The next best thing to a crystal ball to predict future growth is to use metrics that make prediction much easier. Lead velocity rate (LVR) is among the KPIs to track, and for a particular reason, as explained below.
Lead velocity rate measures the real-time growth in the number of qualified leads from one month to the next. It shows how your pipeline development is coming along, which can help understand how likely you are to close deals for the month.
LVR is a leading indicator of sales revenue, which means that even though there may be a variance in revenue due to downgrades and cancellations, you can continue growing your pipeline of incoming leads every single month. A month-on-month increase in the number of qualified leads is a good predictor of future revenue and increases certainty about your near-term growth potential.
Other commonly measured SaaS sales metrics like monthly recurring revenue (MRR) are lagging indicators and useful to look back on your sales performance. As a real-time indicator of revenue growth, LVR tells you whether lead generation is maintaining a steady upward trajectory. If you aren't meeting your growth target, you can take action to hit the numbers and come out on top by the end of the month.
You can determine the percentage change in marketing qualified leads (MQLs) you want for a given month based on seasonality or other factors. If you anticipate a drop-off during low season or times of unpredictable demand, you can adjust your lead velocity to target more leads to boost sales velocity and volume. The revenue metric will be more useful if you also measure the number of sales-qualified leads (SQLs) you're closing successfully.
It's also worth measuring LVR to gauge the effectiveness of your inbound marketing and your sales team's efforts. A decline in potential customers could signal issues with your marketing content, customer experience, or sales funnel.
To calculate LVR, subtract the number of qualified leads in the previous month from the number of qualified leads in the current month, and divide by the number of qualified leads last month. Multiply by 100 to get the percentage of the number.
The formula is:
No. of qualified leads this month - No. of qualified leads last month/Qualified leads last month x 100
Say a SaaS business had 100 qualified leads in Nov 2022, which increased to 150 in December but fell to 120 in January 2023.
The lead velocity rate for December is 50/100 = 50%
The lead velocity rate for January is -30/100 = -30%
These numbers don't indicate the actual sales. That will depend on the sales conversion rate for the month. If 30 leads became paying customers in December, then the sales conversion rate for the month would be 30/150 or 20%. But if the number of conversions increased to 40 in January, the conversion rate would also grow by ~13% (40/120 = 33.33%).
Lead velocity rate varies based on industry, product/service, and company. Once you've set your MRR growth rate, calculate the number of leads you'd need to achieve your LVR goal. You can, at any point during any month, check if you have the amount of sales pipeline required to meet your target revenue. Doing this monthly or quarterly will allow you to make reasonable predictions about revenue for a specific time period.