duplicated leads, which also weigh down your sales and marketing teams.
- Qualified lead velocity rate should be used alongside key sales metrics, such as overall conversion rate, sales stage conversation rate, sales cycle length, MRR growth rate, customer acquisition cost (CAC), and customer lifetime value (LTV). Alone, this metric won’t provide the full picture of growth potential, whether you’re a SaaS startup or an established enterprise.
- Finally, a qualified lead is not a customer. If LVR doesn’t reflect actual deal closures, it’s important to consider process weaknesses, CRM or tech stack issues, or data inaccuracies (challenges a Revenue Operations team can solve) in addition to poor performance.
Hit Your LVR Goals and Grow Your Business
As you can see, lead velocity rate is a powerful leading indicator that helps you forecast future revenues and capitalize on your growth rate or start improving it quickly. It’s an indispensable tool in your kit, but remember to qualify and balance it with other growth metrics for the most accurate view.