Metrics That Matter: Sales Velocity

Metrics That Matter

There are countless metrics that you can use to track your go-to-market performance, and figuring out what metrics to prioritize can be overwhelming. The key is to narrow down and focus on the metrics that matter most to your business, and the business objectives you’re trying to achieve.?

In this article I talk about Sales Velocity, sometimes referred to as Pipeline Velocity. I talk about why I think this metrics matters, and how to calculate it correctly.?

Traditionally, this metric is used by sales leaders to identify high performers and train their teams. Sales velocity is also important because it uncovers a slow-moving or, even worse, stagnant pipeline.

With Sales Velocity, you calculate the relative amount of revenue moving through the sales pipeline over a measured time period. This gives you a better idea of the performance of the deals in your pipeline and of how fast deals are moving to closed-won.

But this metric has great potential for marketing as well. When they join forces with sales to work on deal acceleration, marketing teams can have a big influence on sales velocity. For example, by optimizing product marketing on the website, and making sure buyers come in better informed when they first talk to sales.

Why Sales Velocity Matters

While other metrics also tie back to revenue, sales velocity has three distinct characteristics that make it special:

1. It’s a performance metric, not a volume metric. It gives sales and revenue leaders something to focus on besides pipeline creation that helps them impact revenue more sustainably and scalably.?
2. Three out of four metrics are based on closed-won deals. They’re lagging metrics. The historical performance of these metrics can help revenue leaders predict future performance and understand where to place their bets.?
3. Comparing the performance of different segments (reps, regions, ICPs, etc.) based on these individual metrics is hard. Combining them into a single metric gives you an easier way to compare performance.

How to Calculate Sales Velocity

The formula is pretty straightforward, yet many teams don’t calculate sales velocity in the correct way. Here’s what’s important to understand:

1. You must be clear and consistent in calculating the underlying metrics. That’s your foundation. When using SV as a metric across different teams, you need to ensure everyone’s aligned on these definitions (more info on individual metrics below).?
2. When looking at SV over a longer period of time, you need to divide the sales cycle length by the measured time period. Otherwise, you calculate the relative amount of revenue moving through the sales pipeline over a day.? Many definitions you’ll find online forget to mention this (even from trustworthy sources like this one from HubSpot).
3. A one-off calculation doesn’t reveal much. The value comes from consistently tracking sales velocity at regular intervals. This way, you can see how your performance trends over longer periods.?
4. Without any segmentation, you’re averaging out everything too much, and you’ll miss out on important underlying differences. You need to segment your deals in ways most relevant to the business.

Win Rate

This % represents the win rate of all the deals that closed during the measured time period. Sometimes people make the mistake of including deals that haven’t closed yet in the calculation. That’s wrong.

Annual Contract Value (ACV)

ACV is the average annual contract value of the closed-won deals. Sometimes people make the mistake of including all closed deals or even all the deals in your pipeline. That’s wrong.

Qualified Opportunities (QO's)

Your sales pipeline typically consists of 5 to 6 stages. When you first create the opportunity, it’s in stage 1. Only a? certain number of opportunities will move to stage 2, and so on. You need to measure the opportunities created at the first stage with a win rate of 25% or more. Sometimes people start measuring at stage 1 in your sales pipeline. That’s wrong.

Sales Cycle Length

How many days did it take on average to close a deal during the measured time period? Sometimes people make the mistake of including all closed deals or even all the deals in your pipeline. That’s wrong.

Measured Time Period

This is the period over which you analyze SV. Looking at SV on a weekly or monthly basis is not useful. Measure your SV of at least a quarter and as many as six months to one year. This extended time period accounts for variables such as seasonality or things like an unusually long deal.

Calculation Based on The Example

In the example, we’ve calculated that the relative amount of revenue moving through the sales pipeline is about € 3,6 million over a period of 6 months.

The Importance of Segmentation

Deals can behave very differently in term of performance. By doing only one calculation for all your deals, you’re averaging out everything too much, and you’ll miss out on important underlying differences. That’s why you need to segment your deals into distinct buckets and calculate sales velocity per segment.

There are probably multiple ways to segment your deals, but three ways have made the most sense to me in the past:

• Level 1: based on the type of customer
• Level 2: based on the type of intent (how you capture demand)
• Level 3: based on the individual revenue sources (how you generate demand)

By calculating your sales velocity per segment, you’ll get a good idea of what’s working and where to prioritize in order to make the most impact on revenue and efficiency.

Data First, Metrics Second

It’s an obvious statement, but it’s worth repeating: calculating your sales velocity won’t matter unless you have good data.?

Because metrics are only as good as the data you feed them. If what you’re measuring is disorganized, untrustworthy, and only half of the picture, then it’s impossible to get an accurate reading on your sales performance.?

Each level in the segmentation model above requires more from you in terms of data. When you want to segment your deals in a certain way, it’s important to understand if you have the data (and the data quality) to produce this type of reporting on a regular basis.?

Two types of data are important here:

1. Your customer data and how you segment your customers
2. Your attribution data?

Understanding how to segment your customers is a topic in itself. So is attribution. I’ll leave those one for another article.?

Don’t despair. Every organization – large and small – struggles with data quality.? And as the picture below illustrates, that makes total sense.

Fragmented tech stacks, a lack of ownership across teams, and the dependency on the many individual data creators make it really complex to manage your data quality.

But it’s a critical investment to make for any business that’s looking to scale in an efficient and sustainable way.

Key Take Aways

1. There are countless metrics that you can use to track your go-to-market performance. The key is to narrow down and focus on the metrics that matter most to your business. Sales Velocity is one of those metrics that matter.?
2. While other metrics also tie back to revenue – your nr. 1 business objective – sales velocity has three distinct characteristics that make it special: it uses lagging metrics to predict the future, it’s performance-driven, and it’s great for comparisons.?
3. The formula is pretty straightforward, yet many teams don’t calculate sales velocity in the correct way, and different people in your organization might calculate the same metric in different ways. You need to align everyone on the details.
4. Deals can behave very differently in term of performance. By doing only one calculation for all your deals, you’re averaging out everything too much, and you’ll miss out on important underlying differences.
5. Calculating your sales velocity won’t matter unless you have good data. Improving your data quality is complex and time consuming, but it’s a critical investment to make for any business that’s looking to scale in an efficient and sustainable way.

Sources

Refine Labs Pavilion HubSpot