7 Thoughts About Sales Velocity
Many people say that the Sales Velocity Equation is the single best metric to use to determine the effectiveness of sales efforts. Let’s explore it.
What is sales velocity?
It’s not that complicated. You take (opps created x ASP x win rate) and divide by sales cycle. It measures how much sales volume you’d expect to produce in a given period of time.
You are taking the volume of your opportunity generation, and then multiplying it by its expected value (ASP * Win Rate), which gives you the expected value for that number of opportunities. And then dividing by sales cycle incorporates how quickly that result will be realized.
The typical units to use are dollars per month. So your if your numbers were
- Opps Created: 100
- ASP: $12,000
- Win Rate: 30%
- Sales Cycle: 2.5 months
Then your sales velocity would be $144,000 per month.
Why’s sales velocity so useful?
It very succinctly tells you where you’re most effective. It’s just one number. But you can apply it against any sales dimension. Meaning, you can look at it for Net New vs. Upsell. Or stack rank industries on their velocity. Or use it to compare sales reps.
This is a huge benefit because otherwise you are battling an army of metrics to assess your performance. And if you have multiple segments, or an Inside team vs. an Enterprise team, it can be challenging to understand which is performing best. For example your Enterprise ASP is likely far larger than Inside, but its sales cycle will be longer and your win rates may be lower. Sales velocity can quickly cut through all that noise and tell you which is the better investment for driving new revenue quickly.
Why else is it good?
It can be broken into components that you can play with. Meaning, you could try a new approach to increase your ASP, and see what happens. The new approach might grow your ASP but shrink your close rate. Or lengthen your sales cycle. But you can start to understand your 4 major levers and get a sense of which are easiest to pull, and how you can grow your velocity most effectively.
Why’s sales velocity sometimes tricky?
Usually sales velocity is a pain to calculate, because there are four components to it. First you need to know number of opps created (that’s not so bad). But then you have to calculate 3 ratios: ASP, Close Rate, and Sales Cycle. Those are tough because they require calculating two numbers each and dividing them to make a ratio. For example, ASP requires you to know the total number of deals won, and the total dollar amount sold, and then divide those two. You have to do that 3 times, and then combine all these metrics together again to get Sales Velocity.
How’s sales velocity usually calculated?
In spreadsheets :( Because of the complexity described above, people usually use spreadsheets so that they can calculate out the ASP, Close Rate and Sales Cycle and then combine them all together. That’s suboptimal because spreadsheets aren’t dynamic. So while you may be able to calculate velocity overall without too much trouble in Excel, if you wanted to look at it by segment or sales rep or some other factor, or over a different period of time, you likely would need to re-do a lot of the math and data downloading.
How does Rekener calculate sales velocity?
Rekener calculates sales velocity automatically. But more importantly, Rekener calculates it in a way that’s dynamic.
This means you can see sales velocity for any of your segments (SMB, Mid-Market, Enterprise. Or you can see sales velocity for different industries. Or by sales rep. Or sales team. Or even by product.
What are the benefits of calculating sales velocity dynamically?
Once you start calculating a metric like this in a dynamic way, you can use it as a powerful focusing and prioritization tool. You can prioritize your efforts on the segments that have the best sales velocity. You can learn from the reps that have the highest velocity, to apply their approach to reps who are not performing as well.
You can understand and improve the components as well. If one rep has better velocity than the others, you can then diagnose why. Maybe their sales cycle is faster or win rate is better. If you can replicate that faster sales cycle or higher win rate in your other reps, the overall sales velocity of the team will improve a lot.
You can also use sales velocity to make sure reps are ramping according to plan. Because sales velocity incorporates information about opp generation, effectiveness of winning deals, as well as ASP and sales cycle, it lets you summarize whether a new rep is on track for a particular point in their ramp. For instance, they may have a low ASP because they've only had time to close small deals, but their opp gen numbers, win rate and sales cycle should be good by the time a new rep is 2 or 3 months into their ramp.
In conclusion, if you're not calculating sales velocity now, you should try it. The benefits are great. And if you struggle putting it together dynamically in spreadsheets -- let us know, we are here to help.
If you’re looking for a platform to help automate your sales rep dashboards and other sales management needs, come check out what your data looks like inside Rekener!
- Request a demo of Rekener's Sales Rep Scorecards application.
- Start a free trial by connecting your Salesforce or HubSpot CRM account.
- What is a Sales Rep Scorecard? Find out here
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Greg is COO and Co-Founder at Rekener. Greg’s entire career has been focused on using BizOps to grow recurring revenue businesses. Before joining Rekener, he served as VP of Operations at ZeroTurnaround, where he built its BizOps practice and team. He did the same for the AVOKE call center analytics business, a SaaS company within BBN Technologies. He got his start in BizOps for recurring revenue businesses while at AppNeta.
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