Key performance indicator related to sales are very important for businesses because they reflect their growth potential and overall health. One of the most important key performance indicators related to sales is Sales Velocity. We have explained this KPI and its calculation in this article.
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What is the key performance indicator of Sales Velocity and how is it calculated?
As stated earlier, the key performance indicator of Sales Velocity plays an important role in the potential and improvement of your business. Sales Velocity indicates the speed of transactions and revenue generation in a business. The less time required for sales, the more trades you can make; therefore, higher Sales Velocity means making more money in less time.
The Key performance indicator of Sales Velocity is calculated according to the following equation and using four KPIs including Number of Opportunities, Average Purchase Value, Win Rate (Conversion Rate) and Sales Cycle Length.
Sales Velocity = Number of Opportunities* Average Purchase Value *Win Rate / Sales Cycle Length
Tracking the key performance indicator of Sales Velocity over time allows you to evaluate your Sales Velocity against other competitors, you can compare effectiveness in different areas and recognize how changes in sales processes have a positive impact on your business. Understanding the key performance indicator of Sales Velocity can also help you make more accurate predictions and determine how you can improve your sales process and achieve a higher conversion rate.
Four indicators of Sales Velocity
As shown in the figure above, Sales Velocity consists of four indicators that can be optimized by examining their trends over time. Each of these indicators and their impact on planning and setting business goals are discussed separately as follows:
- Number of Opportunities
There are always a certain number of opportunities in your business, make sure your opportunities are qualified. How many leads can your sales team make in a given period? If you want to evaluate and compare your Sales Velocity, you can analyze the sales opportunities of your area or product.
- Win Rate (Conversion Rate)
Win Rate (Conversion Rate) rate is directly related to your leads. How many leads will customers pay during a given period? Win Rate is calculated by dividing the number of sales by the total number of sales opportunities. For example, if you start with 100 leads and 40 of them end in payment, your Win Rate or Conversion Rate will be 40%.
- Average Purchase Value (the average value of transactions)
Each transaction needs the most valuable resource of the parties. For many businesses, the average dollar value of a sale is considered. You can maximize this factor to increase the average value of your transactions as well as Sales Velocity by introducing offers to the customer. Be careful never to impose a product or service on a buyer who does not need it!
- Sales Cycle Length (considered monthly)
Sales cycle length is the only factor of Sales Velocity that you, as a business owner, should try to reduce. Here is an example of how to calculate the key performance indicator of Sales Velocity.
For instance, suppose that your business has 50 opportunities, with a Win Rate (Conversion Rate) of 25% and an Average Purchase Value $ 10,000, and the sales cycle in this business typically lasts for 60 days. In this case, Sales Velocity is calculated according to the following equation.
Sales Velocity = (50* 25% * 10000$) / 60 = 125000 / 60 =2083.33
According to the above numbers and calculating Sales Velocity of the business, the KPI of Sales Velocity can be optimized by increasing the value of transactions (for example to 125000 $) or reducing the sales cycle or, if possible, both of these cases.
Note that just calculating this KPI of Sales Velocity for one time does not affect the optimization of your business sales process, but it is the calculation and evaluation of the KPIs used in its formula that can lead to further optimization of the sales process.
What are the key performance indicators related to Sales Velocity?
As mentioned earlier, the analysis of key performance indicators of businesses, is not usually confined to the investigation of one or two indicators, and for a more accurate and precise analysis, related and influential indicators are used. In order to properly examine the key performance indicator of Sales Velocity, the indicators of Sales Cycle Length and Average Basket Size are also employed.
It should be noted that the selection of key performance indicators for a business is influenced by the maturity level of the business, the market in which it operates, the competitive environment and many other factors that require sufficient knowledge and experience. Retiba’s experts are ready to carefully evaluate your startup business model, select key performance indicators, and analyze your business performance. All you have to do is enter your information in the evaluation application form and wait for Retiba’s experts to contact you.
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