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Let me start with the statement that the LVR (Lead Velocity Rate) is not a marketing but a sales metric. In case you wonder why, it's because sales have more to lose if leads don't convert. Your pipeline depends on at least 60%+ marketing lead contributions in almost any scaling company, which may only sometimes be the biggest bucket to retire your quota. OK, the notion that your team needs more visibility into what marketers do at your company is a great excuse but does not necessarily help you to hit the targets. Also, ask yourself whether you can afford to lose about 60% of pipeline generation from your process. Probably not. There are plenty of reasons to care and watch this metric going forward, especially if this helps you answer a more fundamental question. Are my leads good quality leads?
Okay, let's break it down to several impact areas where the metric can predict future returns or issues. Unlike many historical revenue metrics, LVR is forward-looking. It provides early insights into future sales performance, giving you time to adjust strategies. Another benefit is its consistently growing LVR, which indicates healthy business growth and effective marketing and lead-generation strategies. It helps assess the effectiveness of your sales pipeline generation efforts to align with your sales targets. That should be reflected in the pipeline coverage per targeted amount. This metric has one additional value, especially if you are entering a new territory or offering a unique offering. The LVR can gauge how the market responds to your product or service, including the impact of marketing campaigns, product changes, or market conditions. Once you invest in these functions, you want to see whether you have an early signal about the return.
Using the lemonade stand example, we would have a lemonade stand with one or several types of lemonade that must attract a continuously growing number of people who come to our stand and are interested in buying our lemonade. Let's think of these curious people as "leads". We need to have enough interest to stop by "leads" to sell a certain level of each type of lemonade.
LVR is calculated by comparing the number of qualified leads in the current month to those in the previous month. We look for the net ratio as an output.
LVR = ((Number of Qualified Leads in Current Month − Number of Qualified Leads in Previous Month)/Number of Qualified Leads in the Previous Month)× 100%
Let's say in December, your company had 100 qualified leads; in January, this number grew to 120. The LVR for January would be calculated as follows:
LVR= ((120−100)/100)x100%=20%
This 20% LVR indicates a positive growth in your lead generation efforts. Your marketing offering resonates better. How good? That's where you need to start tracking this consistently across all the months.
You must have a few things in place before you start setting up this metric. This is more fundamental than just the calculation work that must be done in each organization. It takes time and practice before you move up a level by implementing this metric.
First and foremost, you must define what qualified means, which means you must likely have a lead scoring to rely on the qualification process. Refinements often happen, so settling on something will take a moment. Since the metric hinges on what is considered a "qualified" lead, you need to tighten this before you create another layer of dependency with the LVR. Different organizations may have varying criteria for this, and if the requirements are too lax or too stringent, it can skew the LVR. Risks are everywhere. You must understand that the LVR is a short-term metric, tactical at best. Your C-level team won't need to know about it, but your operations team with sales managers, SDRs, and campaign managers should be on top of it. It measures monthly changes and might not capture long-term trends or the entire sales cycle, especially in industries with longer sales processes (e.g., consultative sales). Sales teams might be incentivized to increase the number of qualified leads without ensuring their quality just to improve LVR. This can lead to a pipeline of low-quality leads. The CMO and VP of Demand Gen must align this with the CRO top-down. Otherwise pointless. A high LVR indicates potential sales growth but doesn't guarantee revenue. Factors like sales execution, market conditions, and product fit also play crucial roles in converting leads to revenue. The time lag between the initial moment of generating the pipeline and the time when the deal is getting closed is to blame. However, that gap should be mitigated by a robust stages qualification process. Now, the hardest is related to dependency on sales and marketing alignment. Both functions must be interlocked, but often, when both organizations have too many people and too little to generate or close against their booking targets, the blame game starts. The LVR assumes a good alignment between marketing and sales. If marketing generates leads that sales don't consider qualified, or if sales are not effectively following up on leads, LVR may not reflect the actual sales potential. The SDR is often a victim of the misalignment. CMO and CRO must agree that it would be a waste of money for the company not to use their time/ resources according to their purpose. Investors want their money to be well-spent.
Conclusions: This metric will not help you facilitate your conversation with the investors. However, this enables you to predict the trend before you realize that you overestimated the market response or overinvested in your sales acquisition process, and the marketing message needs to resonate with or hit the audience's sweet spot. If you add on top of the lack of time at that moment, you might end up in a situation with few options for maneuvering. Once your management team gathers for the QBRs, you can do nothing. Your number needs improvement; you can't tell what you have done to fix it, and most importantly, you can't tell when you should intervene and ask for additional resources. The buck doesn't stop here, however. Once you secure the pipeline generation, you must accelerate the pipeline towards the finish line. Everything that is happening in the pipeline space is about time. Below are a few practical ideas on how to build effective LVR metrics. I hope it helps.
Ensure lead quality: Prioritize the quality of leads over sheer quantity. Implement a robust lead scoring system and closely cooperate with the marketing team to define and agree upon what constitutes a 'qualified' lead. This ensures that the LVR reflects leads with a higher probability of conversion, enhancing sales efficiency and potential revenue. It helps with time constraints and allows the company to manage cash, which means investing in your team more makes sense.
Align LVR with sales process: Integrate LVR into your broader sales strategies. Use it as a tool to forecast revenue and adjust sales tactics accordingly. If LVR increases, consider scaling up your sales resources to capitalize on the growing opportunity. Conversely, if LVR is declining, investigate underlying causes and adjust tactics, such as revisiting your customer engagement or lead nurturing strategies. Your sales forecast is something that people rely on, so you better be right.
Balance short-term and long-term goals: While LVR is a short-term metric, balance its implications with long-term business objectives. Ensure efforts to improve LVR do not compromise long-term customer relationships or lead to unsustainable sales practices. Focus on strategies that drive consistent, long-term LVR growth.
Use Data-Driven Insights: Leverage data analytics to understand the nuances behind LVR fluctuations. Analyze which marketing campaigns, product offerings, or market segments contribute most significantly to LVR changes. Use these insights to inform decisions about allocating capital in marketing and sales efforts. Remember, this is a team game, not a solo boxing session with your punching bag.
Communicate with Stakeholders: Regularly communicate LVR trends and implications to internal stakeholders, including sales and marketing teams and external stakeholders like investors. Your CMO and VP of Demand are your friends, not enemies. Don't let your ego take over. Provide context to the data, explaining not just the what but the why behind LVR changes. This transparency helps manage expectations and demonstrates a command of the company’s growth trajectory and market dynamics.
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