Imagine you’re driving your car on a highway. Nearly everything in the vehicle seems to be in working order except for the speedometer.
You don’t know how fast or how slow you’re moving. All you can do is make a series of best guesses about your speed based on what’s going on around you.
While you’ll get to your destination eventually, you can’t be sure about when precisely, or whether you could have arrived sooner, or how you could have improved your performance in getting from Point A to Point B.
That illustrates what sales velocity is and why it matters so much to your success in business.
How fast is your team making sales and earning revenue?
That’s the question that sales velocity answers. Just like a speedometer in a car, some don’t think much about it until it’s not there. Even more surprising, some don’t even look at it at all, because they don’t fully understand how powerful it is as a decision-making tool.
In this first of a series of articles, I’m going to explain why sales velocity is one of your most important metrics—and predictors—of success. And I’m going to show you how easy it is to calculate yours.
I’ve talked before about the importance of measuring what matters and staying focused on performance metrics, because those are the ones that tell you how well your efforts are converting directly into sales.
Your sales velocity examines those efforts factually. It consists of measuring four selling-based activities in your business:
- The number of opportunities in your sales pipeline;
- The average deal size that your team achieves, measured in dollar value;
- Your win/lose rate expressed by the percentage of new business that’s successfully closed; and
- Your team’s sales cycle time from prospect to close, measured in days.
What you do next matters most.
Too often, people make the mistake of assuming that complicated problems require complicated questions and a long list of inputs before a solution can be found. To the contrary, sales velocity asks a simple set of purposeful questions.
The answers you get are powerfully adaptive to your circumstances. In other words, once you have data, what happens next is where your understanding of your unique sales problem begins to evolve and better solutions start to emerge.
For example, a rep in a new territory can boost their sales velocity by improving the number of opportunities in their pipeline because they have so many of those opportunities. A sales rep in a more established territory can improve their velocity by reducing their cycle time or increasing their average deal size.
Think like a data scientist.
Selling is emotional, but understanding the metrics behind sales performance is purely a fact-driven job. That’s why it’s so accurately predictive. It’s also why I say the best sellers and sales leaders think like data scientists. They let numbers inform how they make decisions, including where to improve and why.
Those are the ones who track their sales velocity over time, benchmarking their numbers against those of other teams. Not only does this give them the ability to compare the effectiveness of individual reps or regions, it shows them how a series of small changes to their sales processes can affect their business—for better or worse.
Applying the formula.
Working with the data on the four sales-based activities I’ve outlined in this article, you obtain your sales velocity using the following formula:
Applying that formula, here’s how you can calculate performance improvements of up to 25% in your organization.
Let’s say you have 30 opportunities, an average deal size of $10,000, a win rate of 0.37 and a cycle time of 90 days. That gives you a current sales velocity of $1,233. If you were to increase your deal size to $11,000 and reduce your cycle time to 81, your sales velocity would jump to $1,507, which is a 25% increase in your average daily sales volume.
As you can see, sales velocity is vital to the overall effectiveness of your business and your sales team. After all, it’s the measure of how much money you’re making daily. Once you have a deeper understanding of each of the sales-based activities it measures—and the relationship between them—you can forecast more accurately and determine how your sales process can be optimized for faster sales and higher conversion rates at each stage in your selling process.
Next in this series, we will look at how small changes to each of the four variables you’re measuring can produce dramatic boosts to performance.