Metric of the moment – Sales Velocity, and how to use it to boost sales

There are so many metrics. Today we’re only going to look at Sales Velocity. We like this one because it’s not just the number that’s useful. The entire formula, short as it is, acts like a mini-guide to where you need to put your effort to boost sales. 

Sales Velocity is typically used by companies with sales teams, but there’s an equivalent for self-serve B2B and B2C businesses as well – Revenue Velocity. We’re going to cover both and tell you how to use them. 

What even is Sales Velocity and why should you care

Sales Velocity measures how quickly your business (or your sales team) generates revenue by doing math that focuses on the timing and effectiveness of your sales process. As you’ll see, the numbers tracked as part of Sales Velocity means you can use it to:

• Spot bottlenecks in your sales process
• Guide decisions on how to improve sales performance
• Improve revenue forecasts

This metric is particularly useful for B2B companies with longer sales cycles and higher deal values. There are also B2C businesses that can benefit from it, especially those with products or services that have higher ticket prices and longer consideration periods. Often these are businesses with a digital funnel but a very bricks-and-mortar product – renovations, kitchens, and custom furniture fit into this category.

How to calculate your Sales Velocity

Sales Velocity is calculated from four numbers:

1. Number of Opportunities: All the deals in your pipeline for a given period.
2. Average Deal Value: Total revenue divided by the number of closed deals.
3. Win Rate: The percentage of deals you’ve won out of total opportunities.
4. Length of Sales Cycle: The average time it takes to close a deal.

Here’s the formula:

Sales Velocity = (Number of Opportunities × Average Deal Value × Win Rate) ÷ Length of Sales Cycle

And here’s an example: 

Let’s say last month you had 50 opportunities in your pipeline. Your average deal value was $5,000, your win rate was 20% (not bad), and the average length of your sales cycle was 30 days.

Sales Velocity = (50 × $5,000 × 0.2) ÷ 30 = $1,666.67

This means your sales process is generating $1,666.67 per day in revenue.

Making Sense of the Results

Once you’ve got your Sales Velocity, it’s time to interpret it. Don’t just look at the final number. It won’t mean anything on its own, but it will after a few months of tracking it. What you want to look at is all the numbers laid out in the formula.

A low number might point to specific issues:

• Low Win Rate? Your lead qualification might need work, or your sales team could use more training.
• Long Sales Cycle? Look for ways to streamline your process or implement some automation.
• Few Opportunities? It might be time to boost your marketing efforts.
• Low Average Deal Value? Consider upselling strategies or revisit your pricing.

You can’t improve what you don’t measure. Sales Velocity gives you four components – four numbers – you can work on improving. We can’t tell you which one to work on first. You know your business better than anyone. 

Start with focusing on the component that will have the biggest impact on your Sales Velocity. Set clear goals and track your progress monthly. If you can’t move it, or it stops moving, look at your Sales Velocity equation again and pick the next component you can impact the most. Rinse and repeat.

Revenue Velocity: The Self-Serve Business Equivalent

For self-serve B2B SaaS or B2C e-commerce businesses, “Revenue Velocity” is the equivalent metric. It measures how quickly and efficiently you convert website visitors into paying customers.

The components are similar, but tailored to online businesses:

1. Number of Transactions: Total purchases or signups in a given period
2. Average Transaction Value: Total revenue divided by number of transactions
3. Conversion Rate: Percentage of visitors who make a purchase
4. Time to Purchase: Average time from first interaction to purchase

The formula looks like this:

Revenue Velocity = (Number of Transactions × Average Transaction Value × Conversion Rate) ÷ Time to Purchase

Example: Let’s say last month you had 200 transactions with an average value of $100 each. Your conversion rate was 5%, and it took customers an average of 7 days from their first interaction to purchase:

Revenue Velocity = (200 × $100 × 0.05) ÷ 7 = $142.86

This means your self-serve business generated $142.86 per day in revenue from transactions.

To calculate it, you’ll need to dig into your web analytics and e-commerce platform data. Tools like Google Analytics, combined with your e-commerce platform’s reporting features, can provide most of this information.

Interpreting Revenue Velocity

Just like Sales Velocity, Revenue Velocity gives you four numbers you can work on to improve your sales.

For example, you can:

• Increase traffic through SEO and PPC advertising to boost the number of transactions.
• Optimise your pricing strategy or introduce upsells to improve average transaction value.
• Look at how users interact with your site and run A/B tests to find ways to increase conversation rates
• Use retargeting to reduce the time to purchase.

You will know best what resources you have available and which components will give you the best return on your efforts. Then it’s just a matter of monitoring your progress and moving onto the next component once the gains slow.

The standard “Make numbers go up” process

Whether you’re using Sales Velocity or Revenue Velocity, these metrics can help you select and monitor the facet of your sales process that will give you the biggest boost.

While we’ve already discussed the process (twice), here’s a better outline of what you need to do:

1. Identify your most likely win: Look at each component of the formula and determine which one is going to be easiest to boost and improve your overall velocity. 
2. Set Specific Goals: Once you’ve identified the component to work on, set a concrete, measurable goal for improvement. For example, “Increase win rate from 20% to 25% in the next quarter.”
3. Develop an Action Plan: Create a detailed plan to achieve your goal. For win rate this might involve sales training, process optimisation, or new marketing initiatives.
4. Implement and Monitor: Put your plan into action and closely monitor your progress. Be prepared to adjust your approach based on the results you see.
5. Reassess Regularly: Recalculate your velocity metric monthly and reassess your focus area. As you improve one component, another may become the new priority.

The Bottom Line

Whether you’ve got a sales team or your business is self-serve, Sales Velocity and Revenue Velocity are a simple, easily understood metric that both bring you four levers you can pull to boost your revenue.  

Knowing which levers there are to pull is the most important part of the process and these metrics give you them for free. Everything else is up to you and your team.