Nothing’s more frustrating than a slow pipeline.
It leaves leadership worried and sales reps scrambling to close deals that have been sitting on the shelf for months.
Worst of all, it raises difficult questions. Has your pipeline gotten clogged somewhere along the way? Are you wasting time on deals that will never close?
Everyone knows the faster you can close deals, the more revenue you can rake in—so why wouldn’t you want to increase pipeline velocity?
Here, we’ll explore the ins and outs of sales velocity, including why it’s important to track, how to measure it, and tips for improving it.
What is sales velocity?
Sales velocity, also known as deal velocity or pipeline velocity, is the amount of revenue you earn in a given time period. It’s a calculation of how quickly you close deals and generate revenue.
Knowing your sales velocity gives you an idea of how much revenue you can expect in a given period of time. This is useful in sales forecasting, allowing you to distribute your budget in the most efficient way possible. It can also help you identify areas where your team is hitting home runs and areas where there’s room for improvement.
Essentially, a higher sales velocity is indicative of a more financially healthy and efficient organization.
The sales velocity formula
The simplest form of the sales velocity equation divides new revenue by the sales cycle length:
Sales velocity = Revenue / Sales cycle length
The longer version of the sales velocity equation calculates revenue by multiplying three metrics—number of qualified opportunities, average deal size, and conversion rate—before dividing by average sales cycle length.
Sales velocity = (Number of qualified opportunities x Average deal size x Conversion rate) / Average sales cycle length
The longer form of the equation is helpful to understand all the components that go into increasing or decreasing sales velocity.
How to calculate sales velocity
Sales velocity is calculated by dividing the total revenue generated by the number of deals closed during a specific time period.
But first, let’s back up and define the four terms you need to calculate sales velocity:
1. Number of qualified opportunities
Lots of opportunities in your pipeline is a good thing. But lots of qualified opportunities is even better.
This is represented via the BANT framework, which takes four factors into consideration:
- Budget: How much are they willing to spend?
- Authority: Does your contact have the authority to make buying decisions?
- Need: Do they have a need that can be solved using my solution?
- Timing: In what time frame are they looking to make a purchase?
Accurately qualifying and disqualifying leads is important when it comes to calculating sales velocity; a pipeline clogged with unqualified leads will skew your numbers and ultimately hurt your pipeline velocity.
2. Average deal size
Average deal size is the average dollar value of a sale.
Because it’s an average, you’ll need to choose a timeframe to examine, whether that’s monthly, quarterly, or annually. Then, follow the formula:
Average deal size = Total revenue in given time frame / Number of deals
Although this is a relatively straightforward calculation, the average deal size doesn’t always paint the full picture. For instance, customer acquisition costs shouldn’t be glossed over at this stage, since sealing more deals won’t do your company much good if all those profits are sunk into new customer acquisition and retention.
3. Conversion rate
Conversion rate, or win rate, is the percentage of opportunities that ultimately convert into paying customers.
Your conversion rate shows how efficient your lead qualification process is, as well as the successes and pitfalls in your current selling approach.
To calculate your conversion rate, just plug and chug into the formula below:
Conversion rate = Total number of closed-won deals / Total number of qualified opportunities
Conversion rates also come with a few caveats of their own. Some leads might have qualified during the designated time frame but closed afterwards. Likewise, some leads may have closed during the designated timeframe but been qualified before. Make sure your sales team is on the same page when it comes to handling these tricky cases.
4. Average sales cycle length
Average sales cycle length is the average number of days it takes for your company to convert a lead into a paying customer, from the first touchpoint of the sales process until the end.
Use the formula for average sales cycle length to see how your company measures up to industry benchmarks and your own past performance.
Average sales cycle length = Total sales cycle time / Number of deals in designated period
An example in action
The formulas are all well and good, but they can be a bit difficult to conceptualize. So here’s how it looks in practice:
Imagine you have a sales team with 75 deals in the pipeline, an average deal size of $5,000, and an average win rate of 25%. If it takes you an average of 80 days to convert leads into paying customers, your sales velocity equation would be:
Sales velocity = (Number of qualified opportunities x Average deal size x Conversion rate) / Average sales cycle length
= (75 opportunities x $5,000 x .25) / 80 days
= $93,750 / 80 days
= $1,171.88 / day
Sales velocity benchmarks
So what’s a typical sales velocity?
No two companies are the same, so it’s difficult to nail down precise one-size-fits-all benchmarks. There are simply too many factors at play, including industry, company size, target market, sales process, and strategy.
But here are some general pipeline velocity benchmarks you should keep in mind:
Average sales cycle length
According to research by HubSpot, the average SaaS sales cycle length (independent of deal size) is 84 days. For SaaS company enterprise deals, it's more like a marathon. The entire sales cycle can take upwards of six to 18 months.
