Rethinking revenue: How to measure sales success – and forecast failure!
On the face of it, sales performance is pretty simple to measure – it all comes down to pounds and pence.
But the maturing of sales technology has also allowed sales leaders to gain visibility into a host of other sales-related statistics, besides revenue. And unlike revenue, which can only tell bosses if a rep did or didn’t hit their targets, some of these other stats can provide diagnostic and predictive insight, to allow leaders to support reps in danger of missing their goals, and even optimise the wider sales strategy.
Indeed, technology has revolutionised sales measurement, to provide unprecedented visibility into the operations of the sales team.
“If technology is an integral part of your daily life, then you can get much more definitive in how you measure things, because you have got more metrics,” says Jim Dickie, managing partner at CSO Insights.
“Ten years ago the key thing for a sales person was whether you made your number or not. And if you did you were a good rep and if you didn’t you were a bad rep. Now all of a sudden, I can see if you’re adhering to the sales process - are you making enough first calls, are you actually doing all the steps that we want you to do? And I can start to find things like you’re really good at calling on some customers, but really bad on calling on this other one, so I’ll know I need to work with you on that.”
If the sales system reflects every mail sent out, every phone call made, every proposal generated, how often content on products has been accessed and how often training courses were accessed, then it gives sales leaders much greater visibility into which reps are doing things the right way, and which ones need some extra coaching and mentoring - and this can be realised early and proactively, versus reactively.
“I don’t want to wait until you have missed your number to start worrying about what we can do,” continues Dickie. “I want to start to see that you have the potential of missing your number because the activity is not there, and you’re not putting enough things into the pipeline. And if I can get proactive as a sales manager, I can help turn you around.”
But with so much data at your disposal, what are the metrics you should be keeping an eye on? The selection of measures will depend on many factors, including the company’s sales processes and requirements, and also the maturity of the organisation’s sales automation system, as this will support the collection and analysis of performance data. However, there are some popular recommended alternatives to revenue – even metrics that can provide useful steer for the wider sales strategy.
“Every company is different, but you should do proper funnel management, with the financials at the bottom, and with the number of leads and opportunities you must work through, and that is where stripping out your sales process into component parts is so important, because you want to be able to measure every single stage,” says best-selling author and sales authority Sean McPheat. “How many calls do you make to meet one decision-maker? Out of those decision-makers how many appointments do you make? Out of those appointments how many actually went ahead?
“You need to go down to that level of detail because you might have appointments set at 50, but only 30 of them take place. You need to know why those 20 did not take place.
“Now it might be that people are being railroaded into appointments, so you might want to go back and take a look at what’s happening at that particular stage. So then you go and meet the decision-maker and then if a proposal has to take place, what is the average length to create the proposal? How much is the proposal for? And then all of the steps after that - closing ratios, close won ratios – so that you can really get an understanding of where clients are being lost in the sales process, and where deals are being won as well.
“For example, in some companies and we find that certain sales people doing the same job have got 90% closing ratios on deals between £0-10,000. There are others that have a 90% closing ratio on everything above £10,000. So as a sales manager you have a decision to make – do you give all the ‘smaller’ deals to these people who are dealing with the less than 10k deals? Because it can inform how you set up the structure of your sales team. On the face of it they are all doing the same job but unless you drill into the facts and figures and work this out, you will never really optimise what you’re doing.”
Dickie recommends activity and conversion rates as good metrics, such as how many calls are being made per week; how many of the people that got into stage one of the sales process (needs analysis) actually went to stage two (presentation); and how many of those that got to presentations went into education; and how many of those then went into proposal phase; and how many of those actually closed?
“You can start tracking all the way through on what is happening throughout the sales process, not at the very end in terms of was the deal won or not,” he explains. “I want to make sure that I can understand if we’re not winning deals, why the deals are falling apart. I want to be able to track what is happening at every step on the sales cycle so that I can debug the cycle, because we live in a very fragile world in sales and if the economy gets better or worse the sales process has to adjust. And if government regulations get tighter or looser the sales process has to adjust. Or if the competitive landscape changes and you get a new competitor into the marketplace, the sales process has to adjust. It is important to have visibility into everything that everybody is doing and all of these metrics will give you the chance to make better decisions because you’ll be making them based on metrics not hunches.”
Ken Krogue, a founder of InsideSales.com, inContact and the original inside sales division of FranklinCovey, highlights that financial metrics are increasingly being supplemented with other measurements in newer branches of sales.
“Traditional sales only looks at the financial indicators – the revenue of the sale – but what inside sales has pioneered is looking for leading indicators,” he explains. “In football, scoring the touchdown is the revenue driver, but the first down and yards on the field are the leading indicators of sales that will happen. And so it is important to be measured both on effort as well as results and key milestones like appointments set and held, and connected rates – i.e. what percentage of the leads that salespeople have been working on have actually been spoken to, which is distinct from contact rates.”
Elaborating on the importance of measuring connected rates, he continues: “We’re finding that the average company only talks to 27% of their leads and they usually take about two days to call back on a lead and only make about 1.5 phone calls on a lead before they give up and move on. But there’s some incredible leverage if they respond much faster. In fact, if you can respond within five minutes to a lead, the odds of reaching that lead are 100 times greater than waiting the two days that the typical company does. So these measures of sales performance are very powerful.”
Furthermore, the implementation of financial goals alone can also actively encourage bad behaviours amongst sales teams. Subjecting sales people to a strict set of measures solely focused on financial indicators such as revenue will certainly encourage behaviours to deliver against those measures, but potentially at the expense of other important behaviours such as longer-term customer relationship building activities.
“Just using financial indicators to measure sales performance is dangerous and can lead to a transactional mentality and potential abuse,” notes Jeremy Cox, principal analyst at Ovum. “The more enlightened organisations track customer perceptions of value and include this as a performance measure. If firms wish to replace the old bow tie arm’s length relationship between their organisation and the customer organisation, then they should also monitor the breadth and depth of relationships they have.”
De’Edra S Williams, engagement director at Paranet, agrees: “Client satisfaction scores are critical. It is imperative that your sales team sell, but ultimately your organisation should also measure how good they are at selling to and retaining their customers. If sales is meeting clients expectations by offering them products that meet their company’s needs, then the sales team should be able to continue to provide additional product s and services over the life of their respective customers. This can only be achieved if the customers are satisfied with the products and services sold to them by the sales organisation.”
So, pounds and pence are important – but there is so much more to measure in the modern sales department. And by setting metrics and KPIs more creatively, sales leaders can achieve unprecedented insight into the inner workings of their team, and allow them to optimise their reps.
“You need to think about turnover, profit and margins, and you can do all of that within a sales system. But really the financial indicators are the end point – where you want to get to,” says McPheat. “If you’re setting up your system correctly and measuring at each stage of the process you can have key performance indicators all throughout the sales process, so that the rep focuses on the KPIs at proposal stage, pre and post meeting, and so on, and the end financials will take care of themselves.
“Where a lot of sales people fall down is they just focus on the end figure and want to magically improve it. Where sales systems come into their own is that you can analyse exactly what you’re doing and how you’re doing it and where people are dropping out and where your strengths and weaknesses are. And so you should create a set of KPIs that you can work on individually, because if you take care of those then ultimately the turnover, profit and margins will take care of themselves.”
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Neil Davey is the managing editor of MyCustomer. An experienced business journalist and editor, Neil has worked on a variety of newspapers, magazines and websites over the past 15 years, including Internet Works, CXO magazine and Business Management. He joined Sift Media in 2007.