Understanding the sales process is a fundamental requirement for the success of any ecommerce business. One key component that plays an important role in this process is sales velocity.
What is sales velocity?
In its simplest terms, sales velocity is a measure of how quickly a business is able to generate revenue. It is the average rate at which your opportunities convert into revenue.
In this article, we will explore the importance of sales velocity in ecommerce, how to determine and measure it, analyze the data, and suggest strategies for improvement.
Importance of Sales Velocity in Ecommerce
Charting your ecommerce company’s sales velocity can provide a diagnostic of the company’s sales health, indicating strengths, weaknesses, and areas that need improvement.
Increasing sales velocity can result in a direct increase in revenue. Even a marginal percentage improvement in sales velocity can significantly affect the bottom line of the business. When effectively monitored and managed, it provides a clear advantage in a competitive marketplace.
Understanding sales velocity provides an ecommerce business with an effective way to make strategic decisions about where to invest time, money, and human resources. It grants the ability to make informed projections about future sales and income, providing reliable insight into future growth.
This is why companies like sales velocity offer solutions that help businesses understand their sales processes better.
Determining Sales Velocity in Ecommerce
Sales velocity is all about understanding how quickly your online store is earning money over a specific time. It’s a handy metric for any brand to predict future revenue. This way, you get a clear picture of your financial position today, tomorrow, and further down the road.
So, how do we figure out sales velocity? It boils down to four key factors:
- Average Order Value (AOV): This is the average amount spent each time someone makes a purchase on your site.
- Total Number of Website Visitors: It’s the count of people who visited your site during a set time.
- Conversion Rate: This represents the percentage of visitors who actually buy something from your site.
- Length of Chosen Timeframe: This is the duration for which you’re calculating sales velocity. It could be daily, monthly, quarterly, or yearly.
Let’s put this into perspective with a real-world example:
- Imagine your website had 10,000 visitors in January.
- The average order value for January was $200.
- Your conversion rate for the month was 1%.
- You’re calculating sales velocity for the 31 days of January.
The calculation for your sales velocity would be = (10,000 visitors x $200 per order x 1% conversion rate) / 31 days. That comes out to approximately $645.16 per day.
This means, with 10,000 visitors, an average order value of $200, and a 1% conversion rate, your online store is estimated to earn around $645 daily throughout the month of January.
Analyzing Sales Velocity in Ecommerce
Knowing how to calculate sales velocity is just one piece of the puzzle. The real value comes from analyzing these numbers and understanding what they indicate about your sales process.
A decrease or slowdown in sales velocity could signal issues like an inefficient sales process, reduced market demand, a change in buyer behavior, or even internal problems like pricing or product issues.
On the other hand, an increase in sales velocity likely indicates an improvement in your sales process. Such an increase could be due to effective marketing campaigns, improved lead quality, or a shorter sales cycle.
Strategies to Improve Sales Velocity in Ecommerce
One must not forget that sales velocity is not a static figure; it can and should be improved for business growth. Here are a few strategies to consider:
Focus on lead quality over quantity. It’s better to spend effort on a few high-quality leads likely to convert than on a large number of low-quality leads. This saves precious time in the sales cycle.
Improve your conversion rate. This might involve training the sales team better, refining the sales process, or using advanced selling tools.
Lastly, look for ways to shorten your sales cycle. Automating repetitive tasks and delegating non-core activities are good places to start. By measuring, analyzing, and optimizing your sales velocity, you have a continuous mechanism for improving your sales performance and growing your business.
Overall, understanding, analyzing, and constantly working to improve your sales velocity can significantly boost the profitability and growth of your ecommerce business. Remember, small changes in sales velocity can have a substantial impact on revenue generation, and success lies in the details.
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