any sales leaders find it quite overwhelming to keep track of multiple KPIs while running their business. Some of the obvious ones are booking, pipeline, forecast, deal size, transaction volume, etc.
What if they had the time to track only one? Which one of this 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, many seemed to know that it is an important characteristic that defines world-class sales organizations. It is often loosely referred to as “sales traction”!
So what is sales velocity?
We all 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 funnel.
It measures the average revenue that gets generated by a company in a day.
Why should one measure it?
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 on 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 effectiveness and health of the business.
So if a business leader needs to improve traction, it is imperative that he/she measures sales velocity regularly and then arrive at the steps to improve.
How can one measure it?
Velocity in the context of speed of a cyclist depends on factors like gradient, weight, wind speed etc. Similarly, sales velocity (SV) is determined by following four variables or factors: number of qualified opportunities (O), average deal value (V), win-rate percentage (R) and length of sales cycle in days (L). All these factors normally get tracked by the CRM.
Sales Velocity = No. 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, average deal value of ₹ 10,00,000/-, win-rate of 25% with a sales cycle of 60 days. So the calculation would be:
Sales Velocity = (20 x 10,00,000 x 25%) / 60 = ₹83,333.34/- per day
This means that your business is generating roughly ₹83,333.34/- each day. Now, your endeavor should be to increase this by either increasing the variables in the numerator of by reducing the denominator – or both if possible.
The four variables that impacts the equation
One should ideally track sales velocity consistently every month or quarter to see if the number is increasing or decreasing; just like a business health score. You could do this through a dashboard in your CRM.
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 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 do 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%!
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.