Sales is a numbers game. The more prospects you put into your pipeline, the more deals you’ll close — at least in theory.
We know that sales depend on steering the right quality leads into the pipeline, having an efficient process to nurture prospects and drive sales and equipping your sales team with the right tools and training. You have to have a strong sales enablement strategy in place to be successful.
And, don’t forget about measurement. We need metrics to gauge our performance and forecast results. One of the most powerful metrics is sales velocity, which helps forecast how much you’ll sell and how quickly you’ll sell it.
What is sales velocity?
Sales velocity means how quickly deals progress through your pipeline from lead generation to conversion.
Measuring your sales velocity is important because it helps you forecast when revenue will hit your books, monitor your pipeline process and find bottlenecks that may be impacting your time-to-close. When you know your average sales velocity, it can be used as a benchmark to evaluate other deals in your pipeline and identify ways to accelerate the sales cycle.
Now that we have a solid sales velocity definition, let’s look at how to calculate sales velocity.
How to calculate sales velocity using four factors
Calculating sales velocity is a simple process. First, you multiply the number of opportunities in the pipeline by the average deal value and average win rates. Then, you divide that by the average length of your sales cycle.
The sales velocity formula:
Sales velocity = (Opportunities x Deal Value x Win Rate) / Length of Sales Cycle
1. Number of opportunities
The number of opportunities is the number of deals in your pipeline for your measurement period. To be consistent, you must clearly define what qualifies as a deal.
For example, you might want to include sales qualified leads (SQLs), but they are opportunities being touched at a high level by a business development representative (BDR). Once the BDR pushes the opportunity forward, an account executive (AE) will opt to take ownership or not. If they do, the opportunity moves to stage two (evaluation), and the SQL becomes a sales qualified opportunity (SQO). So, using SQOs in the equation will give you a better idea of your sales velocity.
Many companies calculate sales velocity separately to track velocity against SQOs, leads and in combination.
2. Deal value
You can find your average deal value by dividing your revenue by the number of deals closed. How you define deal value also makes a difference. For example, you may want to measure the initial sale, annual sales, or customer lifetime value (CLV).
Deal value formula
Deal value = Number of closed deals / Revenue from closed deals
Which measurement you choose is less important than getting agreement and then measuring consistently against your choice.
3. Win rate
Win rates, also known as conversion rates, measure the opportunities that turned into customers. Your win rate is calculated by taking the number of opportunities during the measurement period and dividing it by the number of deals won.
Win rate formula
Win rate = Number of deals won / Number of opportunities
4. Length of the sales cycle
The sales cycle is how long it takes a lead to make it through your sales pipeline and convert it into a closed deal/win.
Since sales cycles can vary greatly for different products, it can be helpful to break sales velocity calculations into various categories of business.
Sales velocity example
It may be helpful to walk through an example of how this works.
First, you would want to calculate your average deal value and win rates. If you have 20 closed deals that resulted in $40,000 in revenue, your deal value would be $40,000 / 20 = $2,000.
Next, you would calculate your win rates. If you have 60 deals in the pipeline and close 15 of them, your win rate would be 15 / 60 = 25%.
If you have 60 opportunities in your pipeline, you would calculate your sales velocity as follows:
Velocity = 60 (opportunities) x $2,000 (deal value) x 25% (win rate). 60 x $2,000 x 25% = $30,000.
Next, divide $30,000 by your measurement period. If your average sales cycle is 30 days, you would divide $30,000 / 30 = $1,000. This produces your 30-day sales velocity.
How to improve sales velocity
You can improve sales velocity in several ways by impacting each of the four “levers” in the formula (# of opportunities, deal value, win rate or average sales cycle). Adjusting any one of them can enhance your velocity.
Even minor improvements can result in significant increases in your sales velocity and revenue generation.
Here are some of the strategies sales teams use to improve their performance.
1. Analyze each aspect of your sales pipeline
After you calculate your sales velocity, you can use this metric to evaluate performance against the baseline. You can also evaluate individual sales team members or see if making changes impacts results.
For example, if you provide additional sales training on one aspect of the sales process, you can measure whether it had a demonstrable impact on outcomes.
When you’re not getting the results you want, breaking down the sales and marketing process and analyzing each stage can help you find and remove bottlenecks.
2. Improve lead generation to increase the right opportunities
Not all leads are created equal. By focusing more on quality than volume, you can improve your sales velocity. This means spending the time to understand who your best customers are to develop ideal customer profiles (ICPs) and modeling your lead generation efforts to find similar prospects.
The more clearly you define what constitutes a quality lead, the better leads you’ll get.
3. Get agreement on what kind of leads you want
Review your lead scoring methodology and see where you need to make adjustments if you aren’t satisfied with the quality of your leads. This is often one of the biggest disconnects between sales and marketing teams.
You need to agree on what makes a good lead and focus on leads that will convert. Sales and marketing must be aligned to achieve success.
4. Increase average deal size
When you find high-value leads, they’re worth the extra attention. Make an effort to customize and personalize your approach.
Remember that bigger deals will likely increase the time to nurture and close larger prospects. That’s one of the reasons you need to look at sales velocity as just one tool in gauging performance. Running fast only works if you’re running towards the right goal.
Upsells, cross-sells and bundling are also great opportunities to increase deal size. Make sure your sales team is trained to recognize these opportunities.
5. Shorten the sales cycle
If you can shorten the sales cycle, you’ll improve sales velocity and generate revenue faster. With the right sales enablement strategy, you can provide the intelligence and tools your marketing teams need to work more efficiently.
Improve sales velocity with Pitcher
Pitcher is a sales enablement platform that helps accelerate sales velocity and grow your revenue. With the Pitcher Super App, your marketing, service and sales teams will be enabled to work more efficiently to supercharge your sales efforts, including:
- Improving customer engagement
- Aligning and automating your sales, service, and marketing
- Streamline operations with automation and process optimization
- Close the marketing loop with actionable insights
Empower your team with a complete end-to-end platform to increase the effectiveness of your team. Request a demo today and see how Pitcher sets the standard for sales enablement solutions.
Sales velocity — common FAQs
How do you increase sales velocity?
There are several ways to increase sales velocity. Overall, you need a robust sales enablement strategy to give your marketing and sales reps, so they have the tools to work efficiently. You need to optimize your process at each step of the pipeline and buyer journey, and you need consistent coaching and training for your staff.
Increasing sales velocity requires improving performance in one or all of the four sales levers.
What are sales levers?
The four levers that make up sales velocity are:
- Number of opportunities
- Deal value
- Win rates
- Length of the sales cycle
You can improve your sales velocity by “pulling” the right levers. If you increase the deal value or win rates, for example, your velocity will improve. If you increase the quality of leads or shorten the sales cycle, your sales velocity will also improve.
What’s an example of calculating sales velocity?
You calculate sales velocity by multiplying the sales opportunities by average deal size and win rates, then dividing the result by the length of your sales cycle. If you have 50 opportunities with an average deal size of $10,000 and a win rate of 10%, your sales velocity would be 50 x $10,000 x 10% or $50,000. If your sales cycle is typically 30 days, you would divide $50,000 by 30 and get a sales velocity of $1,667.
What’s a good sales velocity?
It depends. Higher sales velocity typically means you’re generating money more often. However, it’s also important to look at other sales metrics. High sales velocity can be skewed from large deals rather than a strong pipeline or from deals that close quickly.
Sales velocity should be used as a guideline and measured over time to mitigate any irregularities.
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