What is Sales Velocity?
Sales velocity is the speed at which deals move through your pipeline and start to generate revenue. A sales velocity equation or formula uses four metrics to help organizations calculate their own sales velocity. These include:
- Number of opportunities
- Average deal value
- Win rate percentage
- Length of the sales cycle
Sales velocity vs deal velocity – what’s the difference?
Deal velocity is how long it takes a deal to get through the sales cycle. Deal velocity is typically measured in number of days and average deal value. Effectively, it’s the same thing as average sales cycle length.
The sales velocity equation, or formula, however, is different. It uses four KPIs, also known as the sales velocity formula, as levers for the same given period.
How does the sales velocity formula work?
Simply put, the higher the sales velocity, the better.
Since the sales velocity equation uses only four levers, you can quickly zero in on the strategies and activities that can significantly impact your sales effectiveness.
Once you identify the lever where your performance lags or needs the most improvement, you can redefine targets and goals that yield significant revenue increases. We know that dramatic improvements to sales velocity and overall revenue are possible with simple changes. If you increase levers one, two, and three by 10% and reduce four by 10%, you increase your sales velocity by 47%.
Why does sales velocity matter?
When used correctly, this formula can help organizations with their sales forecasting for a specific period of time and bolster their sales efforts. It also allows sales leaders to measure impact and make adjustments using the four levers, enabling them to create effective strategies to improve revenue growth.
As sales leaders become more adept at the sales velocity formula, and capturing data, they can measure how quickly their business is moving forward, and achieving its growth targets.
Biggest Benefits of Using the Sales Velocity Equation
There are several benefits to using a sales velocity formula, and many organizations consider it their most important metric. From helping leaders define areas of focus, to helping sellers meet realistic quotas, the sales velocity equation is integral to your team’s success. Those teams that use it will consistently outperform disjointed teams working with no baseline.
Sales velocity to set sales targets
Making sales velocity an integral metric for your organization enables you to see your team’s achievements aligned with their individual goals, to ensure that individually and as a team success is being recognized.
Another beautiful aspect of the sales velocity formula is its ability to help sellers achieve targets. When you know your sales velocity, you also know what an achievable quota looks like. No more need to sandbag – everything is transparent and all sellers know what is expected from them.
In addition to setting realistic goals, leadership can also set stretch goals – creating harmony between what the team can do and what each individual seller can do.
And because you can adjust the levers, you can underperform in one area, adjust the other KPIs, and still prosper.
Further benefits of the sales velocity formula include:
- Gives a solid understanding of what needs to be done to meet sales goals
- Helps teams to avoid surprises – the kryptonite of sales leaders
- Pinpoints where to go by using a baseline to start with
- Leads to increases in sales process efficiencies
- Helps identify areas where potential headcount could be used
- Underscores alignment or misalignment with product and pricing
Sales Velocity – Four Levers to Success
Velocity is the speed of something moving in any given direction. At Upland Altify, we think about velocity a lot. So much so that we created this sales velocity equation to get sales teams moving in the right direction. That direction is revenue. How fast you get there depends on four key levers.
One of the biggest advantages of knowing and understanding your sales velocity is due to its ability to enable you to home-in on what’s working and what isn’t. As you work through your business’s sales velocity levers, you will hone in on exactly the metric you want to switch on and off.
- Number of opportunities: increase overall number of deals that you are likely to win.
- Deal value: prioritize higher value opportunities.
- Win rate: focus on process and methodology to increase win rate.
- Length of the sales cycle: a successful opportunity management methodology helps close good deals quickly while weeding bad ones out early in the process.
Sales Velocity Lever 1: Increase the Number of Deals You Can Win
Notice we have changed the number of opportunities to increase the number of deals you can win. For many salespeople, increasing the number of opportunities is the only lever that gets any real attention. The problem is that if you focus most of your time on filling the pipeline, you’ve got less time to increase the chance of winning the deals you already have in your funnel.
How can you increase the number of deals you can win? By being ruthless in the deal qualification stage. Rigorous qualification gives you a ticket to sales velocity town, population one.
By helping sales teams connect with the people that matter and focusing on selling value, Autodesk achieved an increase of 144% in average deal size, a 21% increase in win rate, and an overall enhanced sales velocity.
Sales Velocity Lever 2: Increase the Deal Size
Companies are fighting harder than ever to win deals. That makes it essential to win as many contracts as possible and maximize each opportunity. Sellers need to focus on higher-value opportunities by aggressively qualifying out lesser qualified opportunities to provide focus. Aligning each specific offer with your buyer’s needs and presenting the right product at the right time is an essential part of great selling, helping you to uncover whitespace and encourage your salespeople to create the largest possible account footprint.
