Reading articles recently about selling and sales management I’ve noticed a trend towards new approaches like sales 2.0, social selling, the new way to prospect etc. where they often discuss the pros and cons of measuring or tracking the numbers. For me at least unless you’re a person who can magically hold a huge amount of data in your head or you’ve developed a unique new way of managing your business and sales teams, which I’d love to hear about by the way, then it really is all about the numbers.
Of course, every business is slightly different but there are definitely a few key metrics and KPIs that we should probably be tracking regularly. Depending on where you sit in an organisation’s hierarchy will usually determine some of the criteria determining these metrics as your role and responsibilities will require different performance measures. If you’re the global head of sales for example, then you’re going to need sales metrics for the entire company, you are going to want to see these split by geography or region, you may have a channel in which case you’ll want to see your sales split by direct and indirect, you will want to track renewals and upgrades and the list can go on depending on the size and complexity of your business.
For the sake of this article I have split the types of metrics I typically use into two buckets, the first bucket includes the metrics I typically use on a day to day basis to measure and manage all our sales teams. The second bucket looks at the types of metrics you’d use when you’re doing your strategic planning such as your routes to market and your quarterly and annual sales plans.
Bucket one – Everyday metrics
When I’m asked what metrics I use regularly, I generally have the same answer. I think we can all agree there are four core levers we can pull to improve our sales performance regardless of the type of business we are in or what go to market strategies we are using.
We can increase the number of opportunities in our pipelines, the more we have in the top of our funnel should mean more deals coming out the bottom of the funnel. Increasing the value of our opportunities, bigger deals generate more revenue, bigger upgrades and larger lifetime value (LTV). Accelerate our sales cycles, close the deals quicker so you can run more cycles and close more deals and the fourth is to improve our conversion/close rates, which means we win more often.
These aren’t mutually exclusive and in an ideal world you’d look at improving all of them if appropriate to your sales strategy. However, the one that will have the biggest impact on your sales performance is your close/conversion rates, if you’re not closing enough deals then it doesn’t matter if you double your pipeline (which costs money by the way), it won’t matter if you double the deal sizes (it will hurt even more when you lose them) because in the end you just won’t win enough. In a most basic example, a 10% increase in your conversion rate at the very bottom of your funnel will have a much bigger impact on your sales revenues vs a 10% increase to your pipeline at the very top of your funnel.
Start tracking these four metrics to begin with and you’ll begin to have a good idea how well your sales team(s) are performing. The great thing about these four metrics is they’re also the same ones you’ll need for channel sales and upgrade revenue sales for your existing customers. Tracking these four metrics will help you understand your ability to execute sales much better but if you can only measure one of these metrics make it your close/conversion rate.
There are other metrics that you’ll want to look at as you develop your portfolio of KPIs, and these will vary depending on your go to market strategy. For example, if you are SaaS business then a metric, you’ll probably want to track is your Customer Acquisition Cost (CAC). This is the number that tells you how effective you are at acquiring new customers and if your business can grow effectively.
At its most basic level the CAC is calculated by combining the cost of sales and marketing for a period of time and dividing that by the value generated through new customers acquired over that same period of time.
Let’s assume you’re selling an item for $100 per month which equated to $1,200 ACV, ideally you would want your CAC to be as close to that $1,200 ACV value as possible. If your CAC was $1,600 for example it would take you 16 months before you made profit. As discussed earlier your target CAC will depend on your go to market strategy and where you are as a business, as a start-up you could expect your CAC to be 18M+. However as your business matures and you get more customers, as long as you’re reducing your cost of sale by upselling to existing customers, developing lower cost sales channels, increasing your deal sizes and improving our close rates then your CAC should come down to 12M or less giving a good indicator you can invest and grow your business.
These metrics are great for tracking the progress of the business and can help with decisions around training needs, product enhancements, product development, routes to market, marketing needs, etc. Once you have these core metrics in place you can then start to drill into different aspects of the business to gain further insight. For example, you may wish to know your CAC for each of your go to market strategies, direct vs indirect, inside sales vs self-service, by territory or even by vertical.
Bucket two – Planning metrics
As an individual contributor in sales you’ll need to know your own numbers so you can effectively plan your own go to sales strategy and build your annual sales plans. When planning for the year ahead there are a few key metrics that can help that will give you the visibility needed to be successful.
The first thing we care about is the target of course, you then need to determine some valuable sales metrics to understand what’s really going on in your patch.
What is my average deal size, for this you will need to look into your CRM solution, the last 12 months is really the minimum period of data to get anything meaningful, use the last 2-3 years if possible. You can then divide your target by this number, and you’ll get an idea of how many deals you need to close to reach your target (based on previous performance) of course you can reduce this number by increasing your average deal size.
Next you’ll want to know what’s your average sales cycle time, this will help you understand your lead times, how many deals you must close each month and quarter and the latest you can be engaged in your new opportunities and still have a chance to close before the year end, it will also help with your pipeline analysis.
As discussed earlier you’ll also want this key metric, your conversion rate, this tells you how effective you are at closing deals, it will drive the size of the pipeline you’ll need and lets you know how many new opportunities you must add to your pipeline every time you win a deal, this is your replacement law. If your conversion rate is 3:1 then every time you win an opportunity you must replace it with three more.
Pipeline is the last set of metrics that will really help you develop your sales plan as an individual contributor, it’s also an important set of metrics for the sales manager, CMO, CEO, et al. It’s typically one of the most complex set of metrics to build and track effectively and deserves a more detailed explanation than given in this blog. However, at a high level it’s important to know a few simple metrics about your pipeline including, what’s the volume and value of your current pipeline and how does that compare vs what’s needed to meet or exceed your target. What’s entering the pipeline and is that enough to cover the replacement law based on your current conversion rates and what’s leaving your pipeline and why, are you continually losing for the same reason or to a specific competitor for example.
Ultimately there are myriad different metrics and KPIs that can be used to measure and manage different aspects of business performance and I wanted to share some of the ones I use on a daily basis that have helped me drive successful sales teams.