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Ecommerce metrics

Ecommerce metric refresher — Sales velocity

Vallabh Daga
November 6, 2020
6
mins read

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Sales velocity is the measurement of how much revenue your online store generates within a given timeframe. It helps brands accurately forecast revenue generation so that they know where they stand today, where they will stand tomorrow and where they would stand sometime in the future.

The typical sales velocity equation is composed of four variables:

  • Average Order Value (AOV) — The average amount of money spent each time a customer places an order on your website
  • Total number of website visitors — The number of people who landed on your website within a given timeframe
  • Conversion rate — The percentage of website visitors that turn into paying customers over a given timeframe
  • Length of chosen timeframe — The time period chosen for calculation of sales velocity - could be daily, monthly, quarterly or even yearly.

It can be calculated by the formula illustrated below:

Sales velocity formula
Sales velocity formula

For example,

  1. You had 5000 website visitors in the month of May
  2. Your average order value was INR 1,000 in the month of May
  3. Your conversion rate was 1% in the month of May
  4. Length of chosen time period is 31 days for the month of May
  5. Therefore, your sales velocity = (5000 X 1,000 X 0.01) / 31 = INR 1,612.90 per day

Why should businesses calculate sales velocity?

Knowing the sales velocity allows businesses to accurately forecast revenues and when they would reach a certain threshold.

It also helps you understand how quickly customers transition from website visitors into paying customers; so that you can identify stages with inefficiencies and take corrective actions with laser-focus. This is especially true when you're trying to measure the impact of a new product or sales strategy. For instance, a brand with quality products and an ample number of website visitors with low conversion rate should work on optimising their checkout process or developing a better website.

Benefits of increasing sales velocity

  1. Increase revenue and profit:  Sales velocity is directly proportional to revenue and profit; therefore, an increment in sales velocity means an increase in earnings. Typically, you want your sales velocity to be as high as possible — which means you are converting more visitors into paying customers in less time.
  2. Frictionless shopping experience:  Analysing your sales velocity helps you identify avenues for improvement on your online store so that you can take timely actions.

How to increase sales velocity?

If you want to unblock bottlenecks and boost your sales velocity, there are various approaches you could take — tweaking strategies to modify different variables in the sales velocity equation.

This means that you can either increase the number of website visitors, conversion rate, and average order value — or decrease the time it takes visitors to make a purchasing decision. To attain maximum sales velocity, you would need to achieve all of this concurrently.

Ways to boost sales velocity

1. Increase website traffic

Having a lot of visitors to work on is a great problem to have, however, you should screen and segment visitors that are an ideal fit for your brand. For instance, if you're selling high-end luxury products, you would want your audience to have a minimum threshold income. Once you're done with researching your audience, you can think about ways to increase the number of website visitors. This can be done by:

Run flash sales and promotional events

One of the most effective ways of generating traffic on your website is running a flash sale. You can promote the sale ahead of time; this will act as a catalyst, bringing more visitors to your online store.

Lacoste Flash sale
Lacoste runs flash sale's with deep discounts and promotes it ahead of time

Run advertisement campaigns on social media

Another proven strategy to increase traffic for your online store is to run social media ad campaigns. Using paid social media advertisements, you can create highly-targeted and tailormade ads for customers who are most likely to purchase your merchandise.

Zara Facebook ads
Zara Facebook Ads

Use SEO to boost discoverability

Search Engine Optimization, or SEO, is the process of fine-tuning your website to increase its chances of ranking highly in search results for relevant keywords.

When customers search for products online, you want your store to be one of the top results for that search. It is estimated that a third of all clicks go to the first organic result on Google. These prized spots are key ingredients for generating sustained traffic to your online store.

2. Increase average order value

Increasing your average order value can be tricky and complex. In some ways, you would be limited by business decisions made pertaining to the product and pricing. For instance, if the average selling price of your merchandise is INR 500, you cant inflate your average order value by deciding to charge INR 1,000 instead — it just wouldn't make sense. The key is knowing how to connect price to value, and to do that you need to:

Create product combos

You can use merchandising techniques to create various product kits which would cost lesser than the purchasing every item in the kit individually.

By kitting multiple items together, you can increase the perceived value of a purchase. Frequently used strategies include offering all-in-one solutions for different customer problems.

Duke cannon product kitting
Duke Cannon offers men's grooming bundle to increase their average order value

Build customer loyalty programs

If you're selling merchandise which needs to be repurchased frequently—consider building a loyalty or rewards program.

Loyalty programs are proven and effective customer retention strategies, helping you foster personalised relationships with your customers and caressing their tendency to repurchase.

Algenist customer retention
Algenist rewards program to entice shoppers into re-purchasing

Set minimum order incentives

You can offer various incentives to customers who are ready to spend a defined minimum amount. These incentives could be free shipping, coupons, samples, or even direct discounts.

Mango free shipping threshold
Mango offers free shipping over INR 6,500

3. Improve conversion rate

One of the most common misconceptions in sales is that deals are lost to competitors. Whereas, in reality, deals are lost to the existing state of your product (status quo). To improve your conversion rate, you must:

Offer free shipping

Thanks to Amazon, free shipping has become a fundamental customer expectation in modern times. If your store does not offer free shipping, customers are bound to look for an alternative.

Keep in mind that offering free shipping is often a psychological game. If you can't afford to offer free shipping directly, consider increasing your product prices to incorporate the shipping cost.

Honet & spice offers free shipping across India
HoneyandSpice offers free shipping across India to improve its conversion rate

Use high-quality images on your product pages

Since it isn't possible to touch or feel products when you're shopping online, the best alternative to showcase your products is using high-quality images from all profiles on your product page. This allows customers to know exactly what they are buying.

Swatch watches product images
Swatch showcases its watches using high-quality images displaying every detail

It's much easier to double your business by doubling your conversion rate than by doubling your traffic

- Jeff Eisenberg, President of Eisenberg, Vital & Ryze Advertising

Bottom line

Increasing your sales velocity is key to long term business health and success. Since sales velocity is directly related with your revenue and profits, a high sales velocity allows you to generate more income which can then be reinvested into high priority business objectives such as customer acquisition, product development, brand outreach, customer retention, and more.

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