You keep hearing about it: “Marketing-Sales alignment.”
It can be a somewhat elusive concept, but Marketing-Sales alignment keeps coming up for good reason: companies with strong Marketing and Sales alignment achieve 20% annual growth rate. Companies with poor sales and marketing alignment have a 4% revenue decline.
In many ways, Sales Velocity is the Marketing-Sales alignment metric because it combines key performance indicators from both departments into a single, high-level number.
In this whiteboard video, Lena Shaw, Director of Marketing and Growth at LeadGenius, describes how to calculate and use Sales Velocity.
Simply put, Sales Velocity is used to measure how quickly and effectively qualified leads are turning into revenue, month over month.[Tweet “Sales Velocity is a good Mktg.-Sales alignment metric because it combines KPIs from both depts.”]
Sales Velocity is particularly useful for B2B companies with an average lifetime value (LTV) over $5000 and an average sales cycle longer than 30 days. Sales velocity is still relevant for lower-value, more transactional business models, but charting Sales Velocity month-over-month is particularly valuable when LTV and sales cycle are prone to fluctuate, deal-by-deal. This is frequently the case as you move upmarket.
The average sales cycle has increased 22% over the past 5 years due to more decision makers being involved in the buying process. [Salesforce]
Sales and marketing teams often benchmark and set goals around the individual components of the sales velocity equation. On their own, these metrics help inform strategy. Together, in the sales velocity equation, they are are an indicator of how well your sales and marketing teams are working together to bring in revenue.
You need 4 variables to calculate sales velocity.
Of course, the more accurate these numbers, the more accurate your results. However, getting started by using realistic estimates is still valuable.
- # – Number of leads
- $ – Average deal size
- % – Lead to closed/won conversion rate
- T – Average conversion time
From here, just tap into your middle school algebra and plug in the variables. The resulting number will be your Sales Velocity in a dollar amount. Plot it month-over-month to see the trend.
Plot it month-over-month to see the trend.
Sales Velocity is most effective as trailing indicator. That being said, you have to know where you’ve been to know where you’re going.
Experimentally tweaking variables in the Sales Velocity can show you how small variations in process can add up to more revenue.