Many sales leaders find it quite overwhelming to keep track of multiple KPIs while managing their pipeline. Some of the obvious ones are booking, pipeline, forecast, deal size, transaction volume, etc.
What if you had the time to track only one? Which one of these is the most important?
While engaging with customers, we found that many business leaders were not familiar with the numerical calculation and the implication of measuring “Sales Velocity”. However, most refer to the term “sales traction” in their discussions. They know that it is an important characteristic that defines world-class sales organizations.
The concept of sales velocity removes the subjectivity in this term’s traction. It offers an accurate metric that is numerically derived to help you improve the business parameters that matter the most.
If measured and improved diligently, this one metric has the power to transform your organization; and help you win over your competition.
Why should you measure Sales Velocity?
Management guru Peter Drucker said that – “you can’t improve what you can’t measure”. This is the philosophy of any transformation initiative that relies on measuring certain parameters and then improving them based on specific actions.
Sales velocity is probably the most powerful metric that reveals the most about time and money! It determines sales traction in terms of the effectiveness and health of the business.
So if you as a business leader need to improve traction, it is imperative that you measure sales velocity regularly and then arrive at the steps to improve.
What is Sales Velocity?
We know that velocity is a measure of how quickly an object moves over a period of time.
Similarly, in this context, the simplest definition of sales velocity is how quickly deals move through the pipeline or funnel. In a way, it measures the average revenue that gets generated by a company in a day.
How can one measure Sales Velocity?
Velocity in the context of the speed of a cyclist depends on factors like gradient, weight, wind speed, etc. Similarly, sales velocity (SV) is determined by the following four variables or factors: number of qualified opportunities (O), average deal value (V), win-rate percentage (R), and length of the sales cycle in days (L). It is a good idea to have a CRM that tracks these factors while your teams are updating their opportunities and pipeline.
Sales Velocity = Number of Opportunities x Deal Value x Win Rate / Length of Sales Cycle
SV = O x V x R / L
Let’s say your business has 20 qualified opportunities, an average deal value of $ 100,000 USD, and a win rate of 25% with a sales cycle of 60 days. So the calculation would be:
Sales Velocity = (20 x 100,000 x 25%) / 60 = $ 8333.34 USD per day
This means that your business is generating roughly $ 8333.34 USD each day. Now, your endeavor should be to increase this by either increasing the variables in the numerator or by reducing the denominator – or both if possible.
What are the factors that determine Sales Velocity?
By now, hope you agree that measuring sales velocity is pivotal to assessing the overall health of your business. A higher sales velocity means you are generating more revenue in less time. Measuring sales velocity over time will also help you benchmark b2b sales CRM performance and compare sales team effectiveness.
However, the metric alone could appear very random. Along with this numerical calculation, it is recommended that you analyze all the factors responsible for it in a comprehensive way and study how the changes could impact this calculation.
For some reason, most sales teams focus only on getting more opportunities and they tend to ignore the rest. Instead, you should encourage your team to optimize all levers to maximize the return from their opportunities.
Conclusion
You should ideally track sales velocity consistently every quarter to see if the number is increasing or decreasing; just like a business health score. We suggest you measure this separately for each of your market segments considering their unique nuances.
The true value comes from evaluating the impact on the metric by analyzing what you are doing with the rest of the factors. It gives you an opportunity to approach each of the four levers strategically and optimize them for the best outcome.
For e.g. while applying the equation, let us say the number of opportunities does not change. However, one is able to increase the average deal size and win rate by 10%, and reduce the length of the sales cycle by 10%. You would see that your sales velocity would still improve by 34%!
It is advisable to invest in a powerful Account Management CRM, like HappSales, to automatically track these metrics based on opportunity updates. A dashboard view will help you to easily identify the trends so that you could take the necessary steps and make the strategic decisions required to achieve desired results.
A complete and objective evaluation, if applied consistently, will equip you with significant insights to stay ahead of your competition. It would eventually set you to lead a best-in-class sales organization with unmatched performance.
Original Source: Do You Know Why “Sales Velocity” Is The Most Powerful Metric For Sales Transformation?
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