Does it take your team forever to close a deal? Okay, maybe not forever, but a long time!
Many companies miss sales opportunities because their pipeline is clogged with poor leads.
Hi! My name is AJ. I recently sold my business for multiple seven figures, allowing me to focus on helping other entrepreneurs find success themselves!
If I learned one thing during my years as a business owner, it’s the importance of sales velocity!
What do I mean by sales velocity? Is it the same as the average customer lifetime value? Keep reading to learn more!
Key Takeaways
Sales velocities measure how fast a company successfully moves sales deals through the pipeline.
Tracking sales velocity allows businesses to see if their pipeline is efficient.
The number of opportunities for sales isn’t as important as the quality of those leads.
Related Reading: Best CRM for Small Businesses
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Sales velocity measures how fast deals move through a company’s sales pipeline and generate revenue.
When companies measure sales velocity, it indicates the following metrics:
The overall health of their businessEffectiveness of the sales teamAreas where sales teams can boost sales productivity to impact revenue goals
Also, measuring sales velocity helps companies understand how much revenue to expect within a certain period.
Measuring sales velocity is essential for businesses for two primary reasons.
First, the measurement provides a clear snapshot of the sales cycle and its efficiency, allowing businesses to identify bottlenecks or areas of inefficiency.
Companies can take informed action to streamline the sales pipeline by pinpointing where deals stall in the sales process.
Second, sales velocity offers predictive insights into future revenue.
By knowing how fast deals are moving through the pipeline, companies can estimate their revenue for upcoming quarters, helping them forecast accurately and plan for the future!
Before you calculate sales velocity, it’s crucial to distinguish and separate your small, mid, and enterprise pipelines.
These pipelines look different depending on your company’s industry, size, and target audience.
After you create your segments, you’re ready to utilize the sales velocity formula.
That said, the sales velocity formula is as follows:
(Number of Opportunities x Average Deal Value x Win Rate Percentage) / Sales Cycle Length
In a later section, I’ll dive into the four factors you need to calculate sales velocity, which include:
OpportunitiesAverage deal size/valueWin/Conversion rateSales cycle length
Before you calculate sales velocity for your company, it’s helpful to see examples of how this metric can offer different insights.
Below, I’ve compiled three examples of how the sales velocity equation can help your company!
Sales reps can use the sales velocity equation to measure their productivity and value to a company.
Let’s see an example of how our fictional sales rep, Ryan, can calculate his sales velocity.
Opportunities:
During the quarter, Ryan had 100 qualified sales opportunities he was responsible for.
Average Deal Size:
Although you can use the company average, Ryan used his average deal size for this equation ($5,000).
Win Rate:
Ryan discovered that he had closed 20% of his sales opportunities.
Length of Sales Cycle:
Ryan’s company takes an average of 90 days to complete a sale.
Using the formula, you can see that Ryan earns his company an average of $1,111 daily!
Is tracking sales velocity important for teams? Yes!
This metric is helpful because it helps you understand team success rates, which can indicate the following things:
Which sales reps work best togetherThe number of deals teams in various regions earnWhich teams need more trainingWhich teams demand more leads
The last sales velocity example is for a company’s entire sales team.
Typically, businesses use one year for the number of opportunities, average deal value, and win rate.
Using this metric, you can analyze the following data:
Compare the success rates of all inbound versus outbound channelsHelp your marketing team make a case for a larger budget for inbound marketingGuage the sales velocity from specific inbound channels and discover which produces the best leads
The sales velocity formula requires four factors: opportunities, average deal size, win/conversion rate, and sales cycle length.
If you’re new to calculating sales velocity, you might wonder how to keep track of all these deals simultaneously!
Implementing a customer relationship management system tracks each of these variables (yet another reason why you need a CRM!).
Let’s look at the four variables in greater detail!
Every sales pipeline has a specific number of opportunities or sales leads.
Regardless of how many leads your company has, ensuring they’re qualified opportunities is vital.
Qualified opportunities mean there is a high chance a person will convert into a paying customer.
Your bottom line and sales cycle are negatively affected if your pipeline is filled with low-quality leads!
The average deal value is the amount of money a company earns per deal its sales team closes.
You can calculate the average deal value by using the following equation:
Total Revenue Earned (in a certain period) / Number of Closed Opportunities (within that same period) = Average Deal Value
Time is valuable for various business processes, sales cycles, marketing campaigns, etc.
Therefore, you must optimize your time with customers by introducing offers and add-ons at the right moment.
Your business’s average win rate (or conversion rate) measures your sales teams’ ability to attain qualified leads.
Finding your average win rate is simple; all you need to do is follow this formula:
Number of Sales Won / Total Number of Sales Opportunities = Win Rate
Simply put, your win rate indicates how effective your recruiting process and sales team is at forming genuine customer relationships that encourage them to buy your products or services.
Companies typically measure the sales cycle length in months and try to make the time frame as short as possible.
A shorter sales process means your sales team closes deals faster, allowing them to focus on the next customer!
Regardless of how well-functioning your sales cycle is, it’s critical to constantly look for ways to shorten it!
Here are some tips to improve sales velocity!
Sales velocity measures how effective your sales process and team are.
If the metric indicates your company must increase sales effectiveness, do the following things:
Increase the number of opportunitiesIncrease the average deal sizeIncrease the win rate
Still, the most crucial metric is ensuring your sales cycle is as streamlined as possible!
A slow, inefficient sales cycle can be detrimental to your business, so investing time and money is critical to streamline this process!
The longer the length of time you and your team analyze, the better your metric will look.
Typically, companies track sales velocity every quarter.
However, I’ve seen other small businesses track it every six months or one year.
