The world of Software as Service can be really complex. Let alone measure actual sales and your growth percentage!
SaaS companies may find themselves measuring a number of different metrics and still may come up with measuring incorrect metrics.
Let’s just say, relying on how many deals you closed the previous month may not be the right metric for your sales performance and success.
When you search all over the internet about the most critical metric to be used, you will probably encounter a lot of metrics such as customer acquisition cost (CAC) to increase win rate or even the average contract value (ACV).
Despite all these options, one metric seems to prevail – the lead velocity rate (LVR).
So, if you constantly check on how your leads generate revenue growth or look into your monthly recurring revenue, read along.
In this article, we will look into the various concepts under lead velocity rate (LVR) and how it impacts the business’s sales growth.
Understanding Lead Velocity Rate (LVR)
Before fully grasping what lead velocity rate is or how it impacts your business, you have to first define what makes qualified leads.
A qualified lead is not just your average potential customer. Qualified leads are leads or prospects that have shown significant interest in your product or services.
So, in this perspective, the Lead Velocity Rate (LVR) is a type of key performance indicator or KPI that tracks the real-time growth percentage of qualified leads. Compared to Actual Sales Revenue (ASR) or the company’s Monthly Recurring Revenue (MRR) values, the LVR shows a monthly basis per growth percentage as it not only tracks qualified leads but also tracks company sales growth. Check out the difference between MQL and SQL.
In a much simpler sense, the lead velocity rate is your business’s growth percentage of qualified leads between the current month and the previous month.
By understanding your Lead Velocity Rate (LVR), you are able to measure your sales pipeline development which is the number of qualified leads (or marketing qualified lead) that you encourage to convert into real customers.
How to Calculate Lead Velocity Rate (LVR)
Lead Velocity Rate (LVR) is done to calculate the real-time growth of qualified leads between two months. Again, it is considered one of the most reliable predictors of future revenues, which can remain unaffected by seasons or sales team quality.
To calculate Lead Velocity Rate (LVR), you may use the formula below:
Example of Lead Velocity Rate in Action
XYZ SaaS company’s management looked into the efficiency of its sales team by calculating its lead velocity rate for the past month. In January, the company’s management garnered a total of 50 qualified leads. In the month of February, they garnered 80 qualified leads.
Using the data above, you can calculate the lead velocity rate by using the given formula above.
Oftentimes, lead velocity is interchanged with sales velocity. Sales Velocity is used as a metric that is used to measure how fast deals are closed within your sales pipeline and generate revenue growth.
On the other hand, Lead Velocity Rates focus on the growth potential that is based on the number of sales-qualified leads that come into your sales funnel and not how fast they are moving through your pipeline.
Arguably, a lot of marketers believe that the pitfall of calculating the lead velocity rate is that it does not actually produce actual sales.
Although it can provide a number of qualified leads, it does not display any in-depth information on the sales stage conversation rate, current pipeline value, and how marketing qualified leads turned into actual sales and revenue.
This is the same way when revenue indicators fail to detect lead qualification strategies, such as when the average deal value goes up.
Marketing and sales teams find having a qualified lead velocity rate significant as it is a real-time indicator that anticipates changes in seasonal trends, which can help you adjust your lead velocity for better conversion rates.
If your sales team fails to secure enough leads every month, then this can help you reach the right target market and boost your team to accomplish their goals.
However, to put a value on your lead velocity rate, it is essential to ensure that you bring in qualified leads alongside key sales metrics such as sales qualified lead rates, MRR growth rate, and Customer Lifetime Value (LTV) towards the pathway to a closed business.
The Importance of Lead Velocity Rate for your Sales Team and Revenue Growth
Given the significance of calculating Lead Velocity Rates as part of your revenue metrics, accurately calculated lead velocity rate has a number of benefits for every sales team. Here are some of them.
A real-time measure of growth potential
The Lead Velocity Rate is handy when it comes to giving you an overview of the growth potential of your business. Therefore, should your team fall short on your average deal size every month, you may refocus your lead qualification strategies and increase the chances of gaining potential customers to further improve your lead growth and actual revenue.
LVR helps boost efficiency in acquiring qualified leads
If your LVR growth targets come off as slow or the number of contacts in various stages of your sales cycle continues to decrease, it can be likely that there can be a lapse in your customer service. These lagging indicators can be attributed to various factors such as content and engagement strategies that can affect future business growth.
This may also help you further identify where your marketing efforts are failing, which can help you increase your lead conversion rate. Use a consistent formula in qualifying leads for your sales process.
Improves growth and customer service
Of course, the main goal for every marketing team is to have a high conversion rate. However, slow velocity can impede growth and credibility. Thus, measuring the Lead Velocity Rate remains vital for any type of business as it is a leading indicator of growth and performance.
Your sales and marketing team would want to make sure that the number of qualified leads month over month will only go higher.
By comparing your performance by retrospectively looking at your historic pipeline development, you can identify points of improvement from your previous month, whether it be your customer service or engagement strategies.
This ensures that your sales cycle can sustain win rates which eventually leads to your sales success. When you can accurately compute your lead velocity rate, you can foresee your growth even just a period of an average sales cycle length.
Reliable for forecasting future revenues
Despite having to work alongside other key metrics and not including customer churn rate, lead velocity rate is still an essential metric in forecasting future revenue. LVR can help you identify what marketing efforts work for a number of qualified leads and help you create seamless operations for your company’s management. You can quickly alter strategies and adapt to the sudden change in market trends.
When businesses can combine Lead Velocity Rate with other reliable metrics, you can perform in-depth analysis enabling your team to make strategic decisions that boost overall company performance, prevent losses, and reduce unnecessary costs.