Sales Velocity Equation
In just the past couple of years, we have amassed a seemingly bottomless well of sales data on every conceivable aspect of the sales process. And, we’re developing amazing tools that are able to make sense out of it. The problem is, this new world of massive data can be overwhelming for the organization that simply wants to reduce the time it takes for a lead to become a completed transaction.
Sales velocity, which represents that lead-to-closure time, can be a terrific method of understanding data and gaining insights on exactly where to focus improvement efforts.
In the world of physics, velocity and speed are different, because velocity is associated with specific direction. Likewise, sales velocity should be thought of as having direction — the direction that leads to productive, long-term sales relationships. Here’s what you should know about sales velocity and how you can leverage it.
The Sales Velocity Equation
A simple sales velocity equation (and calculator) developed by KiteDesk customer Altify (formerly TAS Group), is defined as follows:
[(number of sales opportunities)×(average deal value)×(win rate)]
/ (length of sales cycle)
One of the biggest insights for sales organizations is the way this equation is structured. Since the number above the line in a common fraction showing how many of the parts indicated by the denominator are taken from, we see that the number of sales opportunities vs average deal value vs your win rate are both interconnected and also relatively constant given history to the business. You’re unlikely to see a Win Rate go from 33% one month to 66% (or 0%, for that matter) to the next.
These numbers are also derivatives of other figures not shown in the equation. For instance, the number of Outbound+Inbound Leads qualified, then passed will equal the total number of sales opportunities. Or the average deal value representing all the various deal terms in aggregate and thus derivative of highs and lows. Or sales cycle, reflecting the longest and shortest deals closed and everything in between. Or win rate, well you get the picture…
Sales Velocity vs. Sales Growth
Pretty much everyone concerns themselves with sales growth– an obviously popular topic (according to Google Trends above)– but also so broad as to be unusable. Sales Velocity, though far less well known as a phrase, especially in light of the equation above, narrows things considerably. This is useful because, as Einstein once said, “If you can’t explain it simply, you don’t understand it well enough.”
So, to simplify, it’s useful to look at the multiple ways that a company can affect sales velocity. It can:
- increase sales opportunities,
- increase deal size to progressive larger deals,
- win more deals, or
- reduce the length of the sales cycle.
Or, it can work on some combination or all of these factors. Each sales organization should also think through sales technologies, processes, and resources required for each variable included in the sales velocity equation.
Sample Sales Velocity Thought Exercise
Take a sample $10 Million company whose sales organization has 1,000 deals active in pipeline at any given time, an average deal size of $10K, a 20% win rate and a sales cycle of almost two and a half months, and ask…
What should they do to move the needle?
Already by focusing on these four areas, you clean up the strategic focus of which aspects of your business to work on, first. Plus, going back to the earlier idea that each of these four values serving as proxies or averages for other inputs, it’s worth knowing what kind of friction or setbacks you might encounter trying to move the needle (by focusing on these different aspects of the sales process).
A Few Ideas
What’s great about the sales velocity formula is how it helps organize thoughts around a few standard observations, running simple equations and allowing for a few thought experiments:
Notice the difference constant improvement brings to our mythical $10M company — nearly 50% growth (47.89%) from simply getting 10% better across the board. A hundred more deals in pipeline at a time, a thousand dollar increase per deal, a 22% win rate (up from 20%) and a sales cycle shrunk by a little over a week. Fairly achievable– and impressive growth!
The power of small, incremental changes can be quite large over time.
In this experiment, the entire focus would be on pulling down the sales cycle as dramatically as possible. Better follow-up and follow-through with deals. Adherence to sales process. Discipline across the board results in shrinking this mythical sales cycle to 45 days– shaving a month off! And a 62% improvement!
*That said, this thought experiment may introduce the most dependencies, as sales cycles are largely determined by customers.
In this scenario, conventional wisdom wins the day… By doubling the number of deals worked, you double revenues (all else constant)! Since the total number of leads qualified, then passed, will equal the total number of sales opportunities, yeah, it really is all about the leads!
100% growth from adding more leads to the top of the funnel.
It all breaks back to the Leads, doesn’t it?
Since sales opportunities are the direct result of Inbound and Outbound tactics on the Sales and Marketing sides of the business, the most obvious path to increasing sales opportunities is in building qualified leads expediently. Using outdated lists won’t help you much. Neither will a hodge-podge of tools.
However, a tool like KiteDesk FIND, which allows you to discover, filter, and save the current sales targets and match them with validated emails, phone numbers, and social media profiles can accomplish amazing things as far as identifying sales opportunities. It works across the web, so you can painlessly discover leads wherever you are online.
Paired with KiteDesk FLOW, which enables choreographed sales steps for each lead — with a requisite number of touches and specific messaging at each step — organized in a single dashboard, inclusive of email, phone, social touches, calendar, ToDo’s and reports may be close to nirvana here.
Lead-to-Opportunity Conversion Rate
Eliminate the leaky funnel!
Optimizing any lead-to-opportunity conversion rate is also critical. And points to the idea that not all leads are created equal. The tighter the fit with your Ideal Customer Profile, the better your CR% will be.
Also, the more thorough your follow-up and follow-through, the less that falls through the cracks. Lead management (at scale) is a hallmark of the KiteDesk FLOW platform.
Average Deal Value
Is your team closing deals large enough to move the needle on sales velocity?
It only makes sense that you want each deal you close to be as substantive as possible. The larger the average size deal you close, the greater your sales velocity. Average deal value is also within the purview of the KiteDesk FIND tool. In addition to helping you discover and qualify leads across the web, it allows you to filter account-based prospecting searches for only companies that meet your size criteria.
Your Win Rate
This is a powerful reflection of selling business outcomes (rather than just a product or service).
Winning the deals that are already in your sales funnel is an important component of your sales velocity. You could have a huge number of “opportunities” (likely produced when you define “leads” loosely) and make your sales activities growth look great, yet those leads could be for deals you don’t stand much chance of winning. KiteDesk FIND can indirectly affect your win rate, by allowing you to zero in on potential customers and deals that are the right fit for both your organizations.
The Length of the Sales Cycle
Of course, the shorter your sales cycle, the greater your sales velocity, all other things being equal. KiteDesk FLOW is designed specifically to help sales professionals make the best possible use of their time. By providing data-driven results, your sales team can engage with the right prospects in a timely fashion, minimizing time-wasters, like inadequately qualified leads or leads that are from companies that aren’t in the ideal size range for your products and services.
Each sales velocity equation component is critical. Choose where to spend your time increasing your own company’s velocity by running the equation on your team. Watch your sales opportunities (leads), average deal value, win rate and sales length benefit.
We invite you to download What the Best Sales Teams Do Differently, which offers additional, helpful insights on how to bring your sales velocity up to the levels you want.
Originally published on the KiteDesk Blog https://www.kitedesk.com/blog/sales-velocity-equation/ in 2016.