Many organisations, