Sales Velocity: A Calculator, Guide, and Formula

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Exploring Sales Velocity & Its Significance

Succeeding in sales isn’t just about closing deals—it’s about doing so as quickly and efficiently as possible. That’s what makes tracking sales velocity so crucial for accurately assessing your sales team’s performance.

How do you calculate and track sales velocity? What do you risk by not keeping an eye on this metric? And how does it differ from other sales metrics focusing on speed and efficiency?

Those are the questions we’ll answer in this concise guide. By the end, you’ll know the essential information about sales velocity and how to use it to fuel your company’s success, in addition to understanding how to utilize 6sense’s Sales Velocity Calculator featured above this guide.

First, let’s establish a shared definition of sales velocity so we’re all on the same page!

What Is Sales Velocity?

Sales velocity is a key performance metric to gauge how quickly and efficiently a company can turn potential leads into paying customers. It tells you how well your sales team performs and whether your revenue generation methods function efficiently.

For example, you may discover that your sales cycle is longer than expected by tracking sales velocity. Identifying these areas for improvement can be a game-changer for your business, potentially leading to increased revenue and growth.

So, whether you’re running a small startup or managing a sales team at a larger company, understanding and harnessing the power of sales velocity can be your secret weapon for success.

Decoding the Sales Velocity Formula

Don’t let the term “formula” intimidate you. The sales velocity formula is a simple mathematical equation that boils down the effectiveness of your sales efforts into a single, powerful number.

Breakdown of the Sales Velocity Formula

To compute sales velocity, you’ll need to consider four essential components:

Number of deals. This is the number of opportunities or leads your sales team works on during a specific period.
Average deal value. This reflects the size of your opportunities and gives you an idea of the financial impact of each converted lead, allowing you to forecast the effectiveness of your lead generation strategy.
Win rate. Your win rate is the percentage of opportunities that successfully turn into customers. For instance, if you close 20 out of 100 opportunities, your win rate is 20%.
Sales cycle length. This represents the time it takes, on average, to move a lead through your sales process and convert it into a customer.

Now, let’s put everything together. The sales velocity formula looks like this:

Sales Velocity = (Number of Deals) x (Average Deal Value) x (Win Rate) / (Sales Cycle Length)

Understand the Meaning Behind Sales Velocity

Sales velocity isn’t just a random number. It’s a diagnostic tool that can help you identify and address any issues in your sales strategy.

High vs. Low Sales Velocity: What It Tells You

A high sales velocity indicates that your sales team is efficient, effective, and responsive to customer needs. It can also indicate strong market demand for your product or service and a solid understanding of what drives your ideal customers to buy.

Conversely, a low sales velocity suggests that there might be bottlenecks or inefficiencies in your sales processes. It could also signal that your product isn’t resonating with your target audience.

Deal Velocity vs. Sales Velocity

Is deal velocity the same as sales velocity? Not quite. Let’s explore the differences and when to use each metric to better analyze your sales efforts.

Deal Velocity: Focusing on Individual Deals

Deal velocity hones in on the speed and efficiency of individual sales deals within your sales pipeline. It’s like zooming in with a magnifying glass to examine the details of each transaction.

When to use deal velocity:

Micro-level analysis. Deal velocity is excellent for scrutinizing specific sales opportunities or transactions.
Performance evaluation. Use deal velocity to evaluate the efficiency of your sales reps or specific sales tactics. Are there particular sales reps that are consistently slower or faster to close deals than others?
Account-specific optimization. If you want to fine-tune your approach to closing a specific type of account, deal velocity can provide valuable insights.

Sales Velocity: Focusing on the Big Picture

Sales velocity considers the overall efficiency of your sales process, encompassing all deals and opportunities in your pipeline.

When to use sales velocity:

Macro-level analysis. Sales velocity provides a high-level view of how well your team is performing as a whole.
Strategic decision-making. Use sales velocity to identify systemic issues affecting revenue generation.
Growth planning. Sales velocity helps you set realistic revenue targets and determine if you need to scale your sales team or resources.

