What is sales velocity? Meaning, formula, and report
Understanding sales velocity enables your company to redefine its sales pipeline and process to increase lead conversion and revenue.
By Donny Kelwig, Contributing Writer
Last updated March 22, 2022
We’ve all heard the phrase “time is money,” and in the sales world, this axiom resonates loud and true. In every company, sales teams work tirelessly to refine the process of persuading customers to buy faster each year.
Time is a valuable parameter to measure, and not only in regards to your sales teams and their productivity. The lag time between when a potential customer hears about your brand to when they finally purchase your product or service—that’s time in limbo and money down the drain. You want to move prospects down the funnel faster.
Think of the sales process as a river. You want to be a river that flows smoothly, swiftly, and with zero capsized canoes. But your speed and efficiency are determined by various factors.
Sales velocity is the metric that helps you pinpoint the problematic spots in that river—the big rocks that are creating the most prohibitive eddies and whirlpools, getting your leads stuck. Once those rocks are identified, sales managers can determine exactly where to focus their river-clearing efforts and speed up the buying process.
Read on to learn more about sales velocity, how to calculate it, how to improve it, and how tracking it can benefit your company.
What is sales velocity?
Sales velocity is the measurement of how quickly a prospective customer moves through a company’s sales pipeline and generates revenue. It reflects the health and productivity of a sales team but also shows areas where the sales process could be improved.
Sales velocity is extremely useful in sales forecasting, too. When a business knows how frequently and how quickly customers make purchases, it can more accurately predict future revenue. This allows companies to more appropriately distribute their budgets according to expected gains and losses.
Pipeline velocity vs. sales velocity
Sales velocity is sometimes called pipeline velocity or sales funnel velocity. These terms refer to the same concept—they all measure how quickly prospects are moving through the sales pipeline or sales funnel.
What you call this metric is up to you and your company. Some prefer pipeline velocity because it’s more direct (your prospects are quite literally moving through your pipeline), but at the end of the day, it’s about the number resulting from the formula—not the name—that matters.
Now, let’s get into the specifics of how to calculate your sales velocity (or pipeline velocity or sales funnel velocity).
Sales velocity formula
Sales velocity is simple to calculate as long as you understand the components and have a set pipeline.
Review each of these components so you know which numbers to plug into your equation:
Number of opportunities (#): This is the number of qualified leads in your pipeline. Qualifying your leads will keep this number healthier and save you valuable time and energy. Low-quality leads aren’t going to move forward in the pipeline, and they’ll eventually hurt your sales velocity.
Deal value ($): This is another way to refer to the average size (or value) of the deal your prospect buys. If you sell products at set prices, you might want to focus on the sales velocities of individual products. But if you sell bundles or products on a sliding scale, it’s best to use the average purchase amount.
Win rate (%): Your win rate must be calculated before you can put it into the sales velocity formula. You can determine your win rate by dividing the total number of sales won by the total number of opportunities (#). Just like with your number of opportunities, your win rate grows healthier as you qualify your leads. Qualified leads are more likely to buy, so the number of sales won should increase.
Sales cycle length (L): In a perfect world, you want the length of your sales cycle to be as short as possible. The faster a sale happens, the faster a sales rep can move onto the next prospect.
Of course, you don’t want to waste hours finding these numbers every time you need to calculate your sales velocity. The best way to keep your sales velocity numbers organized is through a CRM or other lead management or lead tracking software.
Why is it important to track sales velocity?
Even if your company is growing exponentially, you could still be wasting time or losing prospects by not fully understanding your sales pipeline. When you track sales velocity, you gain the full picture of your customer journey as well as an understanding of what’s working and what’s causing prospects to drag their feet. You can also use sales velocity to monitor how much inventory you have and when you might need more.
When you track sales velocity, you gain the full picture of your customer journey.
The clearest way to see the benefits of sales velocity is to look at a sales velocity report.
Sales velocity report
A sales velocity report is somewhat self-explanatory: It’s a report of your sales velocity. Here’s an example of a standard sales velocity report.
At the top, you’ll see a circle with the overall numbers stating that 3.32 percent of all contacts made a purchase and generated $2,578,119 in first-order revenue. While these numbers are important, they don’t tell the whole story. A manager could look at 3.32 percent and simply say, “We need to try harder.” But that’s not a sales plan.
