What is Lead Velocity Rate and How is it Calculated

How can you know that you’re doing a good job as a sales team?

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If it's the number of deals you close, you’re not on the right track.

To monitor how your business is performing, you need to keep track of various metrics.

A simple Google search for "Most significant sales metrics" would deliver you a long list of results, ranging from Customer Acquisition Costs (CAC) to Win Rate or Average Contract Value (ACV).

However, if there is only one metric you should really keep track of, it’s arguably lead velocity rate, as most experts would agree.

“[Lead Velocity Rate] is real-time, not lagging, and it clearly predicts your future revenues and growth. And it’s more important strategically than your revenue growth this month or this quarter. Hit your LVR goal every month… and you’re golden. And you’ll see the future of your business 12-18 months out, clear as can be.”

- Jason Lemkin, VC, and Founder of SaaStr

Not convinced? 

Don’t worry, I have plenty of arguments.

In this article, I will explain what lead velocity rate is, alongside listing the reasons why you should prioritize this metric for your SaaS business.

Once we grasp the theory, I will show you how to calculate lead velocity rate, give you an example and introduce 6 more metrics that can help you level up your sales game.

Let’s get into it!

What is Lead Velocity Rate?

The Lead Velocity Rate is the growth percentage of qualified leads between last month and the current month. It’s a way to measure your pipeline development which means the number of qualified prospective customers you’re currently trying to convert into real customers.

💡 Quick note: Lead velocity should not be confused with sales velocity, which determines how rapidly deals move through your pipeline and bring revenue. Lead velocity rates measure the increase in the number of leads entering your pipeline rather than how quickly they move through it.

Let me add another quote to highlight the importance of lead velocity rate when it comes to sales pipeline management:

“Looking at the current pipeline value as well as the historic pipeline development lets you peek into the future and estimate (and sometimes guesstimate) how growth could look in the next few months.”

- Christoph Janz, Co-founder & Managing Partner, Point Nine Angel VC

Now that you have an idea of what LVR is, allow me to explain why exactly you should track it.

Why should you track Lead Velocity Rate?

There are many reasons to track lead velocity rates.

1️⃣ First of all, your sales team and your company will benefit greatly from having a real-time indicator of growth. You may alter your lead velocity to bring in more leads if you expect a seasonal decrease in sales. If your salespeople are falling short on quota for the quarter, you may bring in extra quality leads to help them fulfill their targets.

However, in order for your lead velocity rate to be as helpful as possible, you must guarantee that the leads you're bringing in are closed, and you must track LVR as well as sales qualified lead rates and their journey to closed business.

2️⃣ Secondly, you shouldn’t forget that that velocity may be a symptom as well as a cause of poor customer service.

If the rate at which your contacts progress through the purchase cycle slows or the number of contacts in various phases decreases, it's likely that there's been a customer experience failure. It's possible that your content, engagement methods, processes, or any number of other factors are incorrect. 

Measuring velocity may assist identify where efforts are failing and where more emphasis is needed to enhance prospect experience and customer acquisition. On the other side, due to operational concerns such as unstandardized data formats or taking too long to upload contacts into nurturing tracks, velocity may be strained.

3️⃣ Thirdly, Slow velocity makes damage to the marketing department’s credibility and relationship with other departments such as the sales department. Since marketing mainly works to adapt marketing efforts according to sales goals, this relationship is crucial for businesses. 

The equation is simple. Sales reps want interested hot leads. And they want lots of them.

A high velocity guarantees that sales reps receive what they want from marketing, which is usually reciprocated in the form of actionable feedback that marketing can utilize to change methods and enhance outcomes.

4️⃣ And finally, last but not least, velocity rate affects revenue as well. If your velocity rate is higher than two points, it means that you get fewer customers, less revenue earned with marketing efforts. In the end, it would affect the marketing ops and demand gen’s role in the company badly.

Now we got answers for the what and why questions, let’s see how you can calculate the lead velocity rate. 

How to Calculate Lead Velocity Rate

Lead Velocity Rate Formula is:

Lead Velocity Rate =
(Number of qualified leads in the current month – Number of qualified leads last month)
÷ Number of qualified leads last month x 100

So if you generated $1 million in the newly qualified pipeline last month, and generated $1.1 million in the newly qualified pipeline the current month, your lead velocity rate is 10% month over month. As a result, over a time of an average sales cycle length, your sales will increase by 10%.

LVR growth targets would change from business to business. If you just managed to get a $2 million in revenue run rate, you might try setting an LVR growth target of 10% per month. As your run rate increases to $4 million, you could continue generating enough leads for your business with an LVR goal of %8 per month. It would be enough to grow your business at least 100%. 

If you reach the lead gen growth goals — the LVR goals every month, if not every quarter, revenue growth will follow, aided by a non-stop evolving sales team and an up-to-date product.

It might sound a little confusing and you might ask yourself, so what’s a good lead velocity rate? 

What's a good Lead Velocity Rate?

Well, it looks like it’s all about numbers but it isn’t. The Lead Velocity Rate varies considerably by industry, product type, and target market. While an increase is unquestionably encouraging, it says nothing about how many of those qualified leads are turned into actual sales or money.

