Sales velocity - you keep hearing about it, seeing it mentioned, but why should you care?
We should care because ultimately, selling has never been as hard as it is now, and there are only four factors that impact how much you sell. Those factors are:
# Number of Opportunities
$ Average Deal Value
% Average Win Rate
Average Length of Sales Cycle
Now individually, these factors are relatively well known and represent lagging sales metrics that many sales leaders will be measuring. However, when the factors are combined to form an equation, magic starts to happen.
By multiplying number of opportunities, average deal size and average win rate, then dividing the result by length of sales cycle, the result of the equation is sales velocity - the rate at which you generate revenue.
However before we can think about how we use the equation to boost revenue, it is important to understand each lever of sales velocity.
Number of Opportunities
This is the number of active or qualified opportunities within your pipeline, at any given point in time.
Many times, this is the only lever sales leaders focus on because it is one of the easiest to pull. Typically this involves throwing more heads at the problem, increasing SDRs, increasing prospecting activities or boosting marketing budget.
However there are many challenges with this approach:
If companies are simply filling their pipeline with opportunities, there is no guarantee that those opportunities will convert into closed deals.
From a sales and enablement leadership perspective, if we're focusing on just increasing opportunities, it can take bandwidth away from strategies to increase conversion of those opportunities.
Within a challenging economic climate, increasing budgets to deliver more opportunities isn't as easy to do as it may have been in the past. Many companies and reps are paying the price for this now, with multiple lay-offs across the sales function, including the enablement function.
And this is why it is more important than ever to apply appropriate focus to the other levers of sales velocity.
Average Deal Size
Sales reps are finding it more difficult than ever to maintain healthy deal sizes. With buyer's budgets slashed, discounting strategies are playing a more prevalent role during the negotiation stages.
$ Average Deal Size = Total $ Value of Deals Won / Total Number of Deals.
As it is more difficult than ever to find and win deals, it's essential to maintain if not increase the average size of each deal that is won.
Many companies have increased their prices, but have found this to have a detrimental impact on their ability to close deals - i.e. negatively impact their win rate.
Average Win Rate
Often one of the hardest levers to pull, however this can be the single most impactful lever in terms of ROI.
% Average Win Rate = Total Number of Deals Won / Total Number of Deals
Pre-pandemic, buyer CFOs for enterprise organisations may have had a list of 100 projects that required analysis, due diligence and ultimately budget. That list is now down to 20%.
This means that the competitive landscape is continually evolving and many buyers are choosing to 'do nothing'. It also means that sellers are having to compete with spend requirements that have no relation to what they're selling. And this is negatively impacting win rates.
Average Length of Sales Cycle
This is the amount of time it takes for a lead to progress through your sales pipeline. It may be a number of days, weeks, or months.
Average Length of Sales Cycle = Total duration (created to closed) of all deals won / total number of deals
Generally speaking, the the shorter the sales cycle, the more deals can be won within a given period of time.
Sales Velocity Example
Let's apply a level of realism to the equation:
Here we have a business that delivers 750 qualified opportunities within its pipeline, of which 35% close at an average of $120k per deal, and it takes them 6 months to close each one.
Using the equation, this delivers $5.25m sales velocity per month. Annualised, this is $63m in sales revenue per year.
Great, so what?
From a sales perspective, the faster you're generating revenue, the better for your business. With the Sales Velocity equation utilising just four levers, you can focus on the programs and strategies that can have a substantial effect on your revenue performance.
In fact, it is now critical to ensure your sales enablement strategies are aligned to a particular lever of sales velocity, and the impact of the strategy is being predicted and measured.
By recognising the lever that requires the most enhancement or is hindering your performance, you can devise strategies and programs that tie to each specific lever, and ultimately drive significant revenue growth. Incremental adjustments can lead to significant improvements in revenue outcomes.
So when the sales velocity equation is utilised properly, it has the potential to assist organisations in predicting revenue for a designated time frame, devise laser-focused strategies and ultimately deliver revenue.
How do I pull the levers of Sales Velocity?
Read our guide on optimising sales velocity with actionable steps.
At Sales Velocity Labs, we help companies understand and positively impact their sales velocity. Using our unique Sales Velocity Simulator™️ you're able to calculate your sales velocity, define your revenue target, and pull the individual levers of sales velocity to determine the incremental gains you need to find, in order to hit your revenue target.
Our Sales Velocity Diagnostic service goes deeper. Through your CRM data, we will extract your true Sales Velocity benchmarks and provide analysis and actionable insights on:
Sales velocity periodic trends
Drill down analysis of where the bottlenecks are and where short and long term focus is required
Based on your revenue targets, which sales velocity levers you need to pull, when you need to pull them, and how hard you need to pull them in order to hit your targets
We will also deliver a summary of the insights via a sales velocity diagnostic report.
Based on your sales velocity simulation or audit, our Sales Enablement Strategy service is used to define an enablement strategy that is laser-focused on your sales velocity gaps.
Covering the five core pillars of enablement, we will deliver a comprehensive plan covering the key strategic initiatives you need to execute, in order to deliver the highest ROI.
And finally, our Sales Enablement Program Execution service will provide the complete implementation and execution of the programs defined as part of the sales enablement strategy, whether that is our strategy or yours.