Sales velocity in SaaS: What it is, why it's important and how to calculate it

What is sales velocity?

Sales velocity offers insight into the overall efficiency of your sales function. The individual metrics used in its calculation provide details on the performance of each key component of your sales process.

Let’s see a few examples to understand what sales velocity can tell you about business performance:

• Entire sales pipeline: Sales velocity helps pinpoint effective stages in the sales process and potential points at which prospects might drop out. Monitoring this metric and its related variables enables businesses to streamline operations, enhancing their efficiency and success.
  
  
• Individual AEs: By calculating each AE’s sales velocity, sales managers can assess individual performance, identify inefficiencies in the sales funnel, and make adjustments to improve overall sales efficiency.

• Individual teams in the same region or across multiple regions: Sales velocity is a useful metric to assess team performance, focusing on outcomes rather than team size. Comparing the sales velocities of different teams can highlight areas needing process improvement or additional training.

• Different sales channels (inbound or outbound): Comparing outbound to inbound sales velocity helps evaluate sales channel effectiveness, letting you focus more resources on the most productive channel for improved lead generation.

‍Different market segments: Analyzing sales velocity across different business sizes helps a B2B SaaS company identify and prioritize market segments, considering their varying sales cycles and client lifetime values.

Why is sales velocity important in SaaS?

Understanding your sales pipeline at a deeper level will help you reduce lost leads and wasted time, which can happen even in fast-growing SaaS companies. 

There are also other ways in which understanding sales velocity in SaaS businesses is useful:

• Sales are critical to every business. However, unlike in traditional non-subscription businesses, In SaaS, every sale generates recurring revenue, which is essential for the long-term growth of the company. Thus, understanding sales velocity offers opportunities to improve growth over time. 

• Tracking sales velocity helps businesses understand the client journey and identify factors driving prospects away, allowing optimization of each process stage for better customer retention.

• Analyzing sales velocity helps businesses identify the strategies that aren't working and focus on those that are and make precision adjustments in their sales metrics to drive continual improvement in their sales processes.

• Sales velocity is particularly useful for estimating expected earnings over a certain period, making it key for forecasting revenue, assessing sales capacity, and setting quotas.

How to calculate sales velocity with an example

Calculating sales velocity involves dividing the total revenue by the number of closed deals in a specific timeframe.

There are four types of data you’ll need for calculating sales velocity:

• The number of opportunities in your pipeline
• Average deal size, also known as average contract value (ACV)
• Average length of the sales cycle for your company or the particular product you are assessing
• Typical win rate or sales conversion rate for your company or the pipeline in question

These metrics for sales velocity calculation are typically found in your CRM, but we’ve provided the formulas here to calculate them manually to deepen your understanding of how all the underlying variables work together.

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The sales cycle can be determined either from when a lead enters the CRM until the deal is closed, or from the point when the lead becomes an opportunity.

Using the SaaS company in the example below, we’ll evaluate the pipeline velocity with an (ACV) of $34K and 36 prospects, classified as sales-qualified leads (SQLs), currently in the company's pipeline. The company's typical win rate is 38%, and its average sales cycle is 180 days. For our calculation, we’ll use a value of six months since we want to examine monthly sales velocity.

‍While you could use any timeframe to calculate your sales velocity, the example above illustrates how to calculate monthly sales velocity.

Daily sales velocity is the method most widely used in SaaS because it provides greater visibility into the pipeline and the ability to react quickly to changes as needed.

Best practices to follow when calculating sales velocity

Investing time and effort in the following best practices will boost your confidence in your sales pipeline and the speed at which you’re able to move your prospects through it. 

Standardized definition of opportunity and sales qualified lead

Develop consistent terminology for all the stages in your pipeline and make sure everyone on your sales team understands them. This is critical to reporting metrics consistently and correctly. For example, clarify the distinction between a "sales opportunity" (a qualified lead likely to become a client) and a "lead" (an unqualified contact). 

Calculate your sales velocity over longer periods of time

While tracking sales velocity daily helps SaaS companies keep their finger on the pulse of their pipeline, for more accurate results We recommend calculating your sales velocity over a period of your average sales length cycle plus two standard deviations (SD) to  account for 95% of the variation you might expect to see in a sales cycle due to variation or other factors. For example, if your average sales cycle is 90 days and the SD is 20 days, then you would calculate it as 90 days plus and another 40 days for a total of 130 days. 

