Velocity is the speed at which something moves in a given direction. A train traveling west, a rocket shooting upward, and even the deals funneling through your sales pipeline right now — they’ve all got velocity.
Sales velocity measures how long it takes your sales team to move deals from opportunity to close. It’s a valuable sales metric for companies of all sizes because it lets sales leaders forecast revenue, evaluate their sales process, better equip their sales reps, and find ways to accelerate their sales cycle.
At Sales Assembly, we’ve seen too many sales velocity guides focused on how to calculate it and improve it without offering insights on what different sales velocity numbers can mean. In addition to covering the fundamentals, this guide will go over the factors that influence sales velocity and how to interpret your results.
How To Calculate Sales Velocity: 4 Important Variables
Calculating sales velocity is fairly simple. You multiply the number of sales opportunities by the average deal size (or average customer lifetime value) and your win rate, and then divide that result by the length of your sales cycle. The dollar value you’re left with represents the amount of revenue your team can expect to bring in during the sales cycle.
Here’s another look at the formula:
Image opportunity: Create a graphic with the formula. Could use simple icons to illustrate opportunities (# or people/business icon), deal value ($ or money bag icon), win rate (% or trophy icon), and sales cycle (“T” for time, or clock or calendar icon).
Sales Velocity = Number of Opportunities x Deal Value x Win Rate / Length of Sales Cycle
You can calculate sales velocity at the individual level, at the team level, or at the organizational level. It’s also common for businesses to calculate sales velocity by market segment because metrics can vary so widely. For instance, a B2B SaaS company might sell to small, mid-size, and enterprise firms, each with wildly different average customer lifetime values (CLVs) and sales cycles.
When it comes to using the sales velocity equation, your results can only be as accurate as the variables you plug in. Here’s a quick overview of how to find each metric.
Number of Opportunities
This is the number of deals you have in your pipeline during the period of time you’re measuring. It’s important to have standardized definitions for what a qualified lead is so you know which opportunities deserve to be included in this metric.
For instance, how do you define marketing-qualified leads (MQLs) and sales-qualified leads (SQLs), and will you include both?
Average Deal Size
Depending on your industry and pricing model, average deal size could mean average deal value (ADV) or average sale price (ASP). If you have a subscription service, a better metric is average customer lifetime value (CLV).
Find your average deal size by dividing revenue generated in a given period by the number of deals closed for that same period of time.
Win rate, also called conversion rate, represents the percentage of leads that turned into customers over the period of time you’re measuring.
Find your win rate by dividing the number of deals won by the number of opportunities generated.
Keep in mind that, depending on the sales cycle and time period being measured, some deals that are being closed during the measured period may have originated from a prior sales period. The reverse could be true, where leads being converted now won’t close in the measured time period. Your team can understand this and except for those two discrepancies to even out, or use a cohort analysis to measure your win rate variables.
Sales cycle is the amount of time it takes for a lead to progress through your sales pipeline. It may be a number of days, weeks, or months.
Optimizing your sales cycle is extremely important, but keep in mind that a shorter sales cycle isn’t always better. Some products and services are inherently more complex and require more lead nurturing.
Sales Velocity Example
Let’s say you have a B2B sales team with 50 deals in their pipeline, an average deal size of $2,500, and an average win rate of 35%. According to your sales tracking tool, it takes an average of 28 days for leads to convert to paying customers.
Your team’s sales velocity formula would look like this:
Sales Velocity = (50 opportunities x $2,500 x 0.35) / 28 days
Sales Velocity = $43,750 / 28 days
Sales Velocity = $1,562.50 per day
This means your team should bring in $1,562.50 per day or $43,750 per month. You can quickly compare the team’s sales velocity to the weekly, monthly, or quarterly sales quotes you’ve set. If they’re on track to meet or beat them, that’s great news. If they aren’t headed in the right direction, you can examine your sales activities and adjust goals as needed.
Is There an Ideal Sales Velocity Figure?
What’s a good sales velocity number? The answer depends entirely on the organization.
