Today as part of the Revenue Science™ Context of Business Series we have Matt Pickens as our guest writer for the Revenue Science™ community. Matt’s post is a perfect fit in today’s crazy world.
This is a perfect time to proactively acquire the skills in Matt’s post and put them to work in your Revenue Strategy.
Our current, as well as the post-virus economy, will demand not just knowledge, skills and new habits, but a science-based context in which to deploy.
Sales Velocity: The metric sales teams are overlooking – by Matt Pickens
To get someplace on time you need to know how fast you are traveling. To hit a sales goal, you need to know how fast you are selling (and how fast your buyers are buying). Speed of selling is also known as Sales Velocity and it is among the most useful and least understood sales metrics. For any B2B organization looking to achieve greater results, Sales Velocity offers a simple yet powerful framework to accelerate performance.
Simply put, Sales Velocity measures how quickly you are converting leads into closed deals. It is a time-related metric, represented as dollars per day, week or month. By calculating a rate, it gives you powerful forecasting insight to where you will end up at the end of the quarter or year.
If you have 250 selling days and your quota is $25MM, you need to achieve a sales velocity of at least $100K/day to arrive “on time” at your quota destination. If it’s early in the year and your rolling 90-day sales velocity is $80K/day, you know you’ve got significant work to do to increase the speed at which you sell.
The real power of Sales Velocity is in understanding and capitalizing on the 4 factors, or levers, that determine it:
Sales Velocity = Number of Opportunities x Win Rate x Deal Size/Sales Cycle Time
Number of Opportunities = total opportunities in the funnel
Win rate = Deals won/total number of deals
Deal size = Average value across all deals
Sales Cycle time = Time elapsed from when an opportunity is added to the funnel to when it is Closed Won
Take the earlier example broken out as follows:
$80K/day = 1,000 opportunities x 50%-win rate x $8,000 deal size/50 day Sales Cycle Time
Sales Velocity allows you to benchmark performance for each of the above factors against a prior period (or strategic plan) to understand the root cause of gaps. Is the issue not enough opportunities? Is it a declining win rate? Is an incorrect mix of products sold resulting in smaller deal sizes? Or are things taking too long to move through the pipeline? In the absence of understanding these dynamics, you could envision an organization easily choosing a course of action that is solving for the wrong problem.
Below is a hypothetical comparison of the Sales Velocity example for Current YTD compared with the same period PYTD.
From this comparison, you can see that YTD growth in number of opportunities looks healthy. Deal size and cycle time are stable. In this case, the culprit appears to be win rate which has declined from 60% to 50%. This provides a focal point for further inquiry. Some helpful questions-
- What new dynamics are driving the win rate down?
- Is there increased competitive pressure?
- Are there new products that have been launched without sufficient training and messaging?
- Is there inadequate support around RFP response?
- Are lower quality deals stocking the pipeline (hence the increase in opportunities coming at the expense of a lower win rate)
- Have the buyer’s needs and/or required value from your solution changed?
Sales Velocity helps diagnose problem areas for early intervention. The organization must decide which continuous improvement levers it wants to pull to drive overall performance. If customer needs or required value has changed, offers can be modified with additional services, products or value that meet buyers’ needs and increase elements of velocity. There may be cases where major gains can be made in one area, say deal size, in the case of a new product launch. There may also be scenarios where major gains are hard to come by and smaller, incremental gains across multiple levers is a more feasible path to success.
By measuring Sales Velocity and its components, organizations can gain data-driven insights allowing for better forecasting and earlier, proactive intervention to ensure the organization’s revenue engine is firing on all cylinders.
Matt Pickens is currently West Region President, for Press Ganey, the leading transformational improvement partner for health care systems. In this role, Matt leads a team of client management and sales professionals who help health care systems identify and leverage the intersections of Employee Engagement, Safety, Quality and Experience of Care to reduce caregiver and patient suffering. Previously Matt served as Vice President of Marketing and Reimbursement for Baxano Surgical, a publicly held, minimally invasive spinal implant company. At Baxano Matt led marketing strategy, reimbursement, product development, and digital marketing efforts.
Matt holds an MBA from the Wharton School of Business with a concentration in Health Care Management and a Bachelor of Arts in History from Princeton University. While at Wharton, Matt was the Grand Prize Winner of the 2002 Wharton Business Plan Competition. Matt currently resides in Winter Park, FL with his wife Rebecca and their three children.