Sales Velocity – Fundamentals In Five
Benefits of measuring sales velocity
Your business’s potential for growth depends on your sales velocity. You can create strategies that improve your sales processes and more accurate sales forecasts by learning how to calculate this metric. As previously stated, the quicker you can close deals and produce revenue, the less time it will take to move leads through your sales pipeline. To compare past and present results and evaluate the changes you make to the sales process, think about tracking your sales velocity at regular intervals. Other advantages that can be attained through sales velocity measurement include:
What is sales velocity?
A metric that gauges how quickly your company turns a profit is sales velocity. It looks at how quickly leads move through your sales pipeline to become paying clients and bring in money. You can generate more revenue in less time by increasing your sales velocity and converting these leads more quickly. You can estimate how much money you’ll make in a day or over a certain time period by calculating your sales velocity.
Four important factors are taken into account when calculating sales velocity: the quantity of opportunities in your sales pipeline, the average deal size, your conversion rate, and the length of your sales cycle. To assess the effects of changing any of these aspects of your sales process on the company, you can calculate sales velocity before and after the change. Knowing your sales velocity will enable you to accelerate the rate at which you convert prospects and close deals.
What are the four factors of sales velocity?
Four key factors can affect your sales velocity. These four metrics can be used to assess sales velocity, monitor changes to it, and find operational improvements that will help you generate revenue more quickly. These four factors are:
Sales velocity formula
You can determine your sales velocity by monitoring the four factors mentioned above. The outcome is displayed as a dollar figure that represents how much money you make each day. You can use the following formula to calculate sales velocity:
Sales cycle length / sales velocity = (number of opportunities x average deal size x conversion rate)
How to calculate sales velocity
You can determine your company’s sales velocity using the formula above. Follow these steps to perform this calculation manually:
1. Gather the relevant data
Data based on the four factors of sales velocity must be gathered before you start the calculations. Once more, these variables are the quantity of opportunities, typical deal size, conversion rate, and length of the sales cycle. Make sure your company keeps track of these four metrics on a regular basis to keep this information accessible. In this example, assume that your business has:
2. Set up the formula
Once the relevant information has been located, you can enter it into the sales velocity formula. Your prepared formula appears as follows when the example data is used to replace the variables:
Sales cycle length / sales velocity = (number of opportunities x average deal size x conversion rate)
Sales velocity = (100 x $5,000 x 0.25) / 50
3. Multiply the formulas numerator
Now that the formula has been established, you can start calculating your sales velocity. The information contained within the parenthesis in the formula’s numerator must first be multiplied. In this step, you perform the following calculation:
Sales velocity = (100 x $5,000 x 0.25) / 50
This calculation results in a numerator of $125,000.
4. Divide your numerator by the denominator
With the numerator value in hand, you can proceed with the calculation by dividing it by the denominator—the length of the sales cycle. The result provides your sales velocity for this period. Perform the following calculation:
Sales velocity = $125,000 / 50
Sales velocity =$2,500
5. Analyze the result
Your calculations show that your sales velocity for the specified time period is $2,500. If necessary, you can analyze this data to find ways to increase your sales velocity. This result indicates that your company earns about $2,500 per day. If your sales processes have changed, you should calculate your sales velocity frequently to compare results from the past with those of the present. You can use these comparisons to evaluate the effects of these changes on your company.
Your sales velocity is influenced by making adjustments and changes to maximize each of the four factors. To increase revenue, for instance, look for ways to increase your sales opportunities, average deal size, or conversion rate. Alternatively, you can lower your denominator by finding ways to accelerate the flow of customers through your sales pipeline.
FAQ
What does velocity mean in business?
In business, velocity is the time it takes a company to complete specific tasks, expressed in days, hours, or minutes. It is the amount of work finished in a certain amount of time. Additionally, velocity is present across all business functions, including sales, marketing, and product or service.
What does deal velocity mean?
Deal velocity measures how quickly a business negotiates a contract before signing it to complete a transaction.
What does high velocity mean in sales?
The phrase “high velocity sales” (HVS) is frequently used in SaaS sales. It’s intended to speed up the sales process for greater productivity, as the name suggests. HVS incorporates B2C sales strategies into the B2B sales process.
What does velocity mean in retail?
You can find out your velocity by looking at how many units you sell per distribution point. For instance, if you are a beverage brand, you would like to know how many cases you move each week with a retailer.
