Unlocking Growth: Understanding Sales Velocity and Its Impact

a businessman thriving from the use of sales velocity

Have you ever wondered what separates the fastest-growing companies from the rest? One key factor is their sales velocity. Sales velocity is a critical metric that measures how quickly a company can turn leads into closed deals and generate revenue.

Understanding and optimizing your sales velocity can have a tremendous impact on your company’s growth. When your sales velocity is high, it means your team is efficiently closing deals and generating revenue at a fast pace. This can lead to increased revenue, faster scaling, and improved cash flow for the business.

However, if your sales velocity is low, it can lead to stagnant growth, cash flow issues, and missed opportunities. That’s why it’s crucial to understand the factors influencing sales velocity and learn strategies to improve it.

In this article, we’ll explore the concept of sales velocity, how to calculate it, and proven tactics to boost sales performance.

How to Increase Sales Velocity - 30 mins

Reserve time on my calendar to discover how you can increase your team's sales velocity in less than 30 days.

I Want to Grow Revenue Faster

What Is Sales Velocity and How Is It Different From Pipeline Velocity?

You may have heard the term “pipeline velocity” before, and you might wonder how it differs from sales velocity. While both metrics relate to the sales process, they have different focuses and formulas.

Sales velocity is a focused metric that zeroes in on the rate at which you’re actually generating revenue. It takes into account the specific factors that directly impact your ability to close deals and bring in new business.

definition of sales velocity

Pipeline velocity looks at the speed with which qualified opportunities progress through the sales funnel.

Since qualified opportunities represent a smaller subset of overall leads, pipeline velocity is useful for assessing the overall health of the sales pipeline. The smaller number of sales-qualified leads can help identify bottlenecks and provide insights into where the pipeline may be slowing down. This perspective can be invaluable for understanding how to improve the flow of leads through the sales process.

By tracking and optimizing both sales velocity and pipeline velocity, you get a comprehensive view of your sales process. This allows you to make informed decisions to improve your sales funnel and accelerate your company’s growth.

Selling Faster is Easy!

Let Sales AI prioritize your leads and opportunities based on their propensity to buy and close more deals!

Sign up for free

The Four Elements of Sales Velocity

Now that you understand the importance of sales velocity, let’s take a closer look at what it actually measures. Sales velocity is made up of four key components:

  • Number of leads
  • Conversion rate
  • Average deal size
  • Sales cycle length

Number of Leads

The number of leads refers to the total number of potential customers that enter your sales funnel. The more leads you have, the more opportunities you have to convert them into paying customers. Increasing your lead generation efforts, such as through marketing campaigns and lead magnets, can help boost this component of sales velocity.

lead generation demonstrating sales velocity

Conversion Rate

The conversion rate, also known as the win rate, is a critical factor in calculating sales velocity. It represents the percentage of sales opportunities that are successfully converted into closed deals and paying customers.

The conversion rate reflects the efficiency and effectiveness of your sales process and lead qualification efforts. A higher conversion rate indicates that your team is doing a good job of identifying high-quality leads and moving them through the sales funnel effectively.

To calculate the conversion rate, you divide the number of closed-won deals by the total number of qualified sales opportunities:

Conversion Rate = Total Number of Closed-Won Deals / Total Number of Qualified Opportunities

For example, if your sales team had 100 qualified opportunities and closed 25 deals, your conversion rate would be 25%.

conversion rate formula

Average Deal Size

The average deal size looks at the typical value of each closed sale for your business. This metric is important because it directly impacts your overall sales velocity.

A higher average deal size means your sales team is closing larger, more valuable deals on average. This can have a significant positive effect on your sales velocity and overall revenue growth.

Conversely, a lower average deal size indicates your team may be closing a higher volume of smaller deals. While this can still contribute to sales velocity, the impact is not as substantial as closing fewer, but larger deals.

To calculate your average deal size, you’ll need to divide the total revenue generated over a given period by the number of deals closed during that same time frame. This will give you the average value of each closed transaction.

Monitoring your average deal size over time can provide valuable insights. If you notice it declining, it may signal a need to reevaluate your sales strategies, target market, or pricing.

average deal size/value formula

Sales Cycle Length

One of the most important factors in your sales velocity is the length of your sales cycle. This measures how long it takes to move a lead through your entire sales process, from initial contact to closed deal. The shorter your sales cycle, the faster you can turn leads into revenue.

Think about it this way – if it takes your team 6 months on average to close a deal, that’s a lot of time and resources tied up in each sale. But if you can shorten that cycle to 3 months, you’ll be able to close twice as many deals in the same time period. This can have a huge effect on your overall sales velocity and growth.

To optimize your sales cycle length, look for ways to streamline your sales process and remove any unnecessary steps or delays. This includes things like: 

  • Providing more training for your sales reps
  • Improving your lead qualification criteria
  • Investing in sales automation tools

Making even small improvements to your sales cycle can translate to big gains in your sales velocity.

Calculate Your New Top-Line Growth

Curious how an improvement in sales productivity metrics and sales velocity can generate 2X more revenue in 2024? Use our calculator now!

View Your Growth Now

The Sales Velocity Formula

Now that you understand the key components that makeup sales velocity, let’s dive into the actual formula you’ll use to calculate it. Once you have these four numbers, you can plug them into the sales velocity formula.

The sales velocity formula is designed to give you a clear, data-driven view of how quickly your sales team can turn leads into revenue. It takes those four critical factors – number of leads, conversion rate, average deal size, and sales cycle length – and puts them together in a simple equation:

Sales Velocity = (Number of Leads x Conversion Rate x Average Deal Size) / Sales Cycle Length

For example, let’s say…

  • Number of Leads: 500
  • Conversion Rate: 20% (0.20)
  • Average Deal Size: $5,000
  • Sales Cycle Length: 90 days

Sales Velocity = (500 x 0.20 x $5,000) / 90 days = $55,555 per month

sales velocity formula

The Pipeline Velocity Formula

Pipeline velocity provides insight into the speed at which sales-qualified leads (SQLs) move through the sales funnel. The formula requires four key components: the number of SQLs, the average deal size, the win rate, and the length of the sales cycle.

Here’s the pipeline velocity formula:

To illustrate, let’s use the following data:

  • Sales Qualified Leads: 100
  • Average Deal Size: $10,000
  • Win Rate: 30% (0.30)
  • Sales Cycle Length: 60 days
Pipeline Velocity = (100 x 10,000 x .30) / 60 days = $5,000 per day

This means that your pipeline is generating an average of $5,000 in potential revenue per day. Understanding pipeline velocity helps identify where the pipeline may be slowing down and where improvements can be made to ensure a smoother flow of qualified leads. By optimizing this metric, you can increase the overall health and efficiency of your sales process.