Understanding Sales Velocity: A Crucial Metric for Sales Representatives
I love sales because it is the great equalizer in business. Either you get results, or you don’t. However, success isn’t as binary as just closing deals or not. Salespeople are tasked with managing pipelines, nurturing leads, which ultimately drives revenue for their organizations and into commission checks. Amidst this whirlwind of activity, one metric stands out as a beacon of insight: sales velocity.
Sales velocity, simply put, is the rate at which deals move through the sales pipeline. It’s a measure of efficiency and effectiveness, providing valuable feedback on the health of a sales operation. For sales representatives, understanding and optimizing sales velocity can make the difference between hitting targets and falling short. And as leaders, it is the key insight into quarterly and yearly targets. Time and energy are not infinite. If sales are bogged down with slow deals due to poor sales skills, eventually someone will have to answer why targets are being missed. Here are some key reasons sales velocity is critical:
- Insight into Efficiency: Sales velocity provides a clear picture of how efficiently deals are moving through the pipeline. It allows sales teams to identify which stages of the sales process are performing well and which ones may require attention. By understanding where bottlenecks occur, sales reps can streamline their workflows and allocate resources more effectively.
- Forecasting and Planning: Sales velocity serves as a reliable indicator for forecasting future revenue. By analyzing historical data on deal velocity, sales teams can make more accurate predictions about future sales performance. This enables better resource allocation, strategic planning, and goal setting, helping teams stay on track to meet their targets.
- Diagnostic Tool: Tracking sales velocity helps identify inefficiencies and roadblocks in the sales process. Whether it’s a lengthy sales cycle, frequent deal stall points, or high drop-off rates, analyzing velocity metrics can pinpoint areas for improvement. This allows sales teams to address issues proactively, streamline processes, and improve overall performance.
- Customer Experience: Slow-moving sales processes can lead to frustration on the customer’s end, potentially impacting satisfaction and loyalty. By prioritizing speed and responsiveness, sales teams can enhance the overall customer experience. This not only increases the likelihood of closing deals but also fosters long-term relationships and repeat business.
- Maximizing Deal Value: Sales velocity isn’t just about closing deals faster—it’s also about maximizing deal value. By focusing on high-velocity opportunities, sales teams can prioritize deals with the greatest potential for revenue generation. This targeted approach ensures that resources are allocated where they will have the most significant impact, driving both quantity and quality in sales efforts.
All that being said, most sales organizations are dreadful at this metric. And sales people are even worse…just being honest. But the good news is it’s not terribly difficult to track. So here is the formula:
Sales Velocity = # of Opportunities x Average Deal Value x Close Rate / Average Length of Sales Cycle
Here’s an example:
Let’s say last quarter you had 100 opportunities with a deal size of 5k per deal and a win rate of 20%. This is how you calculate your velocity:
100 x $5,000 x 0.20 / 90 = $1,111
So per day a sales person is bringing in $1,111 per day.
Now, salespeople, LISTEN UP. To increase your value, you have control over 2 things. That is the close rate and length of the sales cycle. Both are directly related to your sales skills. So, it stands to reason, if you want to be more valuable to the company (which leads to bigger opportunities) and if you want to increase the value of your bank account, these 2 metrics are your keys to doing so!
There you have it. Whether you are a leader or a sales professional, both need to understand sales velocity. Tony Robbins said it best, money is a measuring stick for the value you bring to the market. So, know what you’re worth and become expensive!
Many people “talk” sales effectiveness, but few have demonstrated the ability to transfer that effectiveness to entire organizations for high impact. For nearly two decades Tony has not only shared his sales strategy to organizations all over the world, but he has consistently created high performing sales cultures that have impacted the bottom line of hundreds of organizations.