However, a good LVR will hint at the performance of a B2B company.

So far, we’ve covered that lead velocity rate measures pipeline development and can highlight actionable insights for your business. Here's a quick rundown of what LVR tells about your sales and marketing efforts.

LVR predicts the future revenue

LVR plays the role of a revenue forecasting tool.

Businesses can combine LVR with lead conversion rate, which measures the percentage of qualified leads (MQLs and/or SQLs) that become customers, to demonstrate a company's capacity to close, expand, and earn money.

Keep in mind that LVR doesn’t include customer churn rate or the number of customers who leave your B2B company in a given period. If it’s too high, your LVR can’t compensate for user loss. For this reason, LVR is also paired with monthly recurring revenue (MRR), the lifeblood of many SaaS companies. 

Don’t forget that customer churn rate or the number of customers that quit your B2B business in a particular period, is not included in LVR. Your LVR won't be able to compensate for the churn rate if it's too high. As a result, LVR is often used in conjunction with monthly recurring revenue (MRR), which is the heart of many SaaS businesses.

LVR demonstrates Sales Performance in real-time

​​LVR is one of the key performance indicators and real-time metrics that demonstrates many aspects of the sales pipeline such as the number of prospects you're in contact with.

Other lagging metrics, such as Monthly Recurring Revenue (MRR) or Actual Sales Revenue (ASR) require extra time in order to give relevant information. Lagging indicators are those that are calculated after the event and are the most useful for determining the efficiency of current efforts and performance.

LVR hints fast strategic changes that you should do

When the average deal value goes up, relying just on revenue indicators may fail to detect lead qualification or lead generation concerns.

LVR, on the other hand, may quickly display changes in growth rates, allowing your marketing and sales teams to quickly alter their strategies.

I’ve mentioned lots of other metrics with LVR above because it’s crucial to work with other metrics to benefit from a good lead velocity rate.

That’s why, lastly, I will introduce six metrics that will help you to level up the game.

6 Key Metrics That Will Complement Lead Velocity Rate

Once you've calculated your lead velocity rate, you now should combine it with other metrics to generate even more meaningful insights you can act on.

Qualified lead velocity rate should be used alongside key sales metrics, such as overall: 

• Conversion Rate 
• Sales Stage Conversation Rate
• Sales Cycle Length
• MRR Growth Rate
• Customer Acquisition Cost (CAC)
• Customer Lifetime Value (LTV)

Whether you're a SaaS startup or a well-established company, the LVR metric alone won't give you a complete picture of your growth potential.

Conversion Rate is the percentage of users to your website that fulfill a targeted objective (a conversion) out of the total number of visitors. For example, if you’re a SaaS business, people who subscribed to your service after a free trial period are converted.

A high conversion rate means that your marketing is successful and your product is giving people what they need.

Conversion rates are calculated by this formula:

The number of conversions ÷ the number of total ad interactions in the same time period.

For example, if you had 40 conversions from 1,000 interactions, your conversion rate would be 4%, since 40 ÷ 1,000 = 4%.

Sales Stage Conversation Rate is the percentage of opportunities or deals that progress from one stage to the next. For example, if a rep made had 200 opportunities that moved to Stage 1 in the sales process, and 150 of those moved to Stage 2, then the Stage Conversion Rate for Stage 1 to Stage 2 would be 75%.

Sales Cycle Length is the total number of days it takes for a deal to close, divided by the total number of done deals. You might need to synchronize the time period you use to evaluate sales cycle length with how you monitor revenue. 

To calculate the length of your sales cycle, add up the total number of days it took to close each sale, then divide that figure by the total number of deals. 

X, Y, Z = total number of days spent on closing sales A, B, and C.

Total number of deals: Q

Sales cycle length = X + Y + Z ÷ Q

MRR Growth Rate is the net rise or decrease in monthly recurring revenue from one month to the next is known as the net MRR Growth Rate. Because of fresh money collected and revenue lost due to churn, your monthly recurring revenue fluctuates month to month.

Customer Acquisition Cost (CAC) is the cost of acquiring a consumer to purchase a product or service. Customer acquisition expenses are frequently linked to Customer Lifetime Value (CLV or LTV) as a significant economy unit. Any business may use CAC to determine how much it costs to acquire each client. 

Essentially, the CAC is calculated by dividing all costs associated with gaining new customers (marketing expenses) by the number of new customers gained during the time period in question. A company's CAC is $1.00 if it spends $100 on marketing in a year and acquires 100 customers in the same year.

Customer Lifetime Value (LTV) is a customer's entire value to a company over the course of their relationship. It's a crucial measure since keeping existing customers costs less than acquiring new ones, thus boosting the value of your existing customers is a fantastic method to generate growth.

The LTV is calculated by multiplying the customer's value to the company by the average lifespan of the customer.

It enables a corporation in determining how much money they may expect from a client over the course of their partnership.

Don't Miss Out

Don't get stuck on the same old metrics.

Keeping track of different metrics for your sales team can:

▶ Help you ensure everyone is aware of all objectives

▶ Keep you on your feet

▶ Generate countless insights for you and your team

So, why miss out?