What Is Sales Velocity: Definition and Formula

Sales velocity is an important marker for sales teams and their organizations. It helps businesses evaluate their sales processes, better understand market performance, and make informed decisions that can position them for future growth. Having a deep understanding of sales velocity and its relevance can mean salespeople have what it takes to boost sales performance—and hit personal and company goals.

What is sales velocity?

Sales velocity is an important metric. It’s the speed at which deals are closed within a set period. This metric helps sales teams quantify the number of sales transactions. It also reflects other factors, such as the overall revenue generated and how long it takes to convert prospects into customers. Measuring and tracking sales velocity can help sales managers know where to tweak elements of the sales processes for optimal results and better predict future sales.

A high sales velocity tells you that your team is converting leads into customers at a quick pace. On the flip side, a low sales velocity can be a sign of stagnation somewhere in the sales pipeline. Understanding (and calculating) sales velocity can help organizations refine their sales strategies and unlock the next stage of growth.

Sales Velocity Formula

The sales velocity formula reflects four essential components:

Number of Opportunities

This metric captures the total number of leads or prospects that enter the sales pipeline during a set period. Tracking this number can help them determine the best steps forward. For example, a rapid increase in queries might suggest a successful marketing campaign or an uptick in demand. These insights might prompt sales teams to place their focus on activities that nurture leads. On the other hand, a decline might call for retooling outreach strategies or product mix.

Average Deal Value

Average deal value is the mean revenue generated from closed deals over a specific period. You can use this number to determine how much revenue each deal typically generates. This is a great way to identify which products or services are most profitable so you can make them the focus. Also, changes in this number can indicate changes in customer preferences or market conditions. Your sales team might need to revisit pricing strategies or promotions.

Win Rate

This is the percentage of closed deals vs. total sales opportunities. You can use this number to better understand how well your sales team is converting leads. A high win rate means your sales team is confident in their tactics and has a keen understanding of customer needs. Also, looking at this number can help you determine which customer demographics are more likely to make a purchase, so you can focus your energies on them. Revisiting and updating this metric can help identify weak areas in the sales process that might make the case for training.

Length of Sales Cycle

As the name suggests, this is the average amount of time it takes to close a deal, from the initial touchpoint to the final sale. Knowing this number helps sales teams tighten up their processes and possibly shorten the sales cycle. In doing so, companies benefit from better cash flow. Sales teams can interact with more prospects within the same timeframe. This analysis can also reveal parts of the process that aren’t efficient enough, so sales teams know what they need to work on to get better results.

The formula to calculate sales velocity is as follows:

Sales Velocity = (The Total Number of Opportunities X Average Deal Value X Win Rate) / Length of Sales Cycle

What is the importance of sales velocity?

The sales velocity figure can call out areas for improvement in the context of the sales process. It’s helpful in that it can reveal insights related to both the speed and effectiveness of the sales strategies in the mix. For example, a slow sales velocity means your sales team needs to work on lead qualification or follow-up.

Sales velocity can also be useful in planning. A reliable sales velocity metric can inform sales projections and help business leaders set reasonable sales targets for the team. Another relevant use case is in inventory management. If they know an influx of sales is coming their way, they better align supply with demand.

Last, sales velocity can help inspire friendly competition among your salespeople. Using sales velocity metrics as their northstar, they can set goals that are reasonable and align with larger company goals. Celebrating wins together can help to create an environment where salespeople aren’t afraid to help one another work towards a shared goal.

5 Steps To Increase Sales Velocity

Sustainable growth starts with improving sales velocity. Sales teams can look to these five steps to increase their sales velocity rate:

1. Streamline the Sales Process

Identify and address bottlenecks in your sales process to shorten the length of the sales cycle. You can use automated tools to handle repetitive tasks that ensure no lead falls through the cracks.

2. Enhance Lead Qualification

Implement a robust lead qualification process that emphasizes high-dollar accounts. This helps the sales team focus their time, energy, and resources on prospects that are more likely to become customers. Lead scoring can be a way to identify and prioritize those that fit with your ideal customer profile.

