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Estd 4.22.2023
In the fast-paced SaaS industry, forecasting future revenue growth with accuracy isn't just helpful—it's essential for strategic planning. While many executives focus on lagging indicators like monthly recurring revenue (MRR) or customer acquisition cost (CAC), forward-thinking leaders are increasingly turning to Lead Velocity Rate (LVR) as their north star metric for predicting sales performance.
What is Lead Velocity Rate?
Lead Velocity Rate measures the month-over-month percentage growth in qualified leads. As a leading indicator, LVR provides a real-time glimpse into your sales pipeline health before those leads convert to revenue.
First popularized by Jason Lemkin, former CEO of EchoSign and founder of SaaStr, LVR has become a cornerstone metric for SaaS companies looking to accurately forecast growth. According to Lemkin, "Your MRR growth will mirror your lead velocity rate growth, just on a 90-120 day lag."
Why LVR Matters for SaaS Executives
Unlike revenue metrics that tell you what has already happened, LVR offers several forward-looking advantages:
Predictive Power: LVR serves as an early warning system, signaling growth or contraction 3-4 months before it impacts revenue.
Investment Guidance: A consistently growing LVR justifies increased investments in sales and marketing infrastructure.
Market Validation: Steady LVR growth confirms product-market fit and effectiveness of your messaging.
Operational Planning: Human resources, customer success, and infrastructure scaling can be planned based on LVR trends.
Research from OpenView Partners indicates that SaaS companies maintaining a 10-15% monthly LVR typically achieve annual growth rates exceeding 100%, making this metric particularly valuable for high-growth organizations.
How to Calculate Lead Velocity Rate
The formula for LVR is straightforward:
LVR = [(Qualified Leads Current Month - Qualified Leads Previous Month) / Qualified Leads Previous Month] x 100For example:
- January: 100 qualified leads
- February: 120 qualified leads
- February LVR = [(120 - 100) / 100] x 100 = 20%
Implementing LVR Tracking in Your Organization
1. Define "Qualified Lead" Consistently
Before tracking LVR, establish a clear, company-wide definition of a qualified lead. This typically includes:
- Demographic criteria (company size, industry, location)
- Behavioral indicators (specific actions taken on your website)
- BANT qualifiers (Budget, Authority, Need, Timeline)
HubSpot research shows that companies with clearly defined lead qualification criteria convert 2.1x more leads to opportunities than those without standardized definitions.
2. Set Up Automated Tracking Systems
Implement systems that automatically capture and categorize leads:
- Configure your CRM (Salesforce, HubSpot, etc.) to tag qualified leads
- Create dedicated dashboards for LVR visualization
- Set up automated monthly reporting
3. Establish a Measurement Cadence
While monthly tracking is standard, consider your sales cycle length:
- Longer sales cycles (3+ months): Monthly LVR tracking
- Shorter sales cycles: Bi-weekly or weekly tracking
4. Analyze LVR Alongside Other Metrics
LVR becomes most powerful when analyzed in context:
- LVR vs. Conversion Rate: Are more leads translating to more customers?
- LVR vs. Lead Quality: Is lead quality consistent as volume increases?
- LVR vs. CAC: Is cost per lead changing as lead generation accelerates?
Common LVR Tracking Pitfalls to Avoid
1. Inconsistent Lead Qualification
Changing qualification criteria creates misleading LVR trends. According to research by SiriusDecisions, 68% of B2B organizations struggle with inconsistent lead qualification, undermining their forecasting ability.
No solution: Implement lead scoring models and regular sales-marketing alignment meetings to maintain consistent qualification standards.
2. Focusing on Quantity Over Quality
A rising LVR driven by lower-quality leads can create a false sense of future growth.
Solution: Track conversion rates by lead source to ensure quality remains consistent as volume increases.
3. Ignoring Seasonality
Many B2B businesses experience seasonal fluctuations in lead generation.
Solution: Compare LVR year-over-year rather than just month-over-month to account for seasonal patterns.
Case Study: How Drift Leverages LVR
Conversational marketing platform Drift attributes much of its rapid growth to disciplined LVR tracking. According to David Cancel, Drift's CEO, their team:
- Tracks weekly qualified lead velocity
- Segments LVR by lead source and buyer persona
- Uses LVR trends to make real-time adjustments to marketing spend
This approach enabled Drift to maintain 70%+ annual growth by identifying high-performing channels and doubling down on them before revenue data confirmed their effectiveness.
Implementing an LVR Dashboard
For practical implementation, consider building a dashboard with these components:
- Monthly LVR trend line (12-month view)
- Lead source breakdown showing contribution to overall LVR
- Quality indicators tracking conversion rates alongside volume
- Forecasted revenue based on historical LVR-to-revenue correlation
Tools like Databox, Tableau, or even Google Data Studio can create effective visualizations that bring your LVR data to life.
Conclusion: LVR as Your Growth Compass
In the competitive SaaS landscape, companies that can accurately predict future growth gain significant strategic advantages. Lead Velocity Rate provides that predictive power, offering a window into tomorrow's revenue today.
By implementing consistent tracking, maintaining lead quality standards, and analyzing LVR alongside complementary metrics, SaaS executives can make more confident decisions about resource allocation, hiring, and growth investments.
The most successful SaaS organizations don't just measure what happened yesterday—they actively track the indicators of what will happen tomorrow. LVR is your organization's growth compass, pointing toward future success before it materializes in your financial statements.