Your ecommerce business tracks how many prospective customers visit your website, how many make a purchase, how long it takes them to buy, and how much they spend on average. This is all critical information—but what do you do with it?
This is where sales velocity comes in, a measurement that shows how well your sales funnel converts potential customers into buyers. Learn more about sales velocity and how to use it in your business to help you find bottlenecks and inefficiencies that can hurt profitability.
What is sales velocity?
Sales velocity refers to the speed at which your sales leads—those prospects that have a demonstrated interest in buying your product or service—move through your sales funnel, starting with their initial awareness of your product and ending with a purchase. It multiplies the number of qualified leads by your average deal value (or average transaction value for ecommerce) and your conversion rate—all divided by your average sales cycle length (how long it takes a customer to make a purchase once they’ve demonstrated interest in your brand).
Higher sales velocity suggests a successful sales strategy, while lower sales velocity might indicate problems in your sales pipeline that need attention. Businesses use customer relationship management (CRM) systems to centralize customer data and derive insights that help improve sales velocity.
How to calculate your sales velocity
Sales velocity is calculated using four factors:
- Opportunities. These are your qualified sales leads in a given sales period. For ecommerce businesses, opportunities might refer to the number of people who have visited your website or signed up for marketing emails.
- Win rate or conversion rate. This is the percentage of leads that convert to paying customers. Ecommerce conversion rate is the percentage of visitors who place an order.
- Average deal size or order value. This is the average amount customers spent per order.
- Sales-cycle length. This is the average time leads take to make a purchase.
To calculate sales velocity, multiply the first three factors, then divide by the length of the sales cycle. The formula looks like this:
Number of opportunities x Win rate x Deal size / Sales-cycle length
To forecast your sales velocity over a given period of time, you’ll use the following calculation:
Sales velocity x [Number of days or months]
Here’s a closer look at each factor of sales velocity, with examples:
Opportunities
Also called qualified leads, opportunities are prospects that a company considers likely buyers. Companies have different criteria for what constitutes a qualified lead. For example, some companies use sales team engagement as a measure: A chief financial officer who responds to a software salesperson’s email outreach counts as a sales qualified lead (SQL). Other companies use engagement with marketing materials: Someone who visits a retail website more than once or who subscribes to their email list might count as a marketing qualified lead (MQL).
Win/conversion rate
This is the rate at which browsers become buyers, often expressed as a percentage. If your ecommerce website had 5,000 visitors browsing your product lineup during the past month, and 500 ordered something, your conversion rate is 500 divided by 5,000, or 10%. In the sales velocity formula, you’ll use the decimal form—in this example, 0.1.
Deal size/order value
Also known as average order value, this is the average amount customers spend per deal or transaction. For example, an online athletic shoe store had sales of $250,000 in a month from 2,000 transactions. To find the average order value for the month, divide $250,000 by 2,000, arriving at $125.
Businesses that rely on subscriptions may use customer lifetime value (CLV) as their order value metric to account for multiple future periods of revenue from a customer’s subscription.
Length of sales cycle
This refers to how many days pass from a customer’s first interaction with your company to when they make a purchase. Retailers selling inexpensive or essential items often have short sales cycles because customers take less time to decide on consumer goods they purchase often. Companies selling bigger-ticket goods or more complicated products and services, such as software or subscriptions that require a longer buyer commitment, generally have a longer sales cycle.
Sales velocity example
Consider some hypothetical examples for calculating sales velocity. The first is an online retailer, the second is a business-to-business (B2B) service provider.
Fashionlux Ltd. sells high-end cashmere and silk clothing and accessories. In the last month, the company had 500 opportunities, or qualified customer leads, which the company calculated based on website clicks and marketing email opens. Its conversion rate was 25%, meaning 125 of the 500 leads became buyers, with an average purchase of $300. The sales cycle was five days. Sales velocity is calculated as follows:
500 opportunities x 0.25 Conversion rate x $300 average sale / 5-day sales cycle = $7,500 a day
Using this calculation, Fashionlux might forecast monthly (30-day) sales velocity as:
30 x $7,500 = $225,000
In the second scenario, Possible Solutions Inc., a provider of management and accounting software for small and midsize companies, defines its opportunities as businesses with at least $1 million in annual revenue that have responded to outreach from a salesperson. Possible Solutions has 40 opportunities and a win rate of 20%, meaning eight of the 40 leads purchase annual subscriptions for its software. The average annual subscription is $15,000, and subscribers typically stay with Possible Solutions for four years, so the average CLV is $60,000. The average sales cycle is 60 days, so Possible Solutions’ sales velocity calculation is:
40 opportunities x 0.2 win rate x $60,000 CLV / 60-day sales cycle = $8,000 a day
Similarly, Possible Solutions could forecast monthly sales from the velocity calculation:
30 x $8,000 = $240,000
How to increase sales velocity
- Find more opportunities
- Increase your win/conversion rate
- Boost your average deal/order value
- Shorten the sales cycle
Boosting sales velocity starts by finding ways to optimize each of the relevant four aspects of your sales process as follows:
1. Find more opportunities
Qualified leads are quality leads—they may have already responded to your queries or have some awareness of your product. You can try out a number of lead generation strategies, like referral programs, digital advertising, and search engine optimization (SEO) to increase the number of potential customers.
2. Increase your win/conversion rate
Take steps that encourage leads to become customers. An ecommerce company should have an easy-to-navigate website with an attractive layout, detailed product descriptions, clear pricing, and a user-friendly cart, checkout, and payment system. Ecommerce companies might also implement strategies to reduce cart abandonment, like retargeting campaigns.
For businesses that sell more expensive products or services and need time to cultivate sales prospects, focus on your sales team. Train them on how to make the best pitch, overcome buyer objections, and close the deal.
3. Boost your average deal/order value
To encourage customers to buy more, consider offering complementary products or services or add-ons, or upselling from standard to premium products or services. For example, an online clothing retailer could offer a discount when buyers bundle multiple items, or could offer free shipping over a certain order threshold to encourage buyers to spend more.
4. Shorten the sales cycle
There are a few different ways to shorten the sales cycle. You could start by focusing on your strongest sales channels, where conversion rates are higher and quicker (for example, maybe social media generates more high quality leads than emails) or try out personalization tactics like offering product recommendations. Also, consider inducements to customers—for instance, a buy-one, get-one (BOGO) free offer for a limited time.
Sales velocity FAQ
What is the formula for calculating sales velocity?
The sales velocity is calculated using the following formula:
Sales opportunities x Win rate x Average sale / Sales-cycle length
What are the factors that affect sales velocity?
The four factors affecting sales velocity are opportunities, or qualified leads; average dollar amount of a sale, deal, or online order; the percentage rate of winning deals from qualified leads; and sales-cycle length, or average number of days needed to turn a sales opportunity into a customer.
What is considered good sales velocity?
No single figure indicates a good sales velocity, which can vary widely by business type and industry. In general, a higher velocity is better, and your business can compare its sales velocity against past performance, competitors, or any available benchmarks.
What’s the difference between sales velocity and inventory turnover?
Sales velocity and inventory turnover are related, though they measure different aspects of business activity. Sales velocity shows the pace at which your business converts leads into customers, while inventory turnover reflects how long it takes to sell the goods on your store shelves or in warehouses.
