More Than You Ever Wanted to Know About “Lead Velocity”
If you google the words “Lead Velocity” you’ll get a bunch of different definitions, the most notable of those is the one provided by Jason Lemkin on SaaStr back in December of 2012 titled “Why Lead Velocity Rate (LVR) Is The Most Important Metric in SaaS”
I’m a huge fan of Jason’s work, so I want to make sure I not only explain what his definition of “Lead Velocity” is, but also discuss that while I’m in complete agreement with his argument that it is “the most important metric in SaaS”, I’d like to improve upon the name, and provide my reasoning, based on correct terminology in physics. Here, we’ll compare and contrast terminology, and suggest that “Lead Velocity” as he uses it, should be called “Lead Momentum” , as that more accurately describes the metric.
Before we get into SaaStr’s definition of “Lead Velocity”, let’s first acknowledge that what we’re trying to do here is get scientific with our revenue models. We want the same level of understanding, control and predictability with our sales revenue as physicists have in sending a rocket into space. There are precise equations that govern the speed and location of an object in motion, given a specific set of assumptions – and equivalently we want to write down the set of equations that govern the path of a sales lead on the journey to revenue.
In physics, what does “velocity” mean?
Velocity is the rate of change of the position of an object, equivalent to the specification of its speed and direction of motion, e.g. 60 km/h to the north.
Or more precisely:
The average velocity of an object moving through a displacement , during a time interval is described by the formula:
So – let’s break down the formula into parts, and find the equivalent concepts in lead and revenue generation processes.
Change in Distance
How can the idea of “distance travelled” be applied to leads in your funnel? We’re obviously not talking about a prospect moving addresses from California to NY 🙂
Think about it in terms of the stages of the customer lifecycle journey. For this conversation, we’ll use a simple model, but you can imagine how it would extend to the stages you use in your process. Initially, we find a prospect in stage one of the Buyers’ Journey – seeking to clearly understand and define their need and their willingness to solve that need. Later, this person (or company) becomes a lead (first MQL, then SQL), prospect, and customer. The movement to a new stage can be thought of both as being driven internally by the customer (they are actively interested in finding a solution) and also being pulled and pushed at the right time and place by the sales and marketing functions (promotions, resources, etc) of our revenue engine.
We want to be very specific about our buyer’s journey to customerhood – and therefore define the path that they must take and the distance that they travel.
Going back to the definition of velocity, the displacement or the change in distance of a lead refers to how far the lead travels forward along the customer lifecycle journey:
In the example above, we have a simple lead lifecycle model that turns leads into sales opportunities, which become customers and who in turn become repeat customers.
The distances that we would then be concerned with are:
• Lead to Opp
• Opp to Customer
• Customer to Repeat Customer
or any other combination of the four stages.
So – what do we measure as a lead moves between these different lifecycle stages?
We want to know how long it takes for a lead to go from stage to stage.
For example, how long does it take for a person/company to convert from Lead to Opportunity? Or how long does it take to go from a new opportunity to winning the deal?
The time it takes is usually measured in days, but I’m sure you can find examples where it makes sense to measure hours or minutes, if not seconds.
And we now finally arrive at good equivalent definition of “Lead Velocity”:
Lead Velocity is how long it takes a lead to move between specific stages of the lead lifecycle.
As you can see, we can talk about many different variations of lead velocities depending on what we’re looking for, for example:
• Lead-to-Opp Velocity
• Opp-to-Customer Velocity
• Lead-to-Customer Velocity
Now that we’ve got our definition — let’s take a look at SaaStr’s:
Qualified Lead Velocity Rate (LVR), [is] your growth in qualified leads, measured month-over-month, every month.
Jason’s talking about the growth in qualified leads, month over month, rather than the length of time a lead takes to convert through the buying process. Perhaps the word “velocity” was more for the literary flourish than anything to do with velocity at all?
I’m actually going to give Jason a lot more credit here, because what he’s talking about is both the growth in sales qualified leads, as well as the assumption that SQLs convert to customers at the same, constant rate. This is in fact a key stretch of the road!
The reason it’s key is because of the word “qualified.” A “qualified lead” is the great equalizer, in that it doesn’t matter where the lead came from – because it’s been allowed to pass to the stage of being “qualified”, we can begin to assume that all else being equal, both the velocity and the conversion rate of the leads will be the same, month-over-month.
What Jason’s saying is that if you can establish such a solid relationship – a correlation between the number of qualified leads, and the number of wins, then increasing the number of SQLs (while keeping the lead scoring process constant) will increase the number of wins, and therefore revenue. That’s why qualified leads are a much more accurate predictor of future revenue than your sales pipeline.
This sort of combination of increasing quantity (ie increase the number of leads) combined with the assumed constant velocity, also has a name in physics: momentum.
The momentum of a particle is traditionally represented by the letter . It is the product of two quantities, the mass (represented by the letter ) and velocity :
Mass here is the number of your leads, all traveling towards becoming a customer.
I love the resulting imagery, and the name is just as cool if not cooler than before.
Therefore, the most important metric in SaaS is “Lead Momentum”, and the definition of Lead Momentum is: the month over month increase in the number of Sales Qualified Leads.
It’s more accurate this way.