And for most B2B companies, a healthy sales cycle velocity is around 3-9 months. But that could change depending on how many hurdles you have to jump through (e.g. the complexity of your product or service).
Contract size is another big factor here. For deals with an annual contract value (ACV) of under $5,000, the average sales cycle is closer to 40 days. For deals with ACVs upwards of $100,000, the cycle length increases to around 170 days.
In general, though, B2B companies can expect a 4-6 month sales cycle when selling to new customers. Existing customers are easier to sell to, and many reps manage to close those sales in one to 3 months.
Deal close rates
Average deal close rates can vary pretty dramatically depending on the industry and what you consider a qualified opportunity.
Research from MarketingSherpa’s 2020 B2B Marketing Benchmark Report reveals the average conversion rate for B2B leads is 4.79%, with top-performing companies achieving conversion rates of 12.44%.
Sales velocity by business type
Needless to say, sales velocity can vary greatly depending on the business type. And industry has a significant bearing on sales velocity—tech startups tend to move faster and have more high-value deals, for instance.
To give you an idea of sales velocity by business type, research by SalesHacker shows the average sales velocity for B2B companies is around $583 per day.
But revenue should also be put in the context of growth. Healthy SaaS startups aim for a 200% to 300% annual recurring revenue (ARR) growth rate. Mature SaaS businesses, on the other hand, are looking at a 15% to 45% ARR growth rate.
Why sales velocity is worth prioritizing
As you may have gathered by now, sales velocity is an important metric for businesses looking to increase revenue. But there are tons of ways to increase revenue. So why focus on pipeline velocity?
Here’s why it’s worth prioritizing as you look to improve your bottom line:
- Improved resource allocation: Understanding sales velocity helps businesses identify bottlenecks in their sales process. Maybe you don’t have enough inbound leads, or perhaps your deals are getting held up in lengthy contract negotiations. In any case, once you know where the bottlenecks are, it’s easier to allocate resources more effectively, which can improve the overall efficiency of your sales team.
- Better lead management: By tracking sales velocity, you’ll gain a better understanding of how quickly you are able to turn leads into paying customers. This can help you prioritize your lead management strategies, from lead scoring to lead nurturing and segmentation.
- Increased customer satisfaction: Faster sales cycles can lead to increased customer satisfaction. When deals are closed quickly, customers experience quicker time to value, which means stronger relationships from the get-go. Even better if you can start onboarding your customers in a central hub like Dock, the same place your sales documentation began.
- Competitive advantage: Having a fast and efficient sales process can give your business a competitive edge in the market. When you have your processes down to a science, prospects will understand you’re organized, prepared, and able to deliver on their needs.
When to prioritize sales velocity
Here are a few scenarios when optimizing your sales velocity should shoot to the top of your priority list, including:
- Startup phase: In the early stages of a company's growth, it's important to focus on generating revenue and establishing a customer base. A high sales velocity can help achieve these goals and provide a foundation for future growth.
- Product launches: If your company is launching a new product, you’ll need to generate initial sales momentum when establishing the product in the market. A high sales velocity can help create a buzz, getting your product started on the right foot.
- Revenue growth: Companies looking to pave a path to growth may prioritize sales velocity to increase the amount of revenue they are generating.
- Saturated markets: In markets where there is fierce competition, a high sales velocity can help a company stay ahead and capture a larger share of the market.
- Seasonal fluctuations: Some industries have seasonal fluctuations in demand. Just take tax preparation software or sporting equipment. It’s advantageous for companies in fields like these to have a high sales velocity during peak periods, to capitalize on the surge in demand.
Remember, while a high sales velocity is especially important in some cases, striking a balance between sales velocity and other initiatives is just as important. Customer satisfaction, product quality, and profitability shouldn’t fall by the wayside as you prioritize pipeline velocity.
Tips for increasing sales velocity
But you want to get down to the good stuff: How can you use your knowledge of sales velocity to crush your sales goals?
It’s all below, neatly laid out following each of the sales metrics we discussed earlier in the article. Increase all four, and you’re fast on your way to achieving an enviable sales velocity.
Create more opportunities
One of the surest ways to increase sales velocity is to increase the number of sales opportunities you have in the pipeline.
Here’s how to boost sales velocity by increasing your number of opportunities:
- More sales channels: Organic and paid search, social feeds, review sites, and word of mouth are all ways to boost inbound leads. It’s all about upping your brand exposure, which will help you build stronger relationships with customers and make more sales. This is important from the top of the sales funnel down to the very bottom.
- Align marketing and sales: The more closely aligned marketing and sales are on the ideal customer profile (ICP), the more high-quality leads you’ll see in the pipeline.
- Better marketing conversion: Understand who your audience is before undertaking any marketing efforts. Then, it comes down to tailored, on-brand messaging, high-quality and relevant content, website optimization, and refinement, refinement, refinement.
- Make speed a priority: Following up promptly with inbound leads is crucial in securing more conversions. By embedding demo booking capabilities on your website and launching automated nurture campaigns, you’re one step closer to stuffing your pipeline with opportunities.
Increase your average deal value
Of course, once a customer does sign, it’s in your best interest to secure the highest spend possible.
You can do so through:
- Moving upmarket: One strategy for increasing average deal value is to move upmarket, targeting larger and more established businesses. These companies often have larger budgets and may be willing to pay more for premium products and services. To move upmarket, research potential target companies and adjust your messaging to appeal to their specific needs and pain points, which may include more rigid product requirements and more stringent vendor approval processes.
- Retention: Retaining customers is another effective way to increase average customer lifetime value (CLV). To improve retention, focus on providing excellent customer service, prioritizing onboarding, communicating regularly, and offering loyalty programs to keep your customers engaged and happy.
- Upsell: To successfully upsell, make sure you understand the customer's needs and demonstrate the added value of the more expensive option. You can also use data analytics to identify which products or add-ons are most commonly purchased together and create bundled packages that incentivize customers to spend more.
Additionally, cross-selling or offering premium options can be used to boost CLV. Remember the common thread that runs through these strategies: Focus first on providing value to your customers, understanding their needs, and building strong relationships that can lead to repeat business and referrals.
Boost your win rate
The recipe for winning more includes one special ingredient: Making it easier to buy. And here are some insights into how you can make the buying decision a no-brainer:
- Offering training on how to sell internally.
- Providing case studies and success stories.
- Using cost calculators and diagnostic tools.
- Creating a community of champions who can share best practices.
Build strong relationships: The world runs on trust. By investing in regular communication and customer service, you can build a strong foundation of trust and increase the likelihood of a buyer investing in your solution.
Qualify effectively: Focus your efforts on the leads with the highest likelihood of closing. This is where knowing the buyer’s budget, timeline, and decision-making process is extra important.
Clarity of process: Back-and-forth email chains and messages can leave potential buyers hunting for information. Reduce friction by putting all the essential information in one workspace, rather than scattered over the web. Dock’s templates and shared workspaces even help you track interactions and engagement, steering you on the right path to a speedy pipeline.
Reduce sales cycle length
The faster you close one deal, the more time you have to focus on the next. It’s a win-win solution for salespeople, but they need a few tools to help them get there:
- Templatize follow-up/sales content delivery: The results are in, and faster follow-up means higher close rate. In fact, recent research from Gong shows that sellers who follow up within one business day close more deals and see deal duration cut by an average of 11%. And with a set follow up template you can use and reuse, you can send content to your leads in no time at all.
- Mutual action plan: When used properly, mutual action plans are a game-changer. They contain a buyer’s pain points, goals, stakeholders, and hesitations, all in one place—your Dock workspace. Mutual action plans can be used to efficiently establish next steps and remove roadblocks. But perhaps most importantly, they can make the buying process more enjoyable for all, ensure more on-time deal closures, and help you more accurately forecast sales.
- Making saying “yes” easy: Reduce the back-and-forth so it’s easy for buyers to say “yes.” Whether that’s using order forms to allow for deal-signing straight from the proposal or offering a birds-eye calendar view, make the process clear and easily navigable for buyers with Dock.
- Get ahead of roadblocks like security reviews: One of the sales roadblocks at the end of the line is security reviews. To stay one step ahead, start the security conversation early via Dock and make sure you understand the buyer’s requirements from the start. Be transparent about your security practices and documentation. And if necessary, partner with security experts and be prepared to make changes.
Get faster sales velocity with Dock
Dock is there to make the purchasing process easier for both buyer and seller. By centralizing all relevant information in one place, Dock helps facilitate a smoother (and faster) sales process.
There are a few ways Dock supports you in reducing time-to-sale:
- Demonstrating value: With all materials in one place, your buyers can easily share information amongst internal decision-makers and understand the ROI potential of your product.
- Designing mutual action plans: Avoiding hidden roadblocks is key to getting deals done in a timely fashion. With a mutual action plan, everyone is on the same page in terms of next steps, specific needs, and buyer goals.
- Making follow-up easy: Fast communication translates to more closed deals. Dock’s templates and clear communication channels mean your buyers are never left out in the cold—and neither is your sales team.