Deal Velocity

What is Deal Velocity?

Deal velocity is a business metric that measures the speed at which a company negotiates and finalizes contracts. It’s particularly significant during the final stages of closing transactions, where legal and sales teams need to collaborate efficiently to transform agreements into signed contracts.

In essence, deal velocity tracks the time from when a contract is drafted until everyone has signed it. This process can involve multiple rounds of revisions, approvals, and negotiations, making it a crucial factor in determining a deal’s overall success.

Improving a company’s deal velocity means optimizing the processes that require time in the deal cycle — contract review, negotiation, approvals, and signatures. To accomplish that, they can use contract management software, which helps legal teams review and approve contracts faster.

It’s important to note that deal velocity is not the same thing as sales velocity. Sales velocity measures how quickly a company moves from initial contact with a prospect to closing a sale, converting them to customers, and finally generating revenue. Sales velocity includes all the phases of the sales process, while deal velocity specifically focuses on the contract phase​.

Synonyms

  • Contract velocity
  • Deal speed

Importance of Deal Velocity

The deal cycle commences when a customer verbally agrees to a deal with your sales team. From there, members of your sales team (or deal desk) will have to draft a contract that includes all the details of the agreement — pricing, products, service levels, terms and conditions, and legal clauses.

How the following events play out is crucial. Contract negotiation generally takes 5-10 iterations before reaching an agreement, with potential roadblocks like legal review, approvals, and compliance checks. The more complex the contract, the more rounds of iterations and approvals it’ll need.

Every day a business wastes at this stage creates additional risk. If the negotiation stalls due to unnecessary delays or mismanagement, customers have lots more time to lose interest or reconsider their decision.

It’s also an unnecessary drag on the company’s resources and cash flow. Besides the fact that the business won’t receive the income until the contract is signed (i.e., a cash flow predictability issue), legal and sales resources will continue to work on the deal. This means their average cost per deal is considerably higher than it needs to be.

By focusing on deal velocity as a critical business metric, you can:

  • Boost sales efficiency
  • Improve predictability in revenue-generating activities
  • Forecast future sales figures more accurately
  • Identify and resolve bottlenecks in the contracting process
  • Ensure timely deal closure and cash flow

How to Calculate Deal Velocity

To calculate deal velocity, you’ll need to consider four key factors: the number of deals in your pipeline, your average deal size, your win rate, and the length of your sales cycle.

  • The number of deals in your pipeline is the total number of transactions currently under way. To find this data, you’ll need to track all active negotiations and proposals that your sales team is handling.
  • Average deal size represents the typical revenue per deal. Calculate it by dividing the total revenue expected from all deals in the pipeline by the number of deals.
  • Win rate (conversion rate) is the percentage of deals in the pipeline your team has successfully closed. It’s calculated by dividing the number of deals won by the total number of deals that reached a conclusion (either won or lost).
  • Sales cycle length is the average time taken from the start of a deal to its closure. This can vary greatly depending on the complexity of the sale and the efficiency of the sales process.

With these factors, the formula for calculating deal velocity is:

Deal Velocity = (Number of Deals × Average Deal Size × Win Rate) / Sales Cycle Length

You can find the pipeline and sales data in your CRM. You’ll need to export it and run the calculations in a spreadsheet or use specialized software that can track these metrics automatically.

How to Improve Deal Velocity

Making improvements to the deal veocilty metric requires a focus on making the processes that go into the deal cycle more efficient.

That includes:

  • Contract creation
  • Negotiation
  • Review
  • Approval
  • Signature

Here are some tips for improving each stage:

Use templates for frequently used contract elements.

Creating standardized templates for frequently used contract elements (e.g., a standard pricing table, legal clauses, or service levels) significantly reduces the time spent drafting new contracts. Rather than spending 30 minutes writing out the same clauses over and over again, use a template that automatically inserts the relevant information into the contract.

Introduce automation where possible.

Consider automating parts of the contract creation process to save time and reduce errors. For example, using contract AI software to automatically compare and highlight discrepancies between two versions of the same contract makes it easier for legal teams to review and approve contracts faster.

Create a deal desk function within your organization.

A deal desk is a specialized team within a sales organization that manages the contracting process from start to finish. It encompasses members of the sales, legal, finance, and ops teams. Their purpose is to remove roadblocks and streamline the contracting process as much as possible.

By creating a specialized team for creating and approving deals, you can improve deal visibility, forecast more accurately, and guarantee consistent practices for all contracts. It also serves to ensure other departments are aligned with sales goals and objectives.

Use electronic signatures.

With e-signature software, customers can read the contract on their phone, laptop, or desktop, then sign it with a click. In place of the formal signature, they use a clickwrap agreement, signifying that they agree to the terms as outlined in the contract and authorize their electronic signature to be legally binding in place of a handwritten one.

