What do contracts have to do with sales velocity?
Sales representatives and leaders alike are looking to improve their sales velocity, which measures how quickly you can move a prospective customer through the sales pipeline and generate revenue. It also shows the productivity and health of your sales team.
However, contracts commonly get in the way of that velocity. Cumbersome systems make contract approval difficult and lengthy. Contract bottlenecks often impact your team’s bottom line and ability to do their jobs well.
Because sales velocity is about how quickly you sell, contracts have a lot to do with it. When you are using manually updated contracts, you have no visibility into a contract’s status, limiting your ability to quickly move contracts forward and increase sales velocity.
What is sales velocity?
Everyone has heard the phrase “time is money,” but this rings especially true for salespeople. Sales teams work hard to refine their processes and seek new customers. The time spent winning new business and capturing generated revenue is an important metric in determining a sales team’s success.
Sales velocity measures how quickly your team moves customers through the sales pipeline and generates revenue at the end of the process. A sales velocity equation uses four metrics to determine a team’s velocity:
- Number of opportunities: This reflects the number of qualified leads in your team’s pipeline. Qualified leads keep your pipeline healthy and save time on wasted deals. Low-quality leads negatively impact sales velocity by wasting time or slowing the contract approval process.
- Deal value: Deal value is the average size or value of the prospective deal. Focusing on higher-value deals or streamlining approvals for low-value contracts can significantly enhance sales velocity.
- Win rate: The win rate is measured by dividing the total number of sales won by the total number of opportunities. Qualified leads help increase win rate, but so do effective contract processes. Contract bottlenecks that slow down the approval process often result in lost opportunities that reduce the win rate.
- Sales cycle length: You want the sales cycle to be short. Once you secure an opportunity, you want it to generate revenue quickly. Many sales teams have lengthy sales cycles due to inefficient contracting processes within their company.
Why should you track sales velocity?
You could be wasting significant time or even losing prospects because of inefficient contract processes. Analyzing your sales velocity can help you understand where and when delays occur. It also gives you critical insights into whether your team is successful in all areas of the velocity equation.
For example, if the number of opportunities and deal value are both optimal, but win rate and sales cycle length are poor, this is likely where your problems are occurring. Improvements to these areas could increase sales velocity and improve your sales team’s ability to generate revenue.
How teams can increase sales velocity
Sales teams are constantly trying to improve sales velocity. They usually focus on specific factors but miss how contracts play an essential role. Teams often focus on the following to improve sales velocity:
- Increasing the number of opportunities: Most sales teams focus on how they source high-quality leads by focusing on ads, marketing, and lead generation techniques. Even when successful in this area, other factors in the contract lifecycle can impact the sales process.
- Increasing average deal value: Sales teams can increase average deal value by focusing on what their clients want and don’t want. They may analyze past deals to focus on areas for upselling or eliminate unpopular offerings. Sales teams should analyze past agreements in their contract repository to help improve this metric.
- Improving win rate: Sales teams should look for ways to remove roadblocks from the pipeline. They need to nurture potential customers and encourage contract acceptance throughout the process. Too many teams fail to consider the impact contracts have on win rate.
- Shortening sales cycle length: Sales teams often focus on the wrong thing when shortening sales length, including engaging in time-consuming tracking of agreements and chasing down counterparty signatures. Many salespeople assume they are stuck with cumbersome contract approval processes when modern contract lifecycle management (CLM) software can do something about it.
How to improve sales velocity by improving your contracts
Sales velocity is ultimately determined by how quickly you sell. Contracts have a lot to do with this, as they are often the reason your sales process is too slow and difficult. Contracts that require manual editing and updates are slow and can negatively affect your sales cycle length. They require your salespeople to individually edit, track, and manage them throughout the contract lifecycle.
Advanced CLM software can improve your sales velocity with key tools that expedite contract approval. Here’s how you can improve your team’s sales velocity by improving how you handle contracts.
Identify common contract bottlenecks
A contract “bottleneck” is a point in the contract lifecycle that is bogged down by an inefficient process. Too many companies fall victim to contracts that are difficult to manage and reduce sales velocity. Common contract bottlenecks include:
- Waiting for counterparties to sign: One of the biggest time wasters is waiting on counterparties to sign the agreement. Lengthy negotiations can lengthen the sales cycle significantly. The same is true of difficult signature methods that make it hard to sign.
- Long review times by legal: Legal departments often take a long time to review contracts, reducing sales velocity by lengthening the sales cycle. Automation and self-service contracts reduce legal’s need to review individual agreements, thus increasing sales velocity.
- Manually updated contracts: Many teams still use manually updated contracts to do business. These require individual editing by the sales team member or by legal, reducing the time you can spend finding new opportunities and further lengthening the sales cycle.
- Inefficient contract storage: You need a single location to keep all of your agreements. This location should make it easy to find previous contracts and those currently in your sales funnel. Many companies rely on outdated technology, making it hard to find and analyze contracts. This wastes valuable time you could spend on revenue-generating activities instead.
Automate and self-service contracts
Sales process automation frees up your sales representatives to focus on more productive tasks, meaning you will spend less time on administrative and record-keeping tasks. Now you can focus more on selling.
Sales teams deal with numerous contracts, but not every agreement requires in-depth manual review. Sales teams can automate contracts by:
- Automating with Salesforce: An advanced CLM can partner with Salesforce to help your team automate contracts. You can integrate Salesforce with existing workflows and continue to improve them. The sales team can accelerate contracting speed by gaining tools to forecast new deals and prioritize them to avoid delays into the next quarter.
- Using public workflows: Public workflows let you host sales contracts in the shape of a URL. You can host non-negotiated agreements on a website where your counterparties can find and approve the contracts themselves.
- Using a workflow designer: A workflow designer lets your sales team build and launch contract generation and approval processes in minutes. You can centralize contracting requests to reduce delays that affect your team’s sales velocity.
- Automating low-value agreements: You want to automate high-volume, low-value agreements as often as possible. Individually negotiating these contracts is not worth it because the return on investment (ROI) is not high enough. You can use automation to improve both ROI on these agreements and sales velocity.
Increase contract visibility
Many sales teams don’t know the status of a contract once it goes to the counterparty. They often rely on legal for answers, and these answers can take too long, thus increasing the length of the sales cycle and negatively impacting your team’s sales velocity. You can increase contract visibility by:
- Tracking contract status with an activity feed: An activity feed keeps your team current on critical events in a contract’s lifecycle. It makes it easy to see when contracts are sent to customers, if any information is edited, and whether signature requests or approvals have occurred.
- Receiving automatic notifications: CLM software can automatically notify your sales reps when key events occur. It can also inform them if their efforts are required to help move the contract along.
- Using contract repository reminders: Modern CLM technology can provide key reminders that help drive your sales velocity. These include reminders about the status of a pending contract and even notifications about accepted contracts. A primary example is reminders about renewal dates. Renewals drive a successful business, yet too many teams miss these essential deadlines because they never receive a reminder.
Improve sales velocity by improving your contracts
Contracts have a lot to do with your sales velocity. Too many teams assume they are stuck with the outdated and cumbersome contract systems already in place. Those systems make reducing the sales cycle length and increasing the win rate difficult.
CLM software provides your team tools that increase visibility into contract status and help identify where bottlenecks occur. You can use this information to streamline your processes and significantly improve your sales velocity.
It is not enough to focus on the number of opportunities or average deal value—you also need to focus on how contracts affect your sales velocity. CLM software can improve how you move contracts through the sales funnel, allowing you to focus on revenue generation instead.