When you lengthen the sample period, you can account for variables like seasonal changes or an out-of-the-ordinary deal that takes longer.
Lastly, keeping your variables the same while calculating sales velocity is critical.
For example, ensuring your sales team has clear factors of what determines a high-quality sales lead helps everyone stay on the same page.
Additionally, keeping your variables consistent means your data will be more accurate.
How can your business get a higher sales velocity?
There are numerous ways!
Keep in mind that one of the strategies I list may not be possible for your team, and that’s okay!
Determine the strategy that will work best for your business and run with it!
An excellent way to boost sales velocity is to increase the number of sales opportunities.
Sourcing valuable leads is far more critical than attracting more total prospects.
So, if your total leads decrease, but the number of high-quality leads increases, you’re doing something right!
Of course, there will still be bad leads here and there (that’s just a part of business).
Still, moving away from these bad leads quickly is crucial rather than letting them increase the average sales cycle length.
How can you source high-quality leads? Fortunately, there are several techniques, including the following:
Social media ads (Instagram, Twitter, LinkedIn, etc.)Pay-per-click adsB2B lead generation techniquesCRM software
When searching for leads via social media advertisements, ensure you run ads on platforms your audience uses.
There is no point in running LinkedIn ads if your target market isn’t on LinkedIn!
In addition to increasing the number of leads, you can also increase the average deal value!
How can you do this?
Well, start by adding additional services to your existing products!
Offering more from your company could be anything from a discount on installation fees to an online support system for customers after they purchase from you.
These add-ons will help show potential customers the extra value your business can bring them.
Also, offering add-ons will help your sales team close more deals!
Another way to increase average deal size is to use a tiered pricing system.
This pricing type allows consumers to choose what they need from you, which can help reduce costs for customers who don’t need all of your services.
If you’re worried about customers opting for the cheaper tier, consider offering add-ons!
Unique add-ons can include the following things:
Exclusive discountsFree productsExtended warranties
Increasing the average deal size helps increase sales velocity and brings your business more revenue!
A higher sales velocity means your company’s average sales cycle length is optimized!
Therefore, you should shorten the length of the sales cycle duration in any way possible.
Think about it this way: the more efficient and productive your team is, the quicker you can close deals.
But how do you shorten the average sales cycle length?
There are a few ways, including the following techniques:
Use software to automate mundane, repetitive tasksExplore prospect objections before responding to themSetting goals and objectives for every sales callSetting clear guidelines for pricing early in the sales processMaking it easy for prospects to sign contracts from any deviceFocusing on the highest-performing channels
Speaking from personal experience, automation software is an effortless way to shorten your sales pipeline.
Technology like CRM can help your sales and marketing teams be more productive by handling things like:
Sending emailsPosting contentSetting reminders
When I first started automating repetitive tasks, my sales and marketing teams were able to focus on more customer-centric tasks.
As a result, customer satisfaction and average customer life increased!
You can increase sales velocity by improving your win/loss rate.
For those who don’t know, the win rate is the percentage of deals your team wins compared to those lost.
The higher your win/loss rate is, the more deals you’re closing, and the faster your average sales cycle length will be!
So, let’s talk about how to increase your win/loss rate.
One way to do this is by investing time into understanding the customer journey and your qualified leads better.
For instance, learn more about your target market’s pain points and struggles so you can create a tailored solution that meets their needs best.
Additionally, involving sales team members in developing sales strategies can help you pinpoint areas of improvement and create better results.
Further, creating a competitive edge by offering unique services and add-ons can give your team the upper hand when closing deals!
Some other ways to improve your win rate include the following techniques:
Remove prospects who have unavoidable roadblocks from the sales pipelineDefine clear steps for what defines a qualified leadInvolve a decision-maker early in the process
Remember, keeping the criteria the same to define a qualified sales prospect is essential, as it ensures your company has accurate data.
Finally, you can increase sales velocity by increasing the number of leads.
As mentioned previously, it’s essential to focus on bringing in high-quality leads rather than a high quantity of total prospects.
That said, there are several ways to source more qualified leads.
One way is through content marketing.
Content marketing allows businesses to attract potential customers who are already interested in their services or products.
Creating content that educates potential customers about your business can help you generate more leads and increase sales velocity!
You can also contact existing customers, offering them special discounts for referring new customers.
This is a great way to acquire new qualified leads while showing appreciation to loyal customers.
In addition, you can use other digital marketing techniques to reach potential leads, including the following:
Organic search (SEO)Email marketingSearch engine ads
Lastly, create a comprehensive lead generation strategy including all these methods.
That way, your sales team will have more qualified leads and be able to hit their targets faster.
Offering customers discounts on your products or services can increase your sales velocity.
Of course, discounts aren’t always the best way to increase the total amount of revenue your company generates.
However, when you give customers an incentive to close a deal early because they’ll get a discount, you shorten the average length of the sales cycle for your company (which is important when calculating sales velocity).
Remember, a shorter sales cycle positively affects your sales velocity because your agents can move on to the next client faster.
When offering discounts, it’s essential to ensure your sales reps understand how to use them to benefit deals.
Sometimes, when sales agents don’t understand this concept, discounts can stunt a company’s growth and act as a crutch for struggling sales teams.
Sales velocity is a sales metric that measures how quickly your company can move potential customers through sales processes.
Sales velocities take the number of opportunities, deal size, win rate, and the length of the sales process into consideration.
Although increasing the number of opportunities can lead to increasing sales velocity, ensuring your sales team generates high-quality leads is more important!
What techniques will your company use to earn a high sales velocity? Let us know in the comments section below!
And good luck finding the best strategies to boost your sales velocity and increase the total revenue generated!
The post What is Sales Velocity and How to Measure It in 2023 appeared first on Small Business Bonfire.
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