Audience: Sales, Marketing, and RevOps Leaders Also published on LinkedIn.
Welcome to the New Year! As you begin the first full week of 2020, you may be in a similar boat to many other folks this week: The annual Sales Kick-off (SKO), or Revenue Acceleration Summit, is looming on the horizon, and you’re trying to figure out the agenda…
Your SRO probably has a few ideas that he/she would like to include this year, but what if you brought a whole new idea to the table? An idea that not only provides direction, but allows your team to have the tools to navigate the waters when they get rough? An idea that can become the foundation of your revenue objectives for the year? I’d challenge you to consider Revenue Velocity!
Revenue Velocity is Sales Velocity on steroids! The concept of Sales Velocity has been around for a few years, and there are many online resources that get into the high-level breakdown of what it is. However, I’ve noticed a few gaps and discrepancies in the articles:
Sales Velocity typically applies to the sales organization
Sales Velocity only applies to opportunities that are in flight
Sales Velocity may create an arbitrary number that can be tough to understand.
Enter Revenue Velocity.
Revenue Velocity leverages Sales Velocity and it brings in your entire pre-sales (Marketing, Demand Gen, SDR, Pre-Sales Engineering), Sales, and post-sales (Delivery, and Account Management) teams all to the same table. It creates the measurable objectives for each member on the team to reach to revenue goal.
We’ll address all of this in future parts, but to begin, we will look at Sales Velocity. Sales Velocity is simply the amount of $$ per day the revenue machine must create to meet goal. What’s great about this is at any given point you can measure if you are running ahead or behind schedule, and you can dig deeper to see where opportunities exist to improve. We’ll progress through this so we can see how it works:
Sales Velocity =
The $ Revenue required in a given period, divided by the number of days in that period.
To determine your required sales velocity this year, take the annual revenue objective and divide it by 366 (remember it’s a leap year this year!). This is your required sales per day that is needed to meet your objective. Pretty straight forward and easy to measure.
So if our annual revenue goal was $366, our required sales velocity would be $1 per day to meet that goal ($366 divided by 366 days).
Now that seems simple, and you might be asking:
Why are you writing this long of an article for me to do simple math?
Ah ha! This is where it gets interesting! We need to begin to break down how we can influence this revenue number, and this is where it begins to get interesting for the sales organization.
To break down total revenue in a period, you can see that
The $ Revenue in a period =
The # of sales needed multiplied by the average $ per sale:
Again, very straight forward and easily measurable! But why stop here? Let’s go DEEPER!
$ Avg Sale =
Total Expected Revenue divided by the expected # sales.
Let’s break down the # of sales further. If we do that, we see that
# of Sales in a period =
The # of Opps expected to close in the period multiplied by the Close Rate
Very important note here, which we will address in a future part: The # of opps is specifically the number expected to close in that period, not the total number – you wouldn’t want to include 2021 opportunities in this calculations for 2020 velocity. (Actually, you might. We will address this further in the future, but let’s keep it simple for now.)
Now, to keep this train rolling, it’s important to breakdown the Close Rate further:
Close Rate =
# of Wins in a period divided by Total # of Decisions in that period
The “Close Rate” or “Win Rate” topic is one that has been known to ignite holy wars or political debates! It is a powerful number that honestly can be manipulated to tell whatever story the author desires. To truthfully do it justice, we need to break it down further. At a high level, this measures outcomes.
We can agree that an Opportunity is either won or lost…These outcomes can be expected or unexpected in nature, and it’s important to know the truth so as to not mislead. We need to measure all of that!
First, let’s dig into wins.
# of Wins =
# of wins originally expected in the period + # of opportunities that were unexpectedly won from future periods
We know that sometimes opportunities expected to close in a period will push into the next period. And, sometimes we might even be able to pull a future opportunity into the current period. We want to make our revenue engine as predictable as possible, so we therefore need to measure the activities that are expected and unexpected. It will make the revenue engine better, and it will begin to make us much better at forecasting our business. In this case, we want to capture not only the expected wins, but those opportunities that we were able to pull in.
As we move to the denominator of Close rate, we look at the Total # of Decisions in that period. This includes everything from previous discussion of Wins, plus any losses that were expected to close in the period as well as anything that unexpectedly pushed into the future.
# of Decisions =
Total # Wins expected in the period + Total # Losses expected in period + # of Opps that unexpectedly pushed into the future + # of Wins that were pulled unexpectedly from future expected close dates.
So now, we’ve taken a very simple model and driven deeper into the mechanics to be able to measure and manage the revenue machine. Why is this worth it? Because these mechanics are incredibly powerful, and they can be influenced by the other parts of the organization.
Going back to our earlier example: To meet our revenue objective of $366 dollars this year (Sales Velocity of $1/day), our model says we have 100 opportunities expected to close in 2020, we have an expected close rate of 10% and an average Sale of $36.60.
A 10% increase in each macro category in the numerator: # of Opps, % Close Rate, and $ Avg Sale) will increase the outcomes for the period by 33%!!!
If we increase everything 10%:
The # of Opps to 110
The Close Rate to 11%
The Average Sale to $40.26
Keeping our 366 days the same
Our Sales Velocity moves from $1/day to $1.33/day!
Which means our total revenue increases from $366 to $487! All from 10% increases!
Hopefully, you can see the power of the Sales Velocity equation. It has proven to work for my teams multiple times – creating record sales and putting sales people on the path to club trips!
But it doesn’t end here. In the next post, we’ll look at the role of the pre-sales organizations, their responsibilities, their models, and how they can influence Sales Velocity. Then we’ll look at the impact post-sales can have on the engine. We’ll explore ways to impact each of these numbers from all organizations, and then finally bring it all together with reporting and analytics.
I hope you stay tuned, and if you find yourself needing help to get this launched this year, feel free to reach out – I’d be glad help – It’s what I do!