LVR = Lover?
Well, not exactly, but it’s certainly something startup founders love!
Lead velocity rate (LVR) is a popular metric for predicting SaaS growth and revenue trajectory.
It’s easy to calculate and offers indispensable insights into the efficiency of your sales performance.
But is it the right sales metric to prioritize for your SaaS company?
In this article, we’ll review lead velocity rate, why it’s important, how to calculate it, how often you need to measure it, and the standard you should aim for. We’ll also cover tips to boost lead velocity and other relevant metrics.
This Article Contains:
- What Is Lead Velocity Rate (LVR)?
- Why Is Lead Velocity Rate Important? (Pros & Cons)
- How to Measure Lead Velocity Rate
- How Often Should You Measure Lead Velocity Rate?
- What Is a Good Lead Velocity Rate?
- 4 Tips to Boost Lead Velocity Rate
- 8 Other Relevant SaaS Metrics Worth Tracking
Let’s begin.
What Is Lead Velocity Rate (LVR)?
Lead Velocity Rate (LVR) measures the growth of qualified leads your company generates month over month. It calculates the percentage of qualified prospects in your pipeline that you’re trying to convert into customers.
LVR is different from sales velocity rate. Lead velocity rate indicates the efficiency of your sales pipeline, which helps you assess your company’s potential for long-term revenue growth.
Sales velocity rate, on the other hand, measures how quickly sales deals pass through the pipeline and bring revenue.
Still, lead velocity rate is one of the best predictors of future revenue since it allows you to predict the sales growth trajectory.
Who Should Use Lead Velocity Rate?
Lead velocity rate is a vital metric for SaaS companies that want to measure the effectiveness of their sales pipeline.
It’s crucial for new companies that are trying to build revenue.
It may not be as important to early-stage startups as the goal is largely awareness instead of profitability. However, as the company matures, and profitability comes to the fore, lead velocity becomes indispensable.
But will it be useful for your business?
Let’s explore its pros and cons.
Why Is Lead Velocity Rate Important? (Pros & Cons)
These pros and cons can help you decide if lead velocity rate is the right metric for your business.
Pros
- LVR is a good indicator of future revenue and growth, especially when paired with lead conversion rate (measures the portion of leads that result in sales).
- LVR provides a real-time overview of sales performance, unlike lagging indicators (like Monthly Recurring Revenue or Actual Sales Revenue) that take time to reflect change.
- LVR allows for quick, strategic adjustments. That means you can immediately work on generating more leads if you’re behind on growth or lead targets for the month. It can also help you overcome seasonal sales dips.
Cons
- LVR doesn’t track actual sales or revenue. It measures the increase in leads in your pipeline. But it doesn’t account for sales performance, average deal value, or sales process issues.
- LVR needs to be tracked alongside other metrics (like Monthly Recurring Revenue, Sales Cycle Length, and Overall Conversion Rate) to be reliable. It doesn’t provide a complete picture of growth potential alone.
- LVR can be inaccurate if you calculate it with unqualified or duplicate leads. Its estimates won’t correlate to actual revenue growth.
So should you track it?
Of course! Just don’t use it as your only metric to predict success.
But how do you calculate LVR?
How to Measure Lead Velocity Rate
The formula for lead velocity rate is as follows:
Lead Velocity Rate = (Number of qualified leads in current month – Number of qualified leads from last month / Number of qualified leads from last month) * 100
As mentioned above, LVR is calculated month over month. So, you need to first subtract last month’s qualified leads from the current month’s qualified leads.
Lead Velocity In Action
Let’s say your sales team has 300 qualified leads in the pipeline this month and had 250 last month, then your LVR would be:
LVR = 300 – 250 / 250 * 100 = 50/ 250 *100 = 20%
This way, you can determine that your sales reps upped their game and generated 20% more leads this month. You can then accordingly adjust targets for the next month to see if they are achieved or not.
But what’s a qualified lead?
A qualified lead passes through a set of lead scoring processes before entering your sales funnel.
A qualified lead could be either a sales qualified lead (SQL), product qualified lead (PQL), or marketing qualified lead (MQL). At the very least, you can consider these leads as a sales opportunity with decent potential to purchase your company’s services.
To get the most out of measuring your lead velocity rate, you need to do it consistently.
Let’s explore how frequently you need to calculate your LVR.
How Often Should You Measure Lead Velocity Rate?
It’s best to track the lead velocity rate month over month to review the real-time growth of leads every month.
After all, you’ll want to know whether your potential for generating revenue is increasing with time.
Moreover, this metric provides more value when you track it consistently and measure it against past performance. This way, you’ll understand whether you need to generate more leads to reach your target revenue.
Next, let’s explore what an ideal lead velocity rate looks like.
What Is a Good Lead Velocity Rate?
A good lead velocity rate depends on your industry, target market, and product type.
A high percentage is excellent, but what’s important is maintaining the LVR consistently.
But that can be unrealistic if you set a high value for your ideal LVR.
Here’s what an LVR of 20% looks like:
Month 1: 100 qualified leads
Month 2: 120 qualified leads
Month 3: 144 qualified leads
Month 4: ~173 qualified leads
Such targets can be a bit unattainable, especially if you’re a small startup.
