How to Calculate and Utilize Lead Velocity Rate (LVR)
- Lighter Capital
- Jan 25, 2022
- 3 min read
Updated: Jan 14
You could spend every day measuring a different SaaS metric and quickly become overwhelmed with data without knowing for sure which numbers are the most important or the most likely to indicate solid growth. One metric that has been highlighted as a strong measure for growth and sales efficiency is lead velocity rate (LVR).
Given the popularity of LVR as an indicator for growth, let’s explore what it measures, how to calculate it, and its drawbacks.
What is Lead Velocity Rate?
Lead velocity rate (LVR) is a metric that reveals how quickly qualified leads go through the sales pipeline and convert to customers. Basically, lead velocity rate assesses your business’ potential for long-term growth by measuring the month to month percentage change in the number of qualified leads. By instituting a procedure to systematically qualify leads, LVR allows you to forecast sales from one month to the next.
Jason Lemkin, venture capitalist and SaaStr founder, prefers this metric over other sales-related metrics because sales numbers are lagging indicators — showing what happened in the past. LVR, according to Lemkin, is a real time measurement and it clearly predicts your future revenues and growth. That makes it a more strategically important metric than revenue growth alone. Lemkin says, "As long as you are using qualified leads, and you use a consistent formula and process to qualify them, you can then see the future.”
You can count on your LVR to increase sales by a corresponding amount, and if it doesn’t, that provides an alert that something needs tweaking. A sales rate that is out of sync with your LVR indicates one of two problems with your business:
A sales team that needs improvement, or
A problem with your product that is preventing sales from being as robust as expected.
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How to Calculate Lead Velocity Rate (LVR)
You can calculate lead velocity rate using a simple formula, but make sure you are using only properly qualified leads in this equation.
Here’s a formula provided by Mike Preuss, cofounder & CEO of Visible.vc:
Preuss agrees with Lemkin on the importance of this metric. He says, "Lead velocity rate, when combined with factors like projected revenue, can paint a very vivid picture about the future of your business in both the short and the long term.”
Because your lead velocity rate is a steady indicator — unlike revenue which may fluctuate for a variety of reasons — and it has a direct relationship with sales, LVR shows you exactly what to expect.
LVR Caveats
Lead velocity rate measures something that isn’t yet of tangible benefit to your business; that is to say that qualified leads are great, but they certainly aren’t cold, hard cash. LVR is not a measure of actual revenue, but an indicator of potential sales.
If the LVR and sales process get out of sync, then the metric loses its reliability and becomes more useful as a method of pointing out a problem instead of as an indicator of your company’s growth.
Make sure to track other metrics alongside LVR so you can see if a discrepancy develops along the pipeline. These complementary metrics include:
Net MRR growth rate
SQL to Win conversion rate
MQL to SQL conversion rate
Pipeline volume vs. goal
If you don't measure LVR just right, it is meaningless. You must use qualified leads to calculate velocity, otherwise you not only waste your time in calculating it, but also you can make bad, misguided decisions that actually harm your business and impede growth.
If you get it right, though, LVR provides reliable and valuable information about your business. Lemkin explains it plain and simple: “Hit your LVR goal every month… and you’re golden. You’ll see the future of your business 12-18 months out, clear as can be.”
