Editor's note: This is a guest post by Kevin Dewalt at MadKudu.
One hundred years ago, John Wanamaker was credited with saying, “Half the money I spend on advertising [marketing] is wasted; the trouble is I don't know which half." Those days are long, long gone. Marketing is now one of the most data-driven activities in any business.
Unfortunately, sales hasn’t evolved as quickly. Too many sales teams are managed with the same simple metrics like calls-per-day and quotas that Mr. Wanamaker used. These metrics are fine for calculating commissions, but they don’t help improve overall sales productivity.
Sales Velocity is gaining popularity as a management metric because it considers other factors like pricing, trial length, and features to measure sales productivity.
In this post, we show you how to measure your Sales Velocity and use it to accelerate sales.
How to measure your Sales Velocity
The definition of Sales Velocity is the speed at which your team is making money. If normal velocity is “miles-per-hour” you can think of sales velocity as “money-per-month”.
To calculate your sales velocity, multiply the number leads (#) by your average deal size ($) and by your conversion rate (%), then divide the result by your average conversion time (T).
The 4 Sales Velocity variables
Let’s take a closer look at the 4 variables that make up this sales velocity equation.
# The number of leads a sales team can work over a period of time. Typical results are ~200 leads/month per rep, although this can vary widely depending on the complexity and price of your product. For the number of leads specific for your company, calculate your Pipeline Volume vs Goal.
$ The average deal size (sometimes called Average Purchase Value). This is simply the average selling price for the deals you closed in a given month. For a subscription product, it will be Average Customer Lifetime Value.
% Conversion rate, the percentage of leads that convert to paying customers in a given month. 2-3% is a typical conversion rate from Marketing Qualified Lead (MQL) to deal depending on your sales workflow. There’s more detail here on MQL to Sales Qualified Lead (SQL) conversion rates and SQL to deal conversion rates.
T The average time for conversion measured in months. This metric is often referred to as Average Sales Cycle Length. Typical results are 1-2 months for a product with a free trial.
The Sales velocity variables are interdependent. For instance, raising prices increases Average Deal Size ($) but normally reduces Conversion Rates (%) as fewer customers opt for higher prices.
Changes in Sales Velocity are more important than the value itself
Sales Velocity is most useful for measuring the impact of changes. Knowing your Sales Velocity is $75k/month/rep doesn’t reveal much.
But suppose you replace your 30-day free trial with a 15-day free trial and your Sales Velocity increases by $5K/rep. You can conclude the trial changes made your sales operations more productive.
Consistency matters when calculating Sales Velocity variables
You have different ways to calculate these variables. For instance, measuring the average time for conversion (T) requires a starting moment for each sale. But when does the sale process begin? When you create the Lead in your CRM? First outreach? Successful qualification call?
It doesn’t matter as long as you consistently measure it each month since we’re most interested in changes to Sales Velocity.
Measure Sales Velocity across customer cohorts
You can use Sales Velocity to measure sales productivity across different customer cohorts such as geography, industry, product or deal size.
The results can help sales managers identify opportunities to re-segment sales rep responsibilities or add reps to address the most promising regions, products or industries.
How to use Sales Velocity to accelerate mid-market deals
Suppose you want to measure and customize your sales operations for different deal sizes. You can start by segmenting leads into large, medium, or small deals and measuring Sales Velocity on each.
To simplify our segmentation, we assume that companies with more employees will sign bigger deals.
|Customer segment||No. of Employees|
|Medium||25 - 1,000|
We then calculate Sales Velocity for each segment over a month. Here are typical results we see from B2B SaaS customers.
Let’s see what we can observe from this data.
First, we can ignore the Small market segment since the size of the contract is too small to support a sales team. We’ll let marketing and product automation handle this segment.
Most interesting is (T), Average time to Close. It is 1.7 for both Medium and Large deals. Intuitively, we would expect Medium deals to close faster since smaller companies have fewer stakeholders and can make decisions faster.
Closing Medium deals faster looks like a good opportunity to increase our Sales Velocity.
This is a typical result and is confirmed by our sales research.
MadKudu analyzed the Sales Velocity of 45,000 Marketing Qualified Leads (MQLs) for 9 representative SaaS companies. Based on these results, the most immediate way for SaaS companies to increase monthly recurring revenue is by closing mid-market deals faster. We advise setting up a separate, high-velocity sales closing workflow that targets mid-market leads who are ready to buy now.
Build a high-velocity sales operations to close Mid-market deals faster
Mid-market deals are a dilemma for sales teams - big enough to warrant some attention from sales but too small for typical sales engagement. This is where we find the biggest opportunity for using data.
Begin tracking average conversion time (T) for Medium deals and see if changes to your sales operations lower conversion time (T) and increase Sales Velocity.
Common steps we recommend are:
- Dedicate 1 sales rep to this segment. Train the rep to close these deals in a single call.
- Use marketing automation to get Medium companies to self-schedule sales calls.
- Identify Medium companies who are ready to buy based on product usage and have reps to work them first.
- Create early-closing incentives (discounts, bonus features, etc.) for customers who are ready to buy now and train your reps to use them during closing calls.
Data-driven sales can be your edge
Over the next 10 years, sales will undergo the same transition that happened in marketing: migrating from managing activity to managing results with data. If you’re still measuring and managing your sales team using quotas and activity, you can begin this transition by measuring productivity with the Sales Velocity equation.
Visualize your sales metrics
One of the best ways to track your sales velocity is to visualize the data on a TV dashboard. Get inspired with one of our sales dashboard examples. Having your sales metrics visible at a glance will focus and motivate your team to reach their goals.
MadKudu does predictive lead scoring for B2B SaaS sales teams. The software uses your existing sales & marketing data to identify your best leads and help your reps close them faster.