What does the SaaS metric “Lead Velocity Rate (LVR)” mean?

The Lead Velocity Rate (LVR) tells you whether or not you are increasing the rate at which you generate qualified leads. Bear in mind that this is very different from your Sales Velocity Rate (the speed with which you convert a lead into a paying customer) and from your Pipeline Volume and Pipeline Health metrics.

LVR is a key SaaS acquisition metric on which you need to keep a very close eye since, unlike your Sales Pipeline – which depends largely upon the ability of your sales team to predict (guesstimate) close date, sales stage, probability and likely value – Lead Velocity Rate is a good long-term indicator of future Monthly Recurring Revenue (MRR).

What does my Lead Velocity Rate (LVR) tell me?

No SaaS business will be able to grow its Monthly Recurring Revenue (MRR) without creating a consistent flow of new leads into the business. Your Lead Velocity Rate (LVR) is the SaaS metric that tells you if you are increasing the rate at which you are growing your sales pipeline. If your LVR is greater than zero then you are increasing the rate at which you are adding leads to the top of your pipeline. If your LVR is less than zero it tells you that your marketing is less effective than it could be.

How do I calculate my Lead Velocity Rate (LVR)?

There are two ways to calculate your LVR: number of leads and value of leads. Either way it is important that you only include qualified leads in your calculations. Calculating the increase in the number of qualified leads generated is not very helpful except as an easily trackable SaaS metric to set as a target for your acquisition marketing team.

Calculating Lead Velocity Rate this way is very simple. Take the number of leads that you generated this month and subtract the number of leads that you generated last month. Divide this by the number of leads that you generated last month and then multiply the result by 100. For example, if you generated 150 leads this month and 125 leads last month you have a 20% growth:

((150 – 125)/125) x 100

= (25/125) x 100

= 0.2 x 100 = 20%

However, you get a far more meaningful SaaS metric if you look at LVR in terms of the MRR value of the increase in qualified lead generation. Your result here will depend on how you approach Lead Valuation but isn’t that much different from the calculation shown above.

Simply take the value of leads that you generated this month and subtract the value of leads that you generated last month. Divide this by the value of leads that you generated last month and then multiply the result by 100.

For example, if you generated €1,500,000 in pipeline value this month and €1,250,000 of value last month you have a 20% growth in the rate at which you are adding potential value into your pipeline.

Whichever way you analyse your LTV, its important that you ensure that all leads are followed up and that you monitor them through their Lifecycle Stages and keep a close watch on your Lead to Customer rate.

How do I interpret my Lead Velocity Rate (LVR)?

Like most SaaS metrics, your Lead Velocity Rate is something that you should track at least each month. What you are looking for is a positive percentage each month to show that you are generating an increase in the value of qualified leads.

A negative percentage from one month to the next should trigger an analysis of reasons why you have started to generate value into your pipeline at a decreased rate. An ongoing period or even a trend of near zero growth or negative percentages indicates that something is seriously awry with your marketing.

However any positive growth that you see should be analysed with other SaaS metrics such as Customer Churn, Revenue Churn and your Lead to Customer Conversion rates in mind. If you are not converting enough new customers from the leads that you create to at least offset your churn rates, then your business will begin to decline.

Equally a declining LVR should be subject to the same analysis but with a second eye on your Cash Burn (the amount of money you spend each month) and your Zero Cash Date (the hopefully never-to-happen date at which you run out of cash) both of which are key monetisation SaaS metrics.

What is an ideal Lead Velocity Rate (LVR)?

There really isn’t an ideal lead velocity rate that applies to each business. You need to work out the LVR that offsets your customer and revenue churn rates and allows you to continue to grow your MRR at the pace that you have set. Keep in mind though, that your sales cycle may well be longer than your lead generation cycle, so it will take time for the increase in your lead velocity rate to filter through to an increase in MRR.

You should also bear in mind that as the value of your qualified leads pipeline increases, you can start to ease off your LVR target; after all an 8% monthly LVR target still equates to over 120% growth in annual LVR.

Equally you can switch budget from other marketing activities onto those that will boost your LVR if you need to combat seasonality by setting a higher LVR target in the months leading up to a seasonal dip in sales or if you need to assist a sales person or sales team who looks like they may fall behind their quarterly quota.