February 1, 2016

What Lead Velocity Really Means & How to Measure It

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If you’re familiar with software-as-a-service growth metrics, you’ve probably come across the term “lead velocity.”

As a concept, lead velocity is fairly simple. Mike Preuss, CEO of Visible, explains in a recent post on the subject, “Lead velocity rate is . . . a metric that quantifies your business’ growth in terms of qualified leads.”

ALSO READ: 10 Ways to Increase Your Lead Conversion Rate

That’s great, but how does lead velocity rate (LVR) connect to other important growth metrics, like monthly recurring revenue (MRR)?

According to Jason Lemkin (whose 2012 article started much of the interest around LVR), metrics like monthly recurring revenue are lagging indicators, meaning they communicate data about the past rather than the present — which makes them poor inputs for forecasting.

Think of it this way: revenue recognized in your present month wasn’t necessarily earned this month. It could be attributed to opportunities that sales and marketing generated, nurtured, and converted over a 6 to 12 month period (depending on your sales cycle).

Since revenue recognition doesn’t always follow a consistent cycle, it’s a flawed indicator of how you will do next quarter, or even next month. Not to mention, there’s a lot of conjecture involved in traditional revenue forecasting. When a sales rep assigns a percentage close chance to each opportunity in your CRM, they do so based on intuition, not data.

For both of those reasons, Lemkin argues that lead velocity rate is the most reliable indicator of your current and future success. As long as you measure qualified leads and maintain consistent conversion rates, you can use LVR to forecast.  

The Lead Velocity Formula

The easiest way to calculate lead velocity is to plug it into the traditional growth rate formula:leaed velocity rateThis formula is pretty basic, but it will yield a percentage growth rate for your leads, month over month.

So then, is LVR really just a way of measuring lead volume per month? In a way, yes.

Lemkin is using the LVR formula with the assumption that conversion rates from MQL to SAL and SAL to closed business are consistent and sustainable. If that assumption is true, an increase in lead volume signifies business growth, because sales will always close enough leads to make their goals.

Why LVR Doesn’t Actually Measure Velocity

Semantic inconsistencies are not uncommon in B2B marketing. As businesses and analysts articulate the value of their product or the validity of a certain metric, subjective meaning will almost always diverge from literal meaning.

The same phenomenon is true with lead velocity.

Taken literally, velocity refers to the rate of change of an object’s position relative to a frame of reference. This means time must play a part in any measurement of velocity, but the LVR measurement includes no such variable, at least not at the granular level.

The case can be made — and has been made very eloquently — that lead velocity should measure the amount of time it takes a lead to progress through each stage of your sales funnel.

This measurement would not only be more intuitive, but also more revealing.

lead velocity fixed

Lead quality has long surpassed lead value as the highest priority for demand generation. That’s because marketers have improved their ability to turn anonymous prospects into known contacts. But they have yet to master delivering ideal leads to sales.

Lead velocity, in its true sense, could be another qualitative metric for marketers to improve. An increase in lead velocity means leads will spend less time at the MQL stage, which signifies a number of important advancements.

First, it means marketing has refined its ability to influence buyer groups. In the B2B world, particularly with mid-market and enterprise buyers, group purchasing dynamics can belabor a lead’s movement through your sales funnel — if not paralyze it.

It’s no surprise that account-based marketing (ABM) platforms like Terminus are building lead velocity directly into their value proposition. Terminus mentions “acceleration” multiple times on their homepage.

Right below their “hero” section:

pipeline acceleration

And again in their social proof section: 

terminus

Second, velocity is a function of the overall health of marketing operations. The more consistent the processes in the place and the faster data moves from one system to another (e.g. marketing automation to CRM), the faster sales can identify SALs.

You can gather both of these measurements using A/B tests. For the former, remove group-oriented content from the nurturing process and see what happens. For the latter, leave out a specific step or integration from marketing operations.

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Lead Velocity Rate is a valuable measurement, but the name is a bit misleading. The more interesting and valuable use of lead velocity is in the literal sense — in a sense that measures progress through each stage of your sales funnel.

As marketing becomes more integrated with sales, demand generation metrics must become more connected with improvements throughout the funnel. Should you bank your future on LVR? Well, that depends how you measure it.