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McKinsey’s survey of over 1,000 sales organizations the world over found that 53% of “high performing” organizations rate themselves as effective users of analytics. The case for measuring sales team performance is strong, for, as it is rightly said, what cannot be measured, cannot be managed. And to measure performance, the availability of data is key.
In today’s business landscape, however, there is no dearth of ways in which to gather all kinds of sales data. In fact, the chances that organizations are experiencing or will soon experience data shock are far higher than the chances that they will experience any data shortage.
What is critical in such a scenario is determining which data points you need to track to obtain the crucial information to achieve the results you seek. This decision becomes crucial in a situation, such as what the current business environment presents you with, where you are inundated with possibilities for tracking sales data.
6 Sales performance measures that really matter
To help you decide which sales KPIs to focus on, we have put together a guide to the sales performance metrics that really matter, which not only tells you what these KPIs are and elaborates on their utility but also shows you how each of them can be applied in day-to-day business situations.
1. Lead response time
Lead response time refers to the time taken by sales reps to follow up on leads. The research is unequivocal about the criticality of this sales metric when it comes to qualifying prospects. According to HubSpot, there is a 100x chance of qualifying a prospect if the salesperson reaches out within five lead creation minutes. Inside Sales states that the lead qualification rate goes up 21 times when a lead is contacted within 5 minutes instead of after 30 minutes.
For each salesperson, this key performance metric is calculated by taking the time taken between lead creation and first response for each of the leads assigned to them and then dividing that total by the total number of leads.
2. Sales productivity
Sales productivity or the time spent selling is an important measure of sales team performance. Teams that are highly efficient are typically seen to spend a large proportion of their time on high-impact activities, such as prospecting and client meetings, and only a small proportion of it on low-impact activities, such as administrative tasks and tracking their commissions.
Another component of sales productivity is effectiveness. Two sales teams who spend the same amount of time selling may achieve different results. In such cases, the team that achieves better results is said to be the more effective one.
This metric is a product of efficiency and effectiveness. For example, touching base with 20 qualified prospects instead of using the time for accounting tasks is a case of high efficiency and high effectiveness.
Creating email templates to reach out to prospects over emailing each one individually, on the other hand, is a case of high efficiency. However, the latter method may be more effective. Here, the efficiency of the former dwarfs the effectiveness of the latter.
3. Sales funnel leakage
Have you ever wondered where in your funnel your prospects drop out and at what rate? This is the question that this metric answers. To determine where your sales process is the weakest, the conversion rate at each of its stages needs to be calculated. Better sales results can be achieved by identifying these weak areas and fixing the issues discovered therein.
Assume that 50% of fresh leads agree to get on a call, 40% of this set agrees to a demo, and 10% of this set become customers. The high rate of drop-offs at the last stage may indicate that the demos being given are ineffective or that the leads are not being qualified enough. The issues may be varied, but once you have identified these potential problems, it becomes easier to pinpoint the actual issue and take action.
4. Win rate
Also known as the conversion rate, this metric essentially measures the percentage of leads that ultimately become customers. It can also help determine the number of leads you need to have in place to reach your revenue targets.
Over time, if the number of deals being closed remains the same while the win rate is rising, it is an indication that your sales team’s performance is improving. On the other hand, if your sales team is closing the same or fewer deals and the win rate is also decreasing, it is an indication that something about your lead generation or other sales processes isn’t working.
Suppose you can identify 600 leads in a given month, of which 120 become customers, then your win rate is said to be (600/120) = 20%.
If your win rate is 20%, your revenue target 100k, and your average deal size 10k, you need 10 deals to reach your revenue target, and (20/100)x = 10, where x is the number of leads required. Here, the number of leads required, i.e., x, is 50.
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5. Average deal size
This metric tells you how direction your deal size is moving - up, down, or staying the same. Average deal size can be useful if you’re trying to move upmarket (in which case you want the metric to go up) or downmarket (in which case you’re trying to land more SMB customers and want the metric to go down) from where you are currently.
It also helps keep an eye out for reps for whom this metric is lower than the team average, as this could mean they are going after the low-hanging fruit and may need to target larger clients. Or it could be a case of aggressive discounting.