Generally speaking, a higher sales velocity means more money in your company’s pocket. There’s no question that generating $500 per day is better than $300 per day. However, it’s possible to have a high sales velocity that looks great on paper but hints at some potential problems.
For example, your sales team could be forecasted to generate a quota-beating $60,000 this month, but lack the client retention and support resources to actually hold onto that revenue in the long run. Maybe your team’s high velocity stems from large deal values rather than a healthy number of leads, so if your pipeline shrinks even a little, your team will quickly fall short.
Many sales leaders agree that if your team is meeting 70-80% of their sales quotas, they’re on target. But instead of relying on industry benchmarks, a better way to think about sales velocity is that it’s a guiding light to set realistic sales goals and understand the probability of reaching them.
Drawing Actionable Insights from Sales Velocity
While calculating sales velocity is fairly simple, interpreting it can be somewhat of a challenge. Here are some clear-cut areas where sales velocity can inform your strategy decisions:
If a rep has a low sales velocity, it can clue you into the need for one-on-one training. If several reps are struggling in one area, or multiple areas, it may point to a need for better sales enablement for everyone.
That said, the biggest mistake a sales manager or leader can make is to coach to an individual’s or team’s sales velocity. Setting a goal to raise sales velocity is already a nonstarter because there are so many different inputs — number of leads, deal size, win rate, and sales cycle — that determine sales velocity and may be out of your reps’ hands. It’s like asking your sales reps to simply “sell more” or “sell faster.”
Pushing on reps to increase their sales velocity could lead to another issue. It may cause them to inflate the size or number of opportunities in their pipeline, effectively incentivizing a higher sales velocity at the expense of accurate forecasting.
Instead, coach to the specific sales behaviors and tactics that are needed to improve the inputs. This might include:
- Sharing strategies to identify high-value, high-quality leads from the outset.
- Reviewing talk tracks, sales process mastery, and discover tactics to make sure reps ask the right questions to understand a customer’s motivation.
- Implementing upselling and cross-selling tactics to increase average deal size.
- Examining how reps are conducting demos and whether they’re articulating value and following your sales process or methodology at every stage.
If your sales velocity is high, it’s a timely reminder to make sure your client success team is properly proportioned to your sales team. A high velocity could mean that the front end of your business has too many resources, while the back end is living on fumes — struggling to support and retain the customers your sales machine is bringing in.
This is a common challenge for companies in the scaling phase. They invest heavily in the front end to generate business in the early stages, but follow this strategy for so long that retention suffers. Before you focus on maintaining or increasing sales velocity, take a look at your customer retention rate. How does it stack up?
A low sales velocity can also indicate bottlenecks and inefficiencies outside of your reps’ skill level or market health. Maybe your sales process isn’t standardized for all reps. Maybe your sales management software makes entering and tracking deals a hassle, or a lack of task automation is eating time and money.
These roadblocks can lengthen the sale cycle and throw off sales velocity across the board. Assessing and addressing these issues is vital, and could include:
- Revisiting the stages of your sales process for each of your market segments, such as company size, location, or product or service.
- Updating your sales software, including pipeline management software and customer relationship management (CRM) software.
- Tracking a set of daily activity metrics to get a more accurate understanding of time usage, roadblocks, and opportunities to improve.
One final way to use sales velocity is to determine when it’s time to hire sales reps and other key team members. In fact, the root of a low sales velocity number could be a simple issue with headcount. If your sales team is too small, it automatically limits the volume of leads they can pursue and convert.
And as we’ve covered, the inputs in the sales velocity equation tend to have a domino effect on one another. An overworked team may have a worse win rate or consistently fail to hit quotas, lowering morale. If your sales velocity seems off, it may be time to hire more salespeople.
Sales velocity is a great starting metric, but it’s the sales activities and insights right beneath the surface that will ultimately help you hone your sales strategy and boost performance. For the best results, start with accurate data — number of leads, deal size, win rate, and sales cycle — and use the strategies above to get the full picture.