Use lead scoring to define “high chance of converting”

Consistency in lead scoring is important for producing reliable conversion rate expectations.  To define what a "high chance of converting" means in your company, you can use the BANT framework. 

The BANT framework evaluates budget, authority, needs, and timing to identify genuine sales prospects. With criteria for each of these factors in place, your sales teams will be better able to evaluate more consistently their chances of winning the deal.

How to use sales velocity insights to improve your business

There are often many variables that contribute to a sales cycle. In order to use the sales velocity metric to improve your business, you have to first tease out which variables may be affecting it, good or bad. 

So it helps to break it down to analyze each stage to see where you might need to make improvements or where you’re creating strong velocity. While you’d probably want to address any problems first, the latter is worth examining, too. If you can identify activities that are driving good velocity, you may be able to double down to drive even faster.  

Let’s start with the number of new opportunities coming into your pipeline. The formula below shows how to calculate this based on your average marketing qualified lead (MQL) to opportunity conversion rate. This conversion rate is based on the average amount of time it takes for an MQL to become an opportunity.  

Now, let’s look at how many of those your team is winning:

These formulas show how to calculate conversion rates for leads coming in on the front end of your pipeline and new customers coming out at the end of it. While it’s good to have a basic understanding of how to calculate conversion rates, most CRMs will do this for you and at every stage of your pipeline to help you take a closer look at your sales velocity. 

Now, let’s look at how you would do that with the formula below, which offers an alternate  way to calculate sales velocity:

So now, let’s look at an example calculation. 

Illustrated in this way, it’s easy to see how changing any one of the variables in the formula  can impact your sales velocity. For example, to increase your sales velocity, you could focus on any combination of the following:

• Increase the number of MQLs
• Increase the percentage of MQLs you’re able to convert to opportunities
• Increase the percentage of opportunities you’re able to win
• Increase your average deal size
• Reduce the number of days in your sales cycle

While these approaches may seem obvious, thinking of them in this way can help you more easily identify where you might need to make changes and which changes will have the biggest effect on your sales velocity.

Here are a few examples of what you can do with the insights you get from analyzing sales velocity: 

• Identify your top sales reps: Sales velocity data tracked for individual sellers reveals which ones are closing deals faster. Sharing their tactics with other sellers on the team through coaching can boost their efficiency.

• Reduce bottlenecks: Monitoring deal progression through your sales funnel will help pinpoint the stages where slowdowns occur. This information will tell where you need to work on your sales process to improve it.

• Enable better lead management: A truly successful sales process relies not only on identifying the best and most promising leads, it also requires efficiency in your lead management process to ensure you’re making the most of every opportunity you have. Sales velocity insights can help you identify where you can optimize your segmentation, nurturing, and lead scoring to boost your conversion rates and shorten your sales cycle. 

A truly successful sales process relies not only on identifying the best and most promising leads, it also requires efficiency in terms of the marketing activities used to acquire them. Evaluating the lead sources and marketing strategies that are contributing to your sales velocity in terms of their customer acquisition costs (CAC) can help you set marketing priorities for more cost-effective lead generation.

What is a good sales velocity for a SaaS business?

Establishing universal benchmarks for sales velocity is challenging due to varying factors that make every business unique, such as target market, industry, company size, sales process, and strategy.

While sales velocity benchmarks are not very reliable, you can instead measure and benchmark metrics that go into the sales velocity calculation, such as win rates, ACV, and sales cycle duration.

Doing so will allow you to confidently identify where there may be underlying issues that could be impacting your sales velocity and take steps to address them. 

How to improve your sales velocity

Higher sales velocity leads to more wins from your sales team's efforts, enhancing long-term viability and profitability. There are four basic ways to improve your sales velocity. 

Increase the number of opportunities

Sales teams manage numerous opportunities in their funnels, but it's crucial to qualify leads before engaging them. Pursuing unqualified leads can lower sales velocity and introduce errors into the calculation process.