Average deal size is calculated by dividing the total value of deals closed by the total number of deals. For example, if the company closed two deals worth 500k and 300k each, the average deal size is 400k. In other words, if you have a sales representative whose revenue target is 800k and the average deal size is 400k, then two deals need to be closed to meet the target.
6. Revenue
And now for the most crucial sales KPI - revenue or gross income. While this may seem like a fairly straightforward metric involving gross sales with discounts and the value of returned goods factored in, there is more to it than meets the eye.
Revenue can be broken down into three constituent components - new business, cross-sell/upsell, and renewals. You would want to track the percentage of revenue that each of these components makes up to understand whether your efforts in each of these three areas are paying off. For instance, if you’ve been trying to ramp up customer retention, you ought to see an improvement in the business percentage coming from renewals.
It is also equally important to look at the absolute figures that each of these components contributes to the revenue. It may be that as a percentage of revenue, one component may be contributing less than it was previously. Yet, the absolute value of revenue from it has actually gone up.
Suppose you have 10 customers, each of whom pays an average of 5k/month. Your monthly recurring revenue (MRR) - a metric commonly used by subscription businesses - which is essentially the predictable revenue you receive each month, is 50k. Your annual recurring revenue (ARR) is 50k x 12 = 600k.
What are the factors that affect sales performance?
The sales function and its performance is crucial to any business. One would do well to identify, sooner than later, the factors that are affecting their sales team’s performance both positively and negatively. This will allow the business to focus on winning areas and course-correct in appropriate ways before it’s too late. The factors that affect sales performance can be divided broadly into two categories: internal and external.
1. Internal factors
These are factors that have their origin within the organization and can be controlled by it. The first and most important of these is the merit of the product itself. That is to say, if customers like and want the product, the sales team will see higher performance than otherwise.
Another important factor that affects sales volumes is the marketing strategy the company has in place. Collaboration with performance marketing agencies can help in accurately understanding key sales performance metrics and refining strategies to boost sales effectiveness. A well-defined and well-targeted marketing strategy means better sales performance. Other internal factors that affect sales performance include the availability of adequate finance to compete in the market, access to the latest technological tools needed for sales, and the business, to thrive.
2. External factors
The external factors that affect sales performance are essentially a function of the environment that the business operates in. While the company usually does not have any significant control over them, it can respond to them strategically.
For instance, the economic cycle stage - that is, growth, recession, etc. - that the country is in at the time can influence the demand for products and therefore influence sales volumes. Another factor that affects sales is competitive forces. The higher the competition, the lower the sales performance. Laws and regulations also affect sales volumes in the form of minimum pricing requirements, taxes, etc.
Conclusion
We have done above to look at each part of the sales process from start to finish and identify metrics that can serve as KPIs to measure sales team performance in each of these stages. Also, an awareness of factors - both internal and external - that affect your sales volumes allows you to anticipate challenges and leverage opportunities that will, in turn, lead to improvements in your sales team’s performance.
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Frequently asked questions on sales performance metrics
Here are some frequently asked questions on sales performance metrics:
1. What are sales performance metrics?
Sales performance metrics are quantitative measurements used to evaluate the effectiveness and efficiency of sales activities and outcomes.
Sales performance metrics help organizations assess the performance of individual sales representatives, sales teams, or the overall sales function. Sales performance metrics provide insights into various aspects of the sales process and help identify areas for improvement.
2. What are the most important sales performance metrics?
The most critical sales performance metrics are:
- Sales revenue
- Sales growth
- Conversion rate
- Average deal size
- Customer acquisition cost (CAC)
- Customer lifetime value (CLTV)
- Sales win rate
- Sales pipeline value
1. Sales revenue: The total amount of revenue generated from sales within a specific period.
2. Sales growth: The percentage increase in sales revenue over a given period compared to the previous period.
3. Conversion rate: The percentage of leads or prospects that successfully convert into customers.
4. Average deal size: The average value of a sales deal or transaction.
Sales cycle length: The average time it takes to close a sale, from initial contact to final purchase.
5. Customer acquisition cost (CAC): The average cost incurred to acquire a new customer.
6. Customer lifetime value (CLTV): The predicted revenue a customer is expected to generate over their entire relationship with the company.
7. Sales win rate: The percentage of sales opportunities that result in a win or closed deal.Sales pipeline value: The total value of all open opportunities in the sales pipeline.
