Lead velocity rate (LVR) is a measure of the growth percentage change of qualified leads from month to month. Note that a qualified lead (also known as a marketing qualified lead) is a prospective customer who has already shown interest in purchasing a company’s product or service and successfully passed a set of lead qualifications. The distinction between unqualified and qualified leads is important for understanding the concept of lead velocity rate.
Lead velocity rate measures the efficiency and effectiveness of the company’s sales pipeline. LVR is one of the most critical key performance indicators (KPIs) of SaaS companies. Generally, companies use lead velocity rate to assess the efficiency of its sales, as well as its growth potential.
How to Calculate Lead Velocity Rate?
Lead velocity rate is calculated as a percentage change in the number of qualified leads in the present month relative to the previous month. LVR can be calculated using the following formula:
QLm – The number of qualified leads in the current month
QLm-1– The number of qualified leads in the previous month
Example of Lead Velocity Rate
ABC Inc. is a SaaS company developing accounting software. The company’s management decides to evaluate the effectiveness of its sales team by calculating its LVR for the past three months. The calculations will be based on the number of qualified leads.
The number of qualified leads for the past three months is given below:
Month 1: 50 qualified leads
Month 2: 80 qualified leads
Month 3: 100 qualified leads
Month 4: 140 qualified leads
Using the data above, we can calculate the LVRs for the first three months. The second month, when leads increased to 80 from 50 the previous month, shows a high LVR of 60%. However, the third month, when leads only increased from 80 to100, shows a lower velocity rate of just 25%.
Pros and Cons of Using LVR
Proponents of the lead velocity rate metric argue that LVR is a better measure of actual sales growth than revenue. The reason is that lead velocity rate is a current, real-time measure. Thus, by using this metric, the company’s management can predict the trajectory of its sales growth. In addition, LVR may indicate immediate changes that a company must undertake to increase its sales performance.
However, the main pitfall about the LVR is that the measure does not account for actual sales. Although LVR provides us an overview of how well a company can increase the number of qualified leads, the metric does not reveal any information on how well the qualified leads are converted in actual sales and revenue. Due to this reason, LVR is generally measured with some other profitability measures, such as monthly recurring revenue (MRR).
The combination of LVR and MRR can be a powerful and insightful tool. For example, if there is a substantial lag between LVR growth and MRR growth without any significant changes in the sales team, it can indicate problems with a product or service being offered. Essentially, qualified leads are apparently not willing to convert into customers due to some flaw or deficiency in a product.
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