Deal Velocity vs. Sales Velocity Examples

Let’s illustrate the difference between these two metrics with a couple of scenarios:

Scenario 1: A Slow-Starting Deal

Imagine you have a deal in your pipeline that’s taking longer than usual to close. It’s been sitting there for three months, while most deals typically close in one month. You’d use deal velocity to analyze why this specific deal is lagging. Is it a problem with the prospect’s decision-making process? Or is there a hiccup in your sales approach?

Scenario 2: Quarterly Sales Review

Now, picture a quarterly review of your sales performance. You want to assess how well your entire sales team has performed over the last three months. Here, you’d turn to sales velocity to get an overall picture. Are you meeting your revenue targets? Is the sales cycle consistently long for all deals?

Calculating Sales Velocity Step by Step

Now that you’re familiar with the sales velocity metric, let’s break down how to calculate it into easy-to-follow steps!

Step 1: Gather Data

The first step in calculating sales velocity is gathering the necessary data for each formula component. Here’s a reminder of what you’ll need:

Number of deals. Count the number of opportunities or leads your sales team worked on during a specific period.
Average deal value. Determine the average amount of revenue generated from each deal or sale. Add up the values of all closed deals and divide by the total number of deals.
Win rate. Divide the number of deals won by the total number of deals worked on, then multiply by 100 to get a percentage.
Sales cycle length. Calculate the average length of your sales cycle by adding the number of days it took to close each deal and dividing by the total number of deals.

Step 2: Perform the Calculation

Now that you have all the data, it’s time to plug it into the sales velocity formula:

Sales Velocity = (Number of Deals) x (Average Deal Value) x (Win Rate) / (Sales Cycle Length)

Let’s walk through an example using hypothetical numbers:
Number of deals: 75
Average deal value: $800
Win rate: 30% (0.30 as a decimal)
Sales cycle length: 45 days

Next, plug these values into the sales velocity formula:
Sales Velocity = (75 deals) x ($800) x (0.30) / (45 days)

Sales Velocity = $16,000 per day

Step 3: Ensure Data Accuracy

Inaccurate data can lead to misleading conclusions and ineffective sales strategies. So, before making any strategic decisions, ensure you’re not at risk of any of the following issues that can cause data inaccuracy:

Varied definitions. Ensure that all team members have a consistent understanding of terms and metrics. Different interpretations of terms like “win rate” can lead to discrepancies in data.
Incomplete sales funnel data. If you lack visibility into certain stages of your sales funnel, it can affect the accuracy of your sales cycle length calculation. Ensure that your tracking system captures sufficient data at all stages of the funnel.
Software integration issues. If you use multiple software tools for sales tracking, ensure they are integrated correctly to avoid data silos and discrepancies.

Utilizing a Sales Velocity Calculator

You now know how to calculate sales velocity manually, but you don’t have to. You can simply input your data into a sales velocity calendar! A sales velocity calculator offers several advantages: speed, efficiency, accuracy, and convenience.

Let’s walk through how to use a sales velocity calculator with a simple example:

Step 1: Access the Calculator

Sales Velocity Calculator

Step 2: Enter Your Data

Using our previous example, you’ll input the following data:

Number of deals: 75
Average deal value: $800
Win rate: 30% (0.30 as a decimal)
Sales cycle length: 45 days

Step 3: Calculate

After entering your data, the calculator will perform the calculation automatically. You’ll instantly see your sales velocity displayed on the screen. As easy as pie!

Harnessing Sales Velocity for Growth

It’s not just about crunching numbers. The true power of sales velocity lies in its ability to provide actionable insights.

So, we encourage you to take what you’ve learned and use the sales velocity metric to identify ways to improve your sales cycle, set realistic sales goals, allocate resources effectively, and drive growth!

Need Help Improving Your Sales Velocity?

Book a demo of 6sense, and we’ll show you how our tools and expertise can help you optimize your sales processes, enhance your win rate, and increase the efficiency of your sales cycle!

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