Sales Velocity Lever 3: Increase the Win Rate
How do I increase my win rate?
Through a thoughtful, defined sales process. Methodology and process are different. Methodology is the analysis of where you are in a deal vs. the competition. It’s a deductive framework your team consults whenever you learn something new and vital about your contract. Sales process is a defined set of steps aligned to how your customers want to buy and what you should do next. This process must be linear, prescriptive, and standardized throughout your sales team. Combining both of these elements together will make sure you achieve the win rates you are after.
Sales Velocity Lever 4: Shorten the Sales Cycle
A more rigorous approach to the selling cycle will efficiently align your company’s sales process with your prospect’s buying process. A successful opportunity management methodology ensures your team works on deals they are more likely to win, so sellers don’t waste time on opportunities that shouldn’t be in your wheelhouse. You can underperform in one of the first three factors and still prosper. But if the length of your average sales cycle suffers, success becomes very difficult. That means closing good deals as soon as possible and weeding out bad deals early in the process is crucial to sales effectiveness.
Which of the four sales velocity levers is easiest to tweak to overcome sales challenges?
Sales cycle length and number of opportunities are the things sales leaders have the most control of, and are often the easiest to tweak. There are different strategies they can use in order to cut down on sales length, as well as tactics to boost number of opportunities during a specific timeframe.
However, the two levers that are much harder to impact are deal size and win rate. Part of the blame for the challenge in impacting those two levers lies in the uncertain economic situation we find ourselves in. Uncertainty also equates to deal uncertainty – hiring freezes, budget cuts – all of these things impact sellers as they look to close deals on time.
Ultimately, the variability of win rates also impacts average deal size. As sellers big whale deals take unexpected twists and turns, sellers are going to look towards smaller deals to make ends meet, driving down that deal size and ultimately inhibiting sales velocity.
How can sellers deal with uncertainty to help increase deal size?
In part, it’s through focusing on the relationship, and ensuring good account planning practices. By always putting the relationship first, sellers can make sure that they are the first to get the call when the opportunity arises. This way, those deals that are on hold come back down the line.
Qualifying out or in early increases win rate
We’ve talked about qualification a lot so far in regards to sales velocity, but it bears repeating here in the context of win rates. Sellers can greatly impact their win rate by adopting a robust qualification process.
As Bart Fanelli, Founder & Global GTM Executive, said in a recent webinar: “It’s all about qualifying out. Do you have the right problem that you’re solving? Do you have the right champion that agrees and that is shepherding you through the process in the organization you’re selling to? If not, you need to exit.”
At the end of the day, organizations that seek to win four out of seven deals are far more successful than those who chase every deal and end up winning a mere three out of ten.
Avoid These Sales Behaviors to overcome challenges to sales velocity
Sales management reinforces bad behaviors that drive sales inefficiency by primarily measuring on ‘sales activity.’ They ask questions like ‘how many calls did you make this week? ‘or ‘how many opportunities did you add to your pipeline last month?’
Consciously removing them will improve sales velocity without adding a single deal to the pipeline.
From the salesperson’s perspective, in many ways adding new opportunities to the sales funnel is the easiest thing to do, especially if you are being given low-quality leads from those dastardly marketing folks. All sellers have used these excuses from time to time:
- No one said they had to be qualified. Early qualification would only reduce the size of the pipeline.
- No one said they had to be deals that you actually have a chance of winning?
- You didn’t need to challenge the prospect to uncover how you could really add value (removing price sensitivity and improving your average deal size).
- There was no need to ask the tough questions to understand the customer’s buying process so that you could align your selling activity or negotiate access to the real decision-makers to increase your win rate.
- And you didn’t need to take control of the sale or agree on a joint selling/buying plan with the prospect, where you could, in fact, guide the progress and shorten the sales cycle.
Apply the Equation for Success
Of course, we understand the need to continually add new opportunities to your pipeline but indulge us for a minute. What happens if you don’t add new opportunities? Does it mean your sales velocity grinds to a halt? Well, not necessarily. Think about this:
If we apply the Sales Velocity Equation and assume that the number of opportunities stays static but that you manage to increase the average deal size and win rate by 10% and reduce the sales cycle’s length by 10%, your sales velocity would improve by 34%.
So, we would like to give you a challenge. Calculate your own sales velocity, and then ask yourself what you can do with the deals you have in your pipeline to impact your deal size, win rate, and sales cycle duration. You might be surprised at the results.