3. Invest in Training

The best sales teams are cultivated. Extra coaching in the form of mock sales calls, workshops, and other professional development resources can help salespeople feel more confident and improve their closing rates.

4. Utilize Analytics

Use data analytics tools to help you get a more accurate view of your sales performance. In doing so, you might uncover trends and areas for improvement. Key performance indicators (KPIs) such as conversion rates and average deal size can help sales teams make more informed decisions about where and how to approach sales.

5. Foster Collaboration

Encourage communication and collaboration between sales reps and marketing teams. This alignment can help your company produce effective campaigns that result in more qualified leads. Regular meetings and sharing updates can create a sense of shared ownership. Professionals from both teams might feel more engaged and willing to help each other because of this positive culture.

Beyond these five steps, company leaders should take into account how customer feedback can help improve sales numbers. Asking them for feedback right after a purchase can help you understand their motivations and how you can best meet their needs. This is also a good time to ask for reviews and generate referrals, factors that put you on the right track for improved sales velocity.

Last, keeping the customer at the center of the interaction can positively impact sales velocity. When sales teams take the time to really listen to their customers, they can craft a sales pitch that’s more likely to stick the landing. Plus, in doing so, they can build trust and strengthen customer loyalty, both necessary ingredients for landing repeat business and upselling at checkout. Many organizations invest in customer relationship management (CRM) tools to track these interactions and help sales teams present a more engaging and personalized experience.

Sales Pipeline Velocity

By definition, sales pipeline velocity follows the movement and conversion of leads within the sales pipeline. Sales managers need to monitor velocity to confirm if leads are moving along through the sales funnel without issue.

A pipeline velocity analysis is a way to determine at which stage potential deals are slowing down and why. From here, sales managers can intervene so that both the sales pipeline and sales velocity are healthy.

It can be helpful to get a feel for the average deal size as you look into your sales velocity. More substantial deals can take longer to complete, slowing down your overall pipeline. That’s why segmentation by size can help your sales team work smarter. They can set their sights on the big fish to maximize revenue. Additionally, when you calculate the average sales cycle length for different types of deals, it can help you better plan. Some deals, by their nature, will take longer to close but have a big payoff.

Last, technology can be a differentiator when trying to calculate and speed up sales pipeline velocity. Sales teams can find value in Customer Relationship Management (CRM) systems, which present helpful insights related to pipeline performance. They can spot lags in the sales funnel and make changes to get back on track.

Automation tools can give sales representatives an edge in that they have more time to focus on tasks that bring in the most money, such as strategic lead nurturing and closing deals. These platforms help them work more efficiently and create a more resilient sales process that meets changing market conditions and customer needs.

Other Analytics You Should Know To Strengthen Your Business

The velocity equation is important, but there are other ways to measure and track sales efforts, too. They include:

Customer Acquisition Cost (CAC)

Understanding how much it costs to land a new customer is important. This background can help sales reps set and maintain a realistic budget and track ROI. You don’t want to throw good money after bad, as the saying goes.

Customer Lifetime Value (CLV)

This numeric value represents the total revenue expected from a customer over their relationship with your business. A high CLV means the customer is loyal and/or spends a lot each time they make a purchase.

Average Sales Cycle Length

Getting familiar with this metric can help sales reps set realistic goals by looking at how long it takes for a sale to complete from start to finish.

Churn Rate

Logging customer retention rates and how often they churn can reveal truths related to customer satisfaction and how well sales reps follow up.

Supercharge Your Sales Velocity With Podium

By studying these metrics alongside sales velocity, sales teams can refine and optimize their processes to achieve the best outcomes possible. Luckily, you don’t have to go it alone and hope for the best. Podium offers an all-in-one solution that is effective in lead generation and helps your sales reps generate high-value leads that help them succeed in the long run.

Podium clients have reported an increase in leads, customers, and net profits can be linked to using the right data-driven platform. Podium offers an unparalleled advantage by ensuring sales teams can respond to leads within a couple of minutes or less. Watch a demo and see how Podium can help you finish 2024 on a strong note.