How to Calculate Your Channel Velocity Rate (and What It Really Means)

Over the last several years, and especially since the onset of the “subscription-as-a-service” economy, we’ve seen an onslaught of new metrics and KPIs by which executives are tracking not only the growth of their business, but also just as importantly, the speed at which it’s growing. Why, you ask? Well, because revenue growth itself is actually a trailing indicator of success — how you did, not how you’re going to do. And it’s the latter that really tells your key stakeholders, both internal or external, the health of the business.

Two of the most popular modern-day metrics — both of which sound like they’re coming straight out of a physics class — are lead velocity rate and sales velocity rate, the first of which measures your business’s growth in terms of qualified leads, while the latter looks more closely at sales revenue. Here’s how they look on paper:

Simple, right? And important. In fact, well-known SaaS entrepreneur and venture capitalist Jason Lemkin once called lead velocity rate “the single most important metric in SaaS” because it’s real-time rather than lagging, it can help you more clearly predict revenue, and it can act as a critical KPI for helping your long-term sales, marketing, and even product strategies. In other words, it lets you “see the future.”

So, suffice to say, that got me thinking: If sales and lead velocity rate are such critical, future-telling growth KPIs; and if metrics like closed deals, Q/Q and Y/Y growth, and revenue are all lagging; and if for decade upon decade, businesses with channel partner programs have struggled mightily to measure the effectiveness of their channel sales and marketing (and now customer success) activities, why don’t we come up with a metric based on sales and lead velocity rate to help executives and channel leaders gain a clear and concise understanding of exactly how their channel partner programs are performing.

So, we did. We’ve named it “channel velocity rate” (CVR) to no big surprise. And it’s really not that complicated when you think about it.

What Is Channel Velocity Rate?

First and foremost, let’s talk about what CVR isn’t. It’s not a measurement of how many partners have logged into your portal this month. It doesn’t tell you who has or who hasn’t logged in. It doesn’t tell you how many emails a partner has sent, how many InMails they’ve attempted, or how many calls they’ve made. And it definitely, absolutely, 110 percent does not tell you who earned the most SPIFFs, who spent the most MDF or co-op dollars on USB sticks and ballpoint pens, or who earned a 10/10 on a quiz last month.

In fact, it lets you do away with all of the mundane, ineffective, outdated KPIs the channel has been forced to rely on for decades and instead replaces them with a single, consistent formula for setting growth targets and measuring both lead generation and sales effectiveness — spanning as wide as your entire channel program or as narrow as an individual channel manager, channel partner, or partner sales rep.

But enough talk. Here’s how can you start measuring channel velocity rate right this very minute.

The Channel Velocity Rate Formula

So we now know what channel velocity is and isn’t, let’s talk about how to calculate it and dig into the key levers in the equation:

• Active Partners Rate: One of the most critical levers to channel success is and always has been “partner engagement” — your ability to get your partners and their sales reps engaged in the sales and marketing of your solution. In today’s world of partner personas and highly targeted recruitment, however, we think less about the NUMBER of partners engaged and more about the PERCENTAGE of partners engaged, whereby quality is more important than quantity, and the 20/80 rule is no longer acceptable.
• Registered Deals and Referrals: Plain and simple, this refers to the total number of sales-accepted, qualified deals and referrals that have been registered in your system. To effectively measure channel velocity rate, we recommend NOT including any deals, referrals, or other opportunities that have not been registered, as they do not appropriately reflect the type of engagement you’re looking for from your partners and should be discounted from the overall totals.
• Average Deal Size: This is another easy and straightforward number you should be able to pull from your channel sales software to determine the average dollars that have been attached to each deal. For companies with larger deal sizes (5–9 figures), we recommend denoting numbers in thousands, hundreds of thousands, or millions. For example, $155,250 should be denoted as $1.55.
• Close Rate: This represents the number of deals in your channel pipeline that have been marked as “Closed-Won” or “Won.” Oftentimes, as the number of deals in your pipeline increases, you may see your close rate decrease. However, if you’re able to increase the number of deals while also maintaining or increasing the close rate, you can be confident that the training, enablement, and other resources you’re providing to your partners are having a positive impact
• Days in Pipeline (Sales Cycle): One of the most critical data points for measuring channel velocity rate and the controlling denominator of the entire formula is the length of your sales cycle — or days in pipeline. All too often in the channel, deals are registered and then left for dead, thereby remaining untouched by both the partner and vendor rep for days, weeks, or months. Keeping a close eye on how long a deal has been in your channel pipeline and the length of your channel sales cycle helps you gain a stronger foothold on the performance of your entire channel and continuously optimize to improve your CVR.

As you can see, channel velocity rate more closely resembles sales velocity rate than it does lead velocity rate in that it focuses on multiple variables within your channel sales and marketing activities, rather than simply qualified leads, which are much more difficult to measure and oftentimes much less accurate in the channel. Meanwhile, data points such as active partners, registered deals, average deal size, win rate, and length of sales cycle should be ready and available to easily report on if you’re using the right software for your channel.

CVR as a Continuing Indicator of Health

Knowing how to calculate your channel velocity rate is only part of its overall value. Knowing how to use it to improve the performance of your channel partners and the individual levers that optimize your overall score is just as, if not even more, valuable.

Tracking and plotting your channel velocity rate on a monthly, weekly, or even daily basis provides you with a proven, effective, and consistent metric by which to monitor and report on the overall health of your channel partner program as long as you have the data. If you don’t have a system or the resources to automatically provide them, here’s an Excel spreadsheet I’ve put together to help you at least get started with a manual process that you can eventually automate with a partner sales acceleration platform such as Allbound.

Tracking the Velocity of Individual Partners

One of my favorite things about channel velocity rate is its flexibility. It is a great tool to measure the effectiveness of not only your overall channel, but also your individual partners simply by drilling a little further into your data. We call it partner velocity rate, and here’s how it looks:

To start with, rather than measuring the number of active and total partners in your channel, partner velocity rate takes into account the number of active and total sales reps at an individual partner. Then, it uses that individual partner’s data for registered deals and referrals, average deal size, close rate, and days in pipeline.

By tracking and plotting the velocity rate of each of your partners, you can immediately start zeroing in on and improving the performance of individual partners and even their individual sales reps to help improve your overall channel velocity rate.

Is CVR the Holy Grail of the Channel?

Well, plain and simple, the answer to that question is unfortunately “no.” Like most anything in business, channel velocity rate is just one of many factors that — when used strategically or combined with other tactics, data points, and strategies — can have a dramatic impact on your business. But when it comes to the channel, not only is CVRe (and partner velocity rate) a hugely improved and more accurate indicator of your channel program’s growth, but it’s also the first data point to help you predict growth, measure it, and make sure you’ve got the data, knowledge, and resources to be doing more of it in the future.

And boy, oh boy, will your boss’s boss be happy to hear that.

Originally published at www.allbound.com.