Demystifying sales velocity: A key metric for sales success

Sales velocity is a sales metric that tells you how quickly you’re generating revenue so you can pinpoint potential barriers.

In this article, we explain what sales velocity is and how to use it to improve your sales performance.

What is sales velocity and why does it matter?

Sales velocity is a measurement that indicates how quickly you’re selling your products or services. It’s an important metric that offers insight into how efficiently you generate revenue.

The sales velocity definition and equation take into account four factors:

• The number of deals in your pipeline

• Your average deal size

• Your win rate

• The length of your sales cycle

Tracking sales velocity over time tells you about your business health so you can manage your sales pipeline appropriately. For example, a higher sales velocity this year than last year means you’re converting prospects into paying customers faster.

Sales velocity also helps with sales forecasting. If you know how quickly you’re generating revenue, you can better project your future revenue, adjust your strategies and allocate resources.

One of the most powerful benefits of knowing your product sales velocity is that it can help you diagnose weaknesses or points of friction in your sales cycle. By examining each of the four factors that make up sales velocity (which we’ll discuss below), you can be better informed about how to improve your processes.

For example, suppose you notice a dip in your sales velocity month-over-month. You can examine each factor in the formula to pinpoint bottlenecks and optimize your sales processes.

Sales velocity vs. pipeline velocity

Sales velocity and pipeline velocity (also called sales funnel velocity or sales pipeline velocity) mean the same thing; you can use them interchangeably.

Both terms measure how quickly your leads or opportunities move through your sales pipeline.

Sales velocity vs. inventory velocity

Inventory velocity measures how well your company manages its inventory and whether you turn over your stock quickly.

It’s useful for supply chain managers, retailers and merchandisers (for example, to understand and improve logistics). They use inventory velocity to ensure they have enough products.

Sales velocity tells you how quickly your company generates revenue from sales. Inventory velocity reveals how quickly you need to replenish your stock.

Note that inventory velocity is only relevant for companies that sell products. Companies that sell services don’t need to worry about their inventory.

How to calculate sales velocity

Calculate sales velocity with the following formula:

It’s useful to understand each of the factors that make up the sales velocity equation because they can help you diagnose friction points in your sales cycle. You can also get ideas to increase sales velocity.

Let’s explore the sales velocity formula components in more detail.

Number of opportunities

This number is a count of the opportunities entering your pipeline.

Qualification criteria may vary depending on your business and target audience, but common factors include:

• Demographics

• Firmographics

• Budget

• Decision-making authority

• Pain points

• Expressed interest

The qualification process typically involves gathering information through lead forms, conversations or surveys to assess the fit and potential value of the lead.

Average deal size

Average deal size is the average monetary value of individual sales transactions or deals closed by your company, reported as a unit of currency (e.g., dollars, euros or pounds). It’s calculated by dividing the total revenue generated from closed deals by the number of deals.

For example, if a company closed 20 deals with total revenue of $200,000, the average deal size would be:

If you are a subscription-based business, consider using average customer lifetime value (CLV) instead of average deal size when you’re calculating sales velocity. That’s because you earn recurring revenue rather than one-time revenue. The value of a customer is not just the initial sale but the ongoing revenue they generate over their relationship with you.

CLV considers long-term revenue, making it a better reflection of the total value of a sale for subscription businesses.

Win rate percentage

The win rate percentage or conversion rate is a metric that measures your sales team’s success in converting leads or opportunities into won deals. It’s the percentage of total sales opportunities that you win.

The formula for the win rate percentage is:

For example, imagine a company had 50 sales opportunities in a specific period of time and, of those, they closed 20 deals successfully.

Average sales cycle length

Average sales cycle length or pipeline length refers to the average amount of time it takes for an opportunity to progress from initial contact with a prospect to closing the deal. It’s the average duration of the entire sales process, including all the stages and activities involved when converting a lead into a customer.

To calculate the average length of the sales cycle, use the following formula:

For example, imagine a company had 50 sales opportunities in a given period and it took 1,500 days to close those deals.

Consider what unit of time you want to use for your average sales cycle length. If you use days, the sales velocity metric you calculate will represent the revenue you earn per day.

You could also calculate the sales cycle length in months. In that case, remember to interpret the sales velocity value you calculate as revenue earned per month.

Best practices for calculating sales velocity

The formula for calculating sales velocity is fairly straightforward, but several best practices can ensure your calculation is accurate and useful.

Here are some key considerations:

• Gather accurate and up-to-date data. Ensure you have accurate and reliable data for each of the factors. Ideally, you’ll use a customer relationship management (CRM) tool to keep your data current and accurate.

• Define a consistent time period. Decide the length of time over which you want to calculate sales velocity. For example, you might want to know what it is over a month, quarter or year. Use the same timeframe for all your calculations to examine trends over time.

• Calculate over a fairly long period. While you can calculate sales velocity for any length of time, you’ll get more stable metrics if you calculate for longer periods. Consider calculating your sales velocity over four months or more.

• Break down calculations. Sales velocity can be a useful company-wide metric, but you might get more granular insights by calculating it by region, team or product. You could even calculate it for individual sales representatives.

• Interpret sales velocity with caution. Remember sales velocity is just one metric of sales performance. It’s important to consider additional factors and metrics in conjunction with sales velocity to understand effectiveness and efficiency comprehensively.

Sales velocity example

Here are some worked examples to show you exactly how to calculate sales velocity.