Instead, maintaining a consistent LVR of 8-10% can be efficient and attainable.
Though it may seem meager, it can cumulatively lead to substantial business growth year over year.
But what can you do if your lead velocity rate is low?
4 Tips to Boost Lead Velocity Rate
Follow these tips to improve your lead velocity rate:
- Optimize your lead generation process: A strong lead generation process is essential for increasing your LVR. But you also need to improve the quantity and quality of qualified leads to ensure your LVR is reliable. Moreover, good coordination between marketing teams and sales leaders can help improve velocity by handing over qualified leads at the right time.
- Save up leads before any seasonal dips: Have your sales team proactively work to capture leads before seasonal dips to avoid heavy drops in sales targets.
- Have seasonal offers: Putting out offers when you expect seasonal dips is a great way to entice leads who need an extra push. A good offer can also help you convert more qualified leads and add to your many success stories.
- Offer loyalty programs: Loyalty programs incentivize existing customers, helping you retain them. They also make those customers more likely to recommend your product to others, helping you gain more leads.
Now, LVR isn’t a one-stop solution for projecting business growth.
Let’s look at other metrics that can help you reliably track business and revenue growth.
8 Other Relevant SaaS Metrics Worth Tracking
Below are metrics that you should consider tracking alongside your lead velocity rate.
1. Net MRR Growth Rate
Your net monthly recurring revenue (MRR) growth rate indicates the increase in sales revenue month over month. Tracking this metric can help you assess the efficiency of your retention strategy and any revenue loss due to churn.
What’s more?
Tracking MRR with LVR can help you identify hiccups in the sales process or product since you can use MRR to corroborate your LVR.
Explore how you can track annual recurring revenue (ARR).
2. Conversion Rate
Conversion rate measures the percentage of prospects that complete a specific action in a given period.
For example, your conversion rate can indicate the number of users that sign up for a paid version of your SaaS product.
A high conversion rate usually means you’re generating product qualified leads who can boost your LVR.
3. Sales Stage Conversion Rate
Sales stage conversion rate is the percentage of deals that progress through a stage of your sales cycle.
This, in turn, can provide an estimate of the efficiency of your sales process across multiple stages in your sales funnel or pipeline. It can also help sales managers predict conversions for estimating the LVR.
4. Sales Cycle Length
Sales cycle length estimates the time it takes to close a deal.
To estimate your average sales cycle length, divide the total number of days it takes to close a deal for every sales rep by the total number of deals done (irrespective of deal size).
You can use it to create sales forecasts and measure sales efficiency along with LVR.
5. MQL, SQL, and PQL
A marketing qualified lead (MQL), sales qualified lead (SQL), and product qualified lead (PQL) are different types of qualified leads.
Here’s how to tell them apart:
- An MQL is a prospect that shows interest in your company’s product or service via a marketing campaign.
- A PQL is an opportunity (a qualified prospect with a high chance of closing) that has interacted with a free trial or freemium version of your product and realized its value.
- An SQL is a potential customer in the sales funnel that a sales manager determines as ready for conversion. It could be a former MQL or PQL that’s ready to be handed over to a sales rep.
Now, LVR doesn’t differentiate between MQLs, SQLs, and PQLs. However, it’s essential to identify how long it takes to produce these leads to project your LVR for the current or next month.
6. Customer Acquisition Cost
Customer acquisition cost (CAC) accounts for all the marketing and sales expenses it takes to acquire a customer (irrespective of deal value or average closing price).
Now, simply tracking acquisition costs with lead velocity rate isn’t essential. Its benefit lies in coupling it with customer lifetime value (see below).
7. Customer Lifetime Value
Customer lifetime value (LTV) is a sales metric that estimates the actual sales revenue a user brings to your company throughout their lifetime as a paying customer.
Now, if you’ve heard of this metric before, you’ve probably also heard about the golden ratio — where your LTV to customer acquisition cost ratio should be 3:1.
That means the acquisition cost should be, at most, a third of the revenue a customer brings. Maintaining this ratio helps sales leaders ensure their LVR predicts positive business and revenue growth since it doesn’t account for actual sales and deal value.
8. Sales Pipeline Velocity
Sales pipeline velocity (also called sales funnel velocity or sales velocity rate) measures how fast qualified leads move through your sales pipeline and bring revenue. You can also consider it as the time required for a sales opportunity to turn into a closed deal.
What’s the sales velocity formula?
You can calculate it by multiplying the number of deals, conversion or win rate, and average deal size. You then need to divide that figure by the pipeline or sales cycle length.
Here’s the sales velocity equation:
Sales Pipeline Velocity = Number of Opportunities Deal Value Win Rate / Length of sales cycle
Measuring sales velocity and lead velocity rate provides valuable insights that can help improve your customer conversion processes.
Amp Up Your Lead Velocity Rate
Your company’s lead velocity rate is an indispensable tool for forecasting growth and revenue.
And now that you know the formula and the metrics you need to track alongside it, you can capitalize on your growth rate to scale up.
But remember, the quality of your leads can impact the accuracy of your LVR. You should ensure your lead generation and content marketing strategies are well-targeted.
That’s where we can help!
Get in touch with Startup Voyager to boost your organic traffic and build a solid lead generation strategy backed by SEO and conversion experts.