Sales velocity measures the rate at which a business generates revenue and closes sales opportunities. It is a key performance indicator that helps organizations understand how quickly they can convert leads into paying customers.
Tracking and optimizing sales velocity allows businesses to identify roadblocks, improve sales processes, and boost revenue. A higher sales velocity indicates a more efficient sales process. It means that the company closes its deals quickly, generating revenue faster.
Sales velocity is a crucial metric for SaaS businesses. Here’s why.
Recurring revenue model
Since SaaS companies rely on subscription-based pricing, they generate recurring revenue. Tracking velocity for sale helps companies understand sales process efficiency. A higher sales velocity means more customers signup subscriptions in a shorter time frame, leading to higher recurring revenue and a more stable cash flow.
High growth potential
SaaS companies typically have a high growth potential due to their scalable and cost-effective delivery model. Tracking sales velocity allows SaaS businesses to improve their sales process. An increasing sales velocity enables these businesses to capitalize on their growth potential by acquiring more customers and generating higher revenue quickly.
Customer Lifetime Value (CLV)
SaaS companies focus on maximizing the lifetime value of their customers through retention and upselling or cross-selling. With a faster sales velocity, they can attract more customers, creating more opportunities to increase CLV over time.
Tracking sales velocity can give SaaS companies a competitive edge. With a higher sales velocity, these companies can ensure acquiring customers faster and more efficiently than their competitors. Thus, measuring sales velocity is significant for SaaS companies.
Reducing Customer Acquisition Cost (CAC)
In SaaS, it is crucial to maintain a balance between the cost of acquiring customers and the revenue they generate. Improving sales velocity can help SaaS companies shorten their sales cycle, potentially reducing their CAC and increasing the overall sales process efficiency.
Calculate sales velocity by multiplying the number of qualified leads or opportunities, the average deal size, and the win rate (percentage of leads that convert into sales), and divide the result by the length of the sales cycle (generally measured in days).
Here’s the sales velocity formula.
Sales Velocity = (Number of Opportunities × Average Deal Size × Win Rate) / Sales Cycle Length