Instead, take a look at the full breakdown. Of all purchases made, 25 percent occurred between two and seven days after contact. That’s nearly double the amount from any other time frame, including one-day purchases. This is a key statistic for a sales manager. If sales conversion is highest between two and seven days after contact, then that’s where reps need to focus their energy.
The two- to seven-day period is where no lead can afford to fall through the cracks. Every lead should receive a follow-up email. If the company is in a position to provide a first-time buyer deal or discount, it should be offered during this time period. It also tells sales reps when to back off—if more people are purchasing after two days than after one day, it means they need time to consider the offer. It might be beneficial for reps to take a break and let those potential buyers simmer while focusing on other prospects.
A sales velocity report is a crucial part of sales analytics. With insights into consumer habits, sales managers can make a specific sales plan with tangible goals.
Inventory velocity is the speed at which inventory is cycled through within a given time period. It’s calculated via a different formula, but it can be informed by sales velocity (and vice versa) in order to make business decisions. Sometimes, inventory velocity is referred to as sales velocity inventory, but it is in fact a different measurement.
What you need to remember about inventory velocity is that each calculation only applies to an individual product. One bad inventory velocity number doesn’t necessarily reflect the entire sales velocity of the company.
In regards to sales velocity, inventory velocity is critical for set-price products. Sales velocity for set-price products is dependent on how much of that product is available and how quickly it can be manufactured. Obviously, you want to move as much product as possible, but if your sales velocity for a product is soaring and it outgrows your inventory, you end up with a lot of angry customers.
How to increase sales velocity metrics
There’s nothing wrong with trying to sell faster or generate more revenue, but it has to be done with a specific plan in mind.
The most common ways to increase your sales velocity metrics are built into the formula: opportunities, deal size, win rate, and sales cycle length.
Let’s take a look at each one and how you can strategically improve:
Increase your number of opportunities
It’s important to note that opportunities are not leads. Leads are consumers who have expressed interest in your business or product, whether that was by clicking on an ad or signing up for a newsletter. Opportunities are qualified leads. That means a sales rep has analyzed the lead and deemed them likely to become a customer based on certain criteria.
You don’t need endless leads to increase your sales; you just need more opportunities. Have your reps spend more time qualifying leads, not generating them. Quality matters more than quantity.
Boost your average deal size
This one can be tricky because you don’t want to simply increase the price of your product. Pricing and bundling are all about balancing value with cost. If you can better identify pain points and figure out the best bundle for the customer, you’ll have an easier time persuading them to purchase a bigger deal.
You can also increase the average deal size by looking at which opportunities are likely to buy larger or smaller deals. Push the smaller deals through the pipeline faster so you have more time to focus on the larger sales. Just don’t jeopardize those smaller deals in the process—all sales, no matter their size, contribute to the overall numbers.
Focus on conversion points to improve your win rate
Prospects may exit your pipeline for any number of reasons, but each time they do, your reps lose the time they spent cultivating those buyers. In order to increase your win rate, you need to know why people aren’t buying.
Determine exactly where prospects are dropping off in the sales cycle and why. Is it price? Is it need? Once you figure out the reasons your prospects are leaving, you can better address the problems.
Shorten your sales cycle
One of the fastest ways to increase sales is to simply shorten the time it takes to make them. To be clear, this doesn’t mean aggressively pushing sales through. You still have to take the time to build a relationship and not pressure a prospect into an uncomfortable situation.
That being said, you can reach out sooner and be prepared. If a prospect has questions, you should be able to answer them on the spot. Always have company materials on hand and ready to go—make them accessible to prospects who are close to crossing the finish line, too.
You don’t need to speed up your interactions; you just need to speed up the time between them.
Accelerate your sales velocity metrics with a CRM
Of course, for the best sales velocity metrics, you need to start with accurate data. That’s why a powerful CRM like Zendesk Sell is necessary for any business looking to grow their revenue and customer base.
With Zendesk Sell, you have key customer data at your fingertips, allowing you to capitalize on opportunities. Our state-of-the-art CRM also helps maximize productivity, increase pipeline visibility, facilitate communication between team members and customers, and analyze sales data. You can even see your company’s statistics changing in real-time, which means you can make adjustments to your sales team in the moment—not at the end of the annual or quarterly review.
Request a demo of Zendesk Sell to discover how a streamlined CRM and cutting-edge sales metrics can increase your revenue today.
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