Segment leads by role, product, or area to identify areas needing attention for increased sales velocity and assess segment performance. Sales intelligence software enhances lead qualification and related variables, making interactions more efficient and accurate and helping sellers decide when to take action. 

Combining sales intelligence software with a financial planning and analysis software tool like Drivetrain can help you dig deeply into your sales metrics, including sales velocity, to reveal insights you can use to make precision improvements.  

Using these insights, sellers can quickly identify low-quality leads and concentrate on engaging those with conversion potential.

It’s important to note here that increasing opportunities in your pipeline always comes at a cost in terms of sales and marketing  

Raise average deal value

You can increase revenue by addressing your customers’ pain points, upselling with big promotions and offers, and focusing on the most promising leads in your pipeline that are more likely to convert into larger deals. 

Using a "land and expand" approach, which focuses on acquiring new customers initially with a small deal and then encouraging them to increase their commitment over time, is another way to boost the overall value of the deal. Where this approach is used, companies need to factor in the value of the increased commitment over time to accurately estimate average deal value.  

The simplest way to raise your average deal value, however, is to reduce those last minute discounts that sales usually doles out to get the deal over the line to meet their targets, which often happens towards the end of a quarter. Such discounts contribute to lower-than-expected ACVs. 

Standardizing who can offer discounts and how much they can offer (as opposed to giving AEs the freedom to do whatever it takes to get the deal across the line) will help avoid this. For example, you might allow AEs to offer discounts of up to 20% while their managers or directors could offer up to a 30% discount. Going up the ladder, VPs might be able to offer up to 40%, and anything higher would require approval from the CEO/CFO.

Take steps to improve your win rates and conversion rates

1. Prospects may exit your pipeline, causing reps to lose invested time. To improve the sales conversion rate, you need to understand why prospects aren't buying. Identify where and why they drop out, then try to determine the specific reasons that’s happening. Is it cost or need-related? Solving these issues becomes more effective when you know why prospects are leaving.

2. Enabling your sellers to do what they do best, with great training, including thorough competitive intelligence, and regular mentoring is the first step in improving your win rates.  

3. Encourage your happiest customers to advocate for your product or service, and give them the materials they need to make that easy. For example, share some of the training materials your sales team uses to sell the product or service and case studies they can share with their peers in other companies. 

4. Building trust through consistent communication with your prospects and providing exceptional customer service at every stage in the pipeline journey increases the likelihood they will invest in your solution. 

5. Communication internally within your sales teams is important, too. For example, engaging (or escalating to) the management early in deals that are at risk of slipping into the next quarter or getting waylaid offers the opportunity to get the additional resources needed to win the deal. 

6. Of course, you should always work to improve your sales qualification process so you can accurately identify and prioritize those leads that have the highest closing potential. However, product improvements – more features, faster bug fixes, and improved UX/UI – are ultimately one of the best ways to boost your win rate. 

Reduce length of your sales cycle

To increase sales velocity, focus on closing deals faster without pressuring prospects or rushing the sales process. Maintain relationships with prospects while respecting their comfort and timeline.

In fact, a recent Gartner survey showed 77% of B2B buyers assessed their most recent buying experience as extremely complex or challenging. 

Identify decision-makers' needs and expectations early in the process. Invest in thorough preliminary research to address concerns proactively. Use mutual action plans to define next steps and overcome obstacles, making the buying process enjoyable, closing deals on time, and improving sales predictability.

Sales velocity, particularly the four defining metrics—number of leads, deal size, win rate, and sales cycle duration—indicate the overall performance of your pipeline and the effectiveness of your sales team's efforts.

How does Drivetrain help in tracking and improving sales velocity

Sales velocity calculations often require integrating data from 2 to 3 systems, such as your marketing automation platform, CRM and Billing systems. Using spreadsheets can complicate the process, especially when analyzing multiple segments and variations within those metrics.

Drivetrain can automate manual data collection and consolidate data from multiple sources for a comprehensive view. You can also analyze sales velocity drivers by various dimensions like region or sales rep to gain detailed insights.

Enhance your revenue by identifying trends and understanding what boosts your sales velocity with a sales forecasting tool.

Book a free, no obligations demo to see how Drivetrain can simplify your revenue forecasting, sales metrics tracking and improve efficiency in  your SaaS business.