Example 1: Sales velocity for a B2B e-commerce site

Let’s consider a B2B e-commerce site that sells various products. Imagine the studio had the following data over a given six-month period:

• Number of deals: 20

• Average deal size: $5,000

• Average sales cycle length: 60 days

• Win rate percentage: 40%

To calculate the sales velocity, use the formula:

Example 2: SaaS company

Now let’s consider a company that sells software as a service (SaaS). In this model, use average customer lifetime value instead of average deal value because that’s more meaningful for SaaS companies.

The accounting software company calculates its sales velocity using the following data over four months:

• Number of deals: 200

• Average customer lifetime value: $10,000

• Average sales cycle length: 80 days

• Win rate percentage: 30%

To calculate the sales velocity with the average customer lifetime value, use this formula:

How to increase sales velocity and make your pipeline more efficient

There are some specific ways you can use sales velocity to identify opportunities to improve and build capacity in your sales infrastructure.

Here are some of the challenges you could face and how to solve them.

Too few opportunities

Imagine you’re investigating a drop in your sales velocity and you notice you’re getting fewer qualified leads than you were in the past. Consider taking action to boost the number of deals that enter your pipeline.

Understanding why your sales are slow helps you decide how to improve. For example, you could:

• Set up an AI chatbot on your website to generate qualified leads from site visitors automatically

• Identify your most effective marketing channels and invest more of your budget into them while reducing expenditures in channels with lower returns on investment

• Implement lead generation tactics like gated content, lead magnets and landing pages to capture contact information from website visitors

• Collect testimonials from satisfied customers and set up a loyalty program to encourage word-of-mouth referrals

• Use Pipedrive’s LeadBooster add-on to get a set of tools that help you capture more high-quality leads

Low average deal size

Another reason your sales velocity might be low is that your deal size is small. In other words, you might have enough deals, but perhaps you aren’t selling enough big-ticket items.

You can take several steps to increase the average deal size:

• Set up a recommendation system connected to your CRM software so you can show personalized product recommendations to your customers as they’re checking out.

• Look for opportunities to upsell existing customers to higher-tier products or cross-sell complementary products.

• Create bundled packages that combine multiple products or services at a higher price and encourage customers to opt for a more comprehensive solution.

• Offer additional features, add-ons or customizations that customers can choose to enhance their experience or tailor the product to their specific needs.

• Introduce premium or exclusive offerings with more features, advanced functionality or exclusive access to specialized resources.

Low win rate percentage

Maybe you notice the number of opportunities in your pipeline is healthy and the deal size is reasonable but you’re not closing as well as you should.

You could use the following strategies to improve your win rate:

• Create an ideal customer profile (ICP) and focus your sales and marketing efforts on identifying and pursuing prospects who align closely with it.

• Implement a rigorous lead qualification process to ensure you're investing time and resources in pursuing the most promising opportunities.

• Invest in comprehensive training programs to equip your sales team with the skills they need to engage with prospects, overcome sales objections and close deals.

• Analyze your competitors and their offerings to understand your unique selling points and position your product to emphasize its advantages compared to alternatives.

• Send automated abandoned cart emails to help customers remember to finish incomplete transactions.

Long sales cycle length

The last reason your sales velocity might be low is that your sales cycle is long.

Consider the following actions to make your sales processes more efficient and trim down the time it takes to close:

• Implement a faster lead qualification process to identify and prioritize leads who are more likely to convert quickly.

• Equip your sales team with sales enablement tools that provide easy access to collateral, product information and relevant resources.

• Balance your sales time between customers at each stage in your sales cycle – prospecting, lead nurturing, closing and upselling.

• Address any objections or concerns prospects raise proactively by offering relevant product information and timely responses to questions.

• Leverage sales automation tools and technologies to streamline repetitive tasks like lead nurturing, email follow-ups and proposal generation.

Pipedrive offers many features to help analyze your pipeline and find ways to speed up the sales cycle.

For example, you can use the Rotting feature to find deals that have been idle too long. Pipedrive will notify your sales reps so they remember to take action and move the deal along.

Too few sales reps

If all four of the above factors seem solid but you’re still not happy with your sales velocity, you might need to hire more salespeople. Having more hands on deck can help you with each factor that goes into sales velocity.

A bigger team can do more outreach and prospecting to fill your pipeline with qualified leads. It would also have more capacity to upsell and increase the average deal size.

Another benefit of hiring more reps is you can assign each person to specific roles or territories. That allows them to specialize in a specific industry, region or segment more effectively. Specialization can help you improve your team’s win rate percentage.

Finally, a larger sales team facilitates quicker follow-ups with leads, which can reduce sales length cycles.

High sales velocity

What if you already have high-velocity sales and they’re trending up? Congratulations! A high sales velocity suggests your pipeline is quite efficient.

The next step you could take is to examine metrics relevant to other teams.

For example, look at your customer retention rates and churn statistics. When companies invest significantly in their sales teams, they sometimes forget about customer success or customer experience teams. You could ensure those teams have the resources they need to handle all the new customers your sales team is acquiring.

Similarly, evaluate your customer support. Look at your satisfaction scores to ensure your customers get the help they need when encountering problems.

Final thoughts

Sales velocity is an important indicator of business health because it tells you how quickly you’re selling and generating revenue. You can use it as a metric for performance and uncover opportunities to improve your sales cycle.

Remember, any metric is only as good as its data. The first step to calculating and using sales velocity is ensuring you have a robust CRM database with the most up-to-date data.

Finally, there’s no single metric to rule them all; sales velocity can tell you one part of the story. Ensure you have the other reports and insights you need to grow your business, increase profitability and see the full picture.