What is Lead Velocity Rate?
The Lead Velocity Rate (LVR) is a KPI that measures the real-time growth in the number of qualified leads that a SaaS company collects per month.
Frequently tracked by early-stage SaaS companies exhibiting high-growth, the lead velocity rate (LVR) is a practical key performance indicator (KPI) of the efficiency of the sales and marketing (S&M) team at managing its current pipeline of incoming leads.
The LVR also serves as a useful gauge for understanding the near-term (and long-term) growth trajectory of a SaaS company.
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How to Calculate Lead Velocity Rate (LVR)
The lead velocity rate (LVR) captures the growth of qualified leads generated each month in real time.
Tracking LVR enables management to determine if its pool of qualified leads is expanding, making it a reliable indicator of future growth.
The LVR metric is often considered to be one of the most accurate predictors of future revenue growth.
Specifically, LVR measures a company’s pipeline development in real-time, i.e. the number of qualified leads that a company is currently working on converting to actual paying customers.
Since LVR is measured on a month-to-month basis, the metric can be informative in terms of the company’s current revenue growth trajectory.
Unlike other revenue metrics, LVR is not a lagging indicator, i.e. it can be indicative of future performance rather than just serving as a reflection of the past.
Lead Velocity Rate Formula (LVR)
The lead velocity rate (LVR) is a KPI that compares the number of qualified leads in the prior month to that of the current month to determine the pace at which new leads are being added to the company’s pipeline.
If a company’s sales team is capable of consistently meeting its LVR goals each month, that would be an indication of strong sales efficiency (and optimistic growth prospects).
By isolating a company’s lead generation on a month-to-month basis, the number of qualified leads in the prior month acts as a point of reference for the current month.
LVR is calculated by subtracting the number of qualified leads from the prior month from the number of qualified leads in the current month, which is then divided by the number of qualified leads from the prior month.
What is a Good LVR Ratio?
The lead velocity rate (LVR) can be viewed as the pool of leads with the potential to convert into paying customers.
That being said, a company with minimal leads for the month is rather unlikely to have many customers at all, translating into lackluster revenue for the month.
If a company’s lead velocity rate is low, the sales team is not bringing in sufficient qualified leads to sustain its current revenue growth (or surpass previous levels).
SaaS companies pay close attention to the LVR metric because it measures the first step toward generating revenue.
- Marketing Qualified Leads (MQLs): MQLs are prospects that have shown interest in the company’s products/services, typically through engagement with a marketing campaign.
- Sales Qualified Lead (SQL): SQLs are potential customers who are determined as ready to enter the sales funnel, i.e. the sales team can pitch their offerings.
LVR is still an imperfect measure, as the metric measures neither “real” revenue nor does it take customer churn into account.
In the case that qualified leads are increasing but the efficiency at which those leads are being closed and converted, there may then be internal issues that need to be addressed.
Yet, if a company’s pool of qualified leads is steadily increasing every month, this is commonly perceived as a positive signal for future sales growth.
Lead Velocity Rate Calculator (LVR) – Excel Template
We’ll now move to a modeling exercise, which you can access by filling out the form below.
B2B SaaS Lead Velocity Rate Calculation Example
Suppose a B2B SaaS startup had 125 qualified leads in April 2022, which declined by 25 to reach 100 qualified leads in May. However, the number of qualified leads rebounded to 140 for the month of June.
- Qualified Leads, April = 125
- Qualified Leads, May = 100
- Qualified Leads, June = 140
In general, the greater pool of potential conversions is viewed positively, but let’s say that the number of conversions was 10 in May and 12 in June.
- Number of Conversions, May = 10
- Number of Conversions, June = 12
The sales conversion rate in May exceeded the conversion rate in June, despite there being 40 more qualified leads for June.
May 2022
- Lead Velocity Rate (LVR) = –25 ÷ 125 = –20%
- Sales Conversion Rate = 10 ÷ 100 = 10%
June 2022
- Lead Velocity Rate (LVR) = 40 ÷ 100 = 40%
- Sales Conversion Rate = 12 ÷ 140 = 8.6%
At the end of the day, June represents more upside potential in terms of conversion opportunities and revenue generation, yet the lower 8.6% sales conversion rate implies underlying issues that may be limiting growth.