E-signatures eliminate the need for printing, scanning, or mailing paper documents and speeds up the signature process significantly. This is especially valuable for remote or international deals, where physical documents and signatures may not be feasible. It also makes document storage and retrieval a whole lot easier, as all signed contracts are stored electronically.

Be thorough during lead qualification.

The industry-wide consensus is a 13% MQL:SQL conversion rate. Of course, there will always be uncontrollable variables that affect the success of a deal later in the process. But the more effective your sales team is at qualification, the faster you’ll convert new customers (on average).

  • Implement a framework like MEDDIC or SPICED for sales qualification.
  • Focus on solution selling — uncovering real needs and finding a way to fix them with your product.
  • Offer self-service options like a free trial, demo, or informational content.
  • Implement lead scoring to prioritize high-quality leads.
  • Use conversational marketing tools like chatbots to filter through prospects in real-time.

Think of it this way: when the opportunities in your pipeline are all highly qualified buyers who can actually benefit from using your product, creating a deal becomes infinitely easier.

Optimize sales communication and alignment.

There are two parts to optimizing sales team communication:

  • Deal management and oversight
  • Manager-employee communication

To manage deals, implement a digital sales room. This software will act as a store for all the information and materials needed for a deal, along with digital communication tools like chat and email. It serves as a centralized location where interdepartmental teams can communicate effectively on specific deals.

As for internal management, it all comes down to communication between sales managers and reps. Managers need to communicate expectations and goals and provide regular feedback through deal reviews.

Invest in sales training and enablement.

Sales enablement refers to the process of providing sales representatives with the resources and tools they need to close deals effectively.

This involves:

  • Training
  • Coaching
  • Content creation and curation
  • Performance analysis
  • Knowledge sharing initiatives for sales reps

Investing in enablement means empowering your sales team with the skills to navigate customer conversations more successfully, identify customer pain points more accurately, and ultimately shorten the deal cycle.

Sales enablement tools like lead scoring, contract automation, collaboration, and real-time sales call and deal analytics, can help streamline the process and improve overall performance.

Technology for Improved Deal Velocity

Companies can’t improve their deal velocity beyond a certain threshold without investing in software. Although sales enablement tools help with smaller elements of the deal process, there are four integrated tools that specifically address the bigger picture of deal velocity:

  • CRM
  • Contract management
  • CPQ
  • DealRoom

CRM

Customer relationship management (CRM) software is the backbone of modern sales organizations. It centralizes customer information, making it accessible to anyone in the company. It gives reps insights into customer history, preferences, and needs to help them close deals faster. It’s also where reps can leave notes about their opportunities and their communication history.

It also provides insights into sales velocity and granular information at each stage of the sales and contracting process. In addition to being the source for all the data that’s part of the deal velocity equation, managers can use it to assess sales rep/team performance. And reps can use it to track their deals to keep them moving.

Contract Management

Improving the contract management process is the first step in boosting deal velocity. By utilizing contract management software, businesses can reduce the time spent on contract review, contract creation and improve the accuracy of contracts in general.

Contract management software also allows for:

  • Version control
  • Document storage and retrieval
  • Templating
  • Collaboration between parties for redlining and negotiation
  • E-signature capabilities
  • Contract lifecycle management, including renewals and amendments

DealRoom

DealRoom is DealHub’s digital sales room solution. It centralizes all the information and communication needed for a deal in one place. Reps can use it to collaborate with other departments like legal, finance, and management seamlessly.

Through the DealRoom platform, reps can also send digital sales proposals, dynamically generate online forms and contracts, and see insights into buyer engagement and intent. And customers can sign it right then and there with DealHub E-Signature.

CPQ

Configure, price, quote (CPQ) is one of the most important pieces of technology used to optimize the quote-to-revenue process. With CPQ, sales reps can create a product configuration or bundle according to your programmed product rules. From there, it automatically calculates the price based on your pricing rules. Then, it turns that information into a formal sales quote.

It improves deal velocity by reducing the time it takes to create and send accurate quotes. And, since many CPQ tools (including DealHub) offer contract management built in, it also eliminates potential errors when turning those quotes into contracts.

People Also Ask

What is CRM velocity?

CRM velocity refers to the “sales velocity” metric in CRM. It tracks the speed at which leads and opportunities move through the sales pipeline, from initial contact to closing the deal. It also takes into account factors such as lead-to-customer conversion rate, average deal size, and length of the sales cycle.

What is the average deal cycle for SaaS?

While research shows the average SaaS sales cycle lasts 84 days, the time it takes to reach a deal is only a fraction of that. How much of a fraction that is varies greatly between companies, depending on the nature of the product, industry, and complexity of the sale. In general, deals with a lower contract value close faster than those with a higher value.

How do you use deal velocity to forecast future sales performance?

Forecasting future sales performance using deal velocity involves analyzing past data and trends to predict future sales outcomes. This includes looking at average deal cycle length, win rates, and conversion rates.