Sales Velocity Formula: How Quickly Are Your Deals Closing and How Can You Accelerate the Process?

Written by Gary Sangha | Founder & CEO | Mar 10, 2022 3:30:00 PM

Sales velocity measures how fast deals move through the sales pipeline and generate revenue. This key performance metric can reveal expected revenue for a given period. Beyond that, entering numbers into a sales velocity formula applies value to the sales cycle, whether establishing a baseline, identifying a problem, or looking for ways to improve. Increasingly, innovators are turning to artificial intelligence (AI) to increase sales velocity.

How Is Sales Velocity Calculated?

The sales velocity formula is derived from the following figures:

Opportunities: Quality leads assessed using the BANT framework provide the best business opportunities. The BANT framework asks:

- Budget: Does the lead have the budget for the company’s solution

- Authority: Is the lead a key decision-maker?

- Need: Does the lead need the solution?

- Time: Can this lead make a timely purchase?
Average Deal Value: Dividing the cost of total revenue by the number of customers or deals will determine the average deal value. Customer acquisition costs also come into play, as the goal will be to secure the largest deal for the lowest sales and marketing expense.
Win/Conversion Ratio: Find what percentage of prospects become paying customers by dividing the number of “won” customers by the number of sales interactions. Finding common obstacles and places where leads drop off is important for any business looking to improve and succeed long-term.
Length of Sales Cycle: To obtain the average sales cycle, first compile the total number of days it took to close every sale. Next, divide that total by the number of deals closed. The cost and complexity of the solution, along with the number of steps and bottlenecks in the sales process, will affect how well prospects convert.

Most companies are already tracking these numbers in their CRM systems, so the sales velocity formula should be easy to calculate. All calculations should be confined to a relevant and clearly defined period—whether a month, quarter, or year.

How Do Contract Approvals Affect Sales Velocity?

While a company may have little wiggle room over pricing, one area they can control is the sales cycle length. This factor can greatly influence how many deals are lost, considering that:

Average sales cycles range from three to nine months, depending on the product or service.
Sales cycles exceeding 150% of the winning sale duration will inevitably result in lost deals.

The sales cycle involves everything from prospecting, making contact, and qualifying the lead to nurturing leads, making an offer, and overcoming objections. The earlier phases of this process often move quickly, especially with AI, but the deal gets stuck in contracting process bottlenecks.

Aberdeen has found that the creation, negotiation, and approval of contracts contribute up to 18% of the enterprise sales cycle. Even a one-day slow down can cost a company $80,000 in lost revenue on average. By some estimates, the average company loses 9% of its annual revenue on slow, inefficient manual contracting processes.

These contracting bottlenecks occur for many reasons. For instance, outsourced legal services may prioritize larger clients or in-house responsibilities over smaller clients who account for a minor percentage of revenue. Sometimes it is because the work is passed down to junior associates who are inexperienced and afraid of making mistakes, resulting in longer review cycles. Other times, too many layers of bureaucratic oversight cause delays, especially when one person is out on vacation or an email gets lost in someone’s inbox.

How Does Innovation Plug Into the Sales Velocity Formula?

Modern legal tech can reduce or remove these common bottlenecks. Within the last five years alone, AI has reached new heights in its ability to act as “another pair of eyes” on a contract and accelerate contract review and negotiation processes while ensuring accuracy and precision. Explore the examples provided below:

Process Bottleneck	Traditional (Manual) Methods	AI Methods
Drafting a contract in line with company standards	New contracts were often drafted in MS Word and compared with paper clause libraries and printed copies of past contracts. Even when agreements were uploaded into central repositories, they still had to be compared side by side with the newer drafts—a slow, tedious process.	An AI Digital Playbook contains templates, standard clauses, and favorable negotiating positions. Agreements emailed or uploaded to the AI platform are scanned by AI to search for any inconsistencies, errors, or omissions.
Reviewing a contract for accuracy and compliance	Junior associates often take the first look at a draft, but due to them being inexperienced and/or overworked, this can result in longer than desired turn around times.	AI performs attorney-quality, playbook compliant markup in less than five minutes.
Gaining feedback on a draft	Contract versions can get lost in a database. Emailed questions can languish in the recipient’s inbox. Junior associates can become stuck while waiting for escalated issues to be addressed and/or approved.	AI-powered contract review technology automates escalations and ensures that senior-level attorneys review risky terms and clauses.
Negotiating contract terms	Lawyers must comb through past agreements to justify any change in position. This could involve crunching numbers, copying sections of the standard clause, going through notes to find a history of past issues with a particular party, or writing out a lengthy rationale for decisions. Attorneys may need to look up best practices on how to state their objections and hold the line on a given position in a way that is persuasive and compelling.	AI compares the current contract to playbook standards, suggesting context-based recommendations based on past performance and playbook preferences. Instead of requiring lawyers to research past agreements and engage in back-and-forth emails with other attorneys, the AI automates the process entirely.
Fixing errors	One mistyped date, forgotten party, error, or omission can ruin a deal and cause an impact that could potentially affect multiple contracts. These kinds of errors can delay a contracts’ execution by months.	AI technology does not tire or overlook details. Studies show that AI contract review platforms perform as well as seasoned attorneys on routine tasks. However, the AI can complete a comprehensive contract review in just a few minutes.
Handling high work volume and organizational change	Turnover is an inevitable facet of business. New and incoming staff will require training on the company’s negotiations positions, hopefully, codified in a playbook. Additionally, the workload of staff on vacation or leave must be covered by personnel who are already busy with their own matters. It can be difficult to scale while experiencing staff shortages.	Maintaining an AI digital playbook serves as a valuable training tool that can be used by each new trainee to quickly learn the company’s protocols. With contract review completed in a matter of days, rather than weeks or months, businesses can scale along with sales velocity.

LexCheck offers a contract review and negotiation platform built with advanced AI and Natural Language Processing (NLP) capabilities. Contracts are reviewed nearly as quickly and effortlessly as sending an email.

LexCheck’s AI-powered platform emphasizes speed and precision so your legal team can focus on what matters most: approving contracts and closing deals faster. Contact us at sales@lexcheck.com or request a demo to see how much of a difference a faster, more accurate contracting process can make for your business.

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