Sales forecasting is an essential process in business operations that enables companies to make informed decisions, manage resources effectively, and prepare for future growth. Forecasting sales is both an art and a science, requiring a fine balance of data analysis, industry knowledge, and intuition. Traditional metrics like lead quantity, pipeline value, historical conversion rates, and sales cycle length are commonly used as the backbone of forecasting methodologies. However, amidst these popular metrics is an often overlooked yet highly significant indicator: the Sales Velocity.
Sales Velocity is a metric that combines multiple elements of the sales process to give a comprehensive picture of how quickly a company is making money. It is the rate at which a business earns revenue from its sales efforts, accounting for factors such as the number of opportunities, deal value, win rate, and the length of the sales cycle.
Here is why sales velocity should be a core metric in your forecasting and how it can provide valuable insights for your business.
Sales Velocity = (Number of Opportunities x Deal Value x Win Rate) / Length of Sales Cycle
Each component of the sales velocity equation is a critical lever:
When you increase the number of opportunities, the average deal value, or the win rate or reduce the sales cycle length, your sales velocity increases, indicating that revenue is coming in faster.
Sales Velocity isn’t just another number to track. It's a holistic measure of a company’s sales health. So, why is it so frequently overlooked in sales forecasting?
Understanding and improving Sales Velocity involves a comprehensive strategy to enhance each component without sacrificing the others.
Sales Velocity provides a single metric that captures the efficiency and effectiveness of the sales process. By analyzing sales velocity, companies can better understand:
Better visibility into these facets allows for more precise forecasting and resource allocation. Sales teams can use this metric to fine-tune their strategies and processes, boosting overall sales performance.
When sales velocity is at the forefront of forecasting, several strategic approaches can be utilized to improve it:
Incorporating sales velocity into forecasting involves adjusting sales strategies to align with real-time velocity measurements. Here's how:
Sales velocity offers a granular and dynamic view of your business's sales health, providing actionable insights for making strategic business decisions.
Imagine an AI platform like Aomni that delivers personalization in sales at the click of a button. When integrating sales velocity as a key metric within Aomni's analytic capabilities, businesses can receive real-time insights into their sales operations. They can quickly identify where to focus their efforts—whether on nurturing higher-value opportunities, shortening the sales cycle with actionable insights, improving their win rates with competitive knowledge, or managing their pipeline more effectively.
As a result, sales teams become empowered to take precision actions aimed at not just increasing the number of deals but strategically accelerating revenue generation.
In conclusion, while Sales Velocity may not always receive the spotlight in sales forecasting, it offers unparalleled insights into the gains from every element of your sales process. By understanding and improving sales velocity, companies can shift from a simplistic, volume-driven sales strategy to a nuanced and highly targeted approach to revenue growth, ensuring sustainable business success in competitive landscapes.