How many leads does your business generate per month? While sales figures can fluctuate, lead generation should remain on a steady upward trajectory. This is why the lead velocity rate is one of the most important metrics to track growth in real-time.
Understanding Lead Velocity Rate (LVR)
To understand what the lead velocity rate, or LVR, means in business, it’s first essential to define what qualifies as a lead. A qualified marketing lead is not just any potential customer. It’s a prospective client or customer who has already shown quantifiable interest in the company’s services or products.
The LVR is a key performance indicator (KPI) that tracks the growth percentage of qualified leads in real-time. Compared to Actual Sales Revenue (ASR) or Monthly Recurring Revenue (MRR) figures, which require lag time, LVR shows growth on a month to month basis. Because it tracks only qualified leads, it’s a useful measure of company sales growth.
A higher LVR indicates that a company is utilizing its sales and marketing resources effectively. On the flip side, when the LVR drops over time, it’s a good indication that the company isn’t realizing its full growth potential.
Lead conversion rate calculator: how to calculate LVR
The qualified lead velocity rate is simple to calculate. It tracks the percentage change in the volume of qualified leads, comparing this lead number from one month to the next.
This is calculated using the LVR formula:
LVR = ((Qualified Leads in Current Month – Qualified Leads in Previous Month) / Qualified Leads in Previous Month) x 100
For example, imagine that a company generated 100 qualified leads this month and 80 in the previous month.
Plugging these numbers into the formula would give the following:
LVR = ((100 – 80) / 80) = x 100 = 25%
Therefore, from the previous month to the current month, the LVR was 25%.
Benefits of using LVR
When it comes to marketing, sales, and lead generation, LVR is undoubtedly a strong performance metric. Using the LVR can potentially be a better measure of real-time growth than sales revenue, particularly when looking at the figure from month to month. Using the LVR, a company can predict its sales growth trajectory.
Although it’s used from month to month for real-time lead tracking, LVR is also helpful to use over a longer term. By comparing the LVR from one year to the next, a company can pinpoint changes in strategy more accurately and understand whether they translated into customer growth over time. For SaaS businesses, there is a significant lag time between qualifying, converting, and closing leads. Tracking new leads at the start gives a steady metric that indicates a business is on the right path.
Challenges of using LVR
However, using LVR to predict revenue relies on the assumption that those qualified leads will translate into sales. This is why it’s essential to avoid confusion between qualified and non-qualified leads. A qualified lead must show a strong interest in your company’s products and services with the intention to buy, or the LVR loses its accuracy.
The bottom line
To strengthen LVR as an indicator of growth, companies should use additional profitability metrics like monthly recurring revenue (MRR). Taken as a piece of the broader puzzle, LVR can be a handy tool.
For example, if the LVR is growing at a steady rate, but MRR is lagging, it could indicate a problem with the services offered. While leads are generated, they’re not converting into sales. This would be cause for investigation and restructuring of product strategy. By keeping an eye on LVR together with these other metrics, you can gain a bird's-eye view of your company’s prospects.
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