How to Increase Your Sales By 50% In These 4 Steps
When, two years ago, Mark Roberge published his bestselling book “The Sales Acceleration Formula” and told the world there is a real formula for achieving scalable revenue growth, it fell on deaf ears.
Many startups go bust every day because they fail to scale. And people still question whether sales can even be taught — because it’s an art, not science, according to many. But Mark has led the software company HubSpot from 1 to 450 employees and grew its revenue from $0 to $900 million by using a unique methodology that is entirely metrics-driven and process-oriented. Balancing four main aspects: Sales Hiring, Sales Training, Sales Management, and Demand-Generation Formulas he proved that there is a process that can be replicated and that sales can be predictable.
While we haven’t hit $900 million in revenue just yet, data-driven sales are at the core of what we do. At Teamgate, we put to practice the metrics-driven, process-oriented approach to selling that Mark is talking about in his book. So we thought we’d share our insights into one particularly interesting sales formula — the Sales Velocity Equation.
In this post, we unravel the details of this management metric and explain to you how to use sales velocity to accelerate your sales.
What is sales velocity?
Simply put, sales velocity is a marketing and sales metric used to measure the speed at which opportunities and leads turn into revenue, month over month. While normal velocity can be described as “miles-per-hour”, sales velocity represents “revenue-per-month”. Calculating sales velocity is one of the most illuminating ways of seeing how fast your sales team is making money and which levers need to be pulled to accelerate the speed.
There are 4 main factors that significantly impact how much you sell:
- the number of leads,
- the average deal size,
- your conversion rate,
- the length of your sales cycle.
Let’s dive a little deeper into these 4 variables to better understand the sales velocity equation.
The 4 sales velocity variables and how to calculate them
The formula for calculating sales velocity is pretty straightforward: multiply the number of leads (#) by your average deal size ($) and your win/conversion rate (%), then divide the result by the length of your sales cycle (average conversion time).
The number of leads (#). This is simply the number of leads your sales team works over a period of time. The number of new leads in your pipeline is directly influenced by the efforts of your marketing team and other lead generation tactics (lead nurturing, referrals, etc.).
Average deal size ($). Also known as Average Purchase Value or Average Customer Lifetime Value in subscription-based business models, average deal size is a metric that refers to the average selling price per closed deals over a set period of time.
Win/conversion rate (%). Conversion rate refers to the percentage of leads that convert into paying customers over a set period of time. You can calculate your conversion rate by simply taking the total number of conversions over a set period of time and dividing that by the total number of leads over the same period.
The length of the sales cycle. It can also be referred to as the average conversion time. This metric measures the amount of time from the first touch point with a prospect to conversion averaged across all won deals. It is typically measured in months.
It is important to understand that these 4 variables have a significant impact on sales velocity in general but are also interdependent, meaning that changing one variable will most likely affect the others too. For example, increasing your prices can lead to higher Average Deal Size but lower Conversion rate because fewer people will be prepared to spend more.
Another critical thing to take into account when calculating sales velocity variables is consistency. There are different ways you can go about measuring these metrics, but once you decide on it, it’s key to always stick to the same formula. For instance, if you measure the average length of your sales cycle from the moment the lead is qualified, then use this same method every time you calculate sales velocity. It will help you maintain a good level of consistency and avoid unnecessary confusion in the future.
Learn the rest how to calculate your company’s sales velocity and more on each variables at Teamgate Blog.