What is sales velocity?
Sales velocity measures how quickly your business is earning money. More specifically, it reveals how much revenue a sales team generates every day. An individual sales rep might deliver an average of $2,000 in daily revenue to a business, while an entire team might generate an average of $50,000.
The sales velocity formula combines various elements of sales team performance to measure average daily revenue accurately.
Why you should be measuring it
Sales velocity can offer a ton of different insights. Because it allows you to measure how fast you’re generating money, it can help you accurately forecast revenue. If you assume no other changes will occur in your business, you can simply multiply your sales velocity by the number of days remaining in the year to calculate how much more revenue you will generate before the year’s end.
Or, if you expect to increase your number of opportunities by 30% due to SDR hiring, for example, you can easily adjust the sales velocity calculation for a more accurate forecast.
Sales velocity is also a useful metric for benchmarking your return on investment for your sales team. For example, you might want your AEs’ benchmark to be double the cost of their employment.
You can also use sales velocity to compare the performance of different sellers, teams, regional offices, and channels.
How to calculate sales velocity
To calculate your sales velocity, you’ll need data on these 4 factors:
Number of opportunities: The number of qualified leads that come into your pipeline.
Average deal value: How much revenue you generate from the first contract with new customers, on average.
Win rate: Your closing ratio (for example, 25% closing ratio would be 0.25).
Length of sales cycle: On average, how long it takes from the time someone becomes a qualified lead to the time they become a paying customer.
Plug these 4 factors into the sales velocity formula like so:
{Number of Opportunities X Average Deal Value X Win Rate} / Length of Sales Cycle
Example calculations
Formulas are important, but they don’t give you a sense for what you can really measure. For that, you need examples.
We’ve created 3 different examples to help you understand the different kinds of insights this metric has to offer.
Example 1: Individual contribution
Let’s say you want to evaluate your own individual sales velocity for Q3.
Number of opportunities: You’ll need to tally up the number of opportunities you had that quarter (ex: 100).
Average deal value: You can use your own average deal size over the course of the quarter, or use your company’s average deal size if you don’t have that available. (ex: $5,000).
Win rate: If the metric is available, use your own win rate for the quarter. If not, you can use your sales team’s average win rate. (ex: 20%)
Length of sales cycle: Your average sales cycle is best measured on an annual basis rather than a quarterly basis for accuracy, so go ahead and use your typical average sales cycle. (ex: 90 days)
The final calculation:
{100 x $5,000 x 0.20} / 90 = $1,111
This means you’re bringing your company $1,111 per day every day on average (including weekends).
Example 2: Regional team
Now, let’s say you want to measure the sales velocity of a regional team over the past year.
Number of opportunities: Determine the total number of opportunities for the entire team over the past 12 months (ex: 2,500).
Average deal value: Now discover your average deal size over the past 12 months (ex: $6,500).
Win rate: Tally up the win rate for that regional team for the past 12 months. (ex: 18%)
Length of sales cycle: Now determine the length of the sales cycle for that particular team over the past 12 months (ex: 105 days)
The final calculation:
2,500 x $6,500 x 0.18} / 105 = $27,857
The team is bringing in $27,857 every day on average, which adds up to almost $10 million per year.
This metric is helpful for understanding team success because the size of the team isn’t a factor. What matters is the results. You could compare that sales team’s sales velocity with the sales velocity of another team to identify which team needs better training or processes.
Example 3: Channel success
For our last example, let’s take a look at the sales velocity of all inbound channels for the entire sales team over the past 12 months.
Number of opportunities: Calculate the number of opportunities that came from inbound over the past 12 months. (ex: 4,000)
Average deal value: Calculate the average deal size of all closed opportunities that came from inbound over the past 12 months. (ex: $3,700)
Win rate: Calculate your sales team’s average win rate for inbound opportunities over the past 12 months. (ex: 25%)
Length of sales cycle: Determine the average sales cycle length for inbound leads specifically over the past month. (ex: 65 days)
The final calculation:
{4,000 x $3,700 x 0.25} / 65 = $56,923
This would mean that your sales team is generating an average of $56,923 every day with inbound leads (or over $20 million per year).
You could compare the success of all inbound channels with the success of all outbound channels by calculating sales velocity for outbound and seeing which number is higher. For most companies, the inbound channel will have a greater sales velocity because leads are more likely to convert (and convert faster). You could use this comparison to help the marketing team make a case for a bigger budget for inbound marketing. Or, this comparison might inspire you to innovate ways to make the outbound sales process feel more inbound, such as with better resources, more informative proposals, or more hands-on conversational marketing.
You could also break your comparison down even further and gauge the sales velocity from specific inbound channels (such as the blog VS webinars) so that you can discover which channel is producing the hottest leads—and then invest more into it.
How to manage and improve sales velocity
A higher sales velocity means that your company is making more money from the efforts of your sales team and thus has a better chance of staying healthy and profitable in the long run.
To improve your sales velocity, you need to improve the 4 factors that go into the metric (opportunities, deal size, win rate, and sales cycle).
Increase the number of opportunities
The opportunities that come into your pipeline have a big impact on your sales velocity. As a salesperson, here’s what you can do to get more opportunities:
Send more cold pitches.
Make more cold calls.
Advocate for a higher marketing budget in channels that work.
Raise your average deal value
When you raise your average deal size, you’ll generate more revenue on a daily and monthly basis. Try these tips:
Sell more upsells and add-ons with dynamic pricing in your proposals.
Use a “land and expand” model and include the customer’s second and higher purchase in your average deal size calculation.
Spend more of your time on higher quality, upmarket leads.
Bump up your win rate
One of the best ways to improve your sales velocity is to increase your conversion rate. Here are some tips to try:
Identify the lead’s core goals and problems and organize the entire buying experience around them.
Use proposal software that makes deals more likely to close with content templates and snippets, dynamic pricing, and esignatures.
Use account-based selling techniques like gifts, virtual event invitations, and personalized messaging.
Shorten your average sales cycle
By shortening your average sales cycle, you’ll dramatically increase the average amount of revenue you’re earning each day. Here’s how:
Let go of deals that are taking too long.
Identify the requirements and expectations of all decision-makers as early in the process as possible.
Do better initial discovery to handle objections before they occur.
The higher your sales velocity, the healthier your business.
Ready to power up your sales process with proposals that are designed to close? Check out Proposify.
