If you’re just measuring success against how many deals you close -- you’re doing it wrong. A quick Google search of “Most important sales metrics” will turn up a variety of answers, from customer acquisition cost (CAC) to win rate to average contract value (ACV).
One voice and answer reigns supreme, however. You can’t open an article about lead velocity (including this one) without seeing SaaStr founder Jason Lemkin’s now-famous quote about how your lead velocity rate is the single most important metric for sales teams -- especially SaaS sales teams -- to measure.
He says, “It’s fun to list out every possible company who could buy, but a pipeline report is cr*p for predicting the future since they are more often about hope than truth. Pipeline for this month is useful, but depends on how various reps estimate (read: guess) at probability and close dates. Next quarter’s pipeline is only slightly better than a guess.”
Lemkin explains there’s a better metric for sales teams to track: Qualified Lead Velocity rate (LVR). But what is it and how should you measure it? Let’s get into that below.
Lead Velocity Rate
The lead velocity rate calculates the real-time growth of qualified leads month over month. It’s often considered the best predictor of future revenue and can be unaffected by seasonality or team quality.
Use this formula to calculate your lead velocity rate:
It’s important not to confuse lead velocity with sales velocity, which measures how quickly deals move through your pipeline and generate revenue. Lead velocity rates focus on the growth of the number of leads coming into your pipeline, not how fast they’re moving through that pipeline.
For more on how measuring lead velocity, here’s an excerpt from Lemkin’s book, “The Predictable Revenue Guide to Tripling Your Sales:”
So if you created $1 million in new qualified pipeline this month, and created $1.1 million in new qualified pipeline the following month, you are growing LVR at 10% month over month. So, your sales should grow 10% as well after a period of an average sales cycle length.
Once EchoSign hit $1 million in revenue run rate, we set an LVR growth target of 10% per month. Once we hit about $3 million in run rate, we dropped it to 8% growth per month. The goal of 8% per month was to produce enough leads to grow the business at least 100% year over year.
We hit the lead generation growth goals -- the LVR goals -- just about every month, and certainly every quarter, and every year. And by hook or crook, enhanced with an ever-improving sales team and an ever-improving product, the revenue growth followed.
The growth wasn't like clockwork each and every single day. But it emerged clearly over time -- every quarter, every year. And one great thing about LVR is while sales can vary a lot by month and quarter, there’s no reason leads can’t grow every single month like clockwork. Every. Single. Month.
Having a real-time indicator of growth is a huge advantage for your sales team and your business. If you anticipate a seasonal dip in sales, you can adjust your lead velocity to bring in more leads. If your reps are trailing on quota for the quarter, you can net more qualified leads to give your team the boost they need to meet their goals.
However, for your lead velocity rate to be as valuable as it can be, it’s important to ensure the leads you are bringing in are being closed and to track LVR along with sales qualified lead rates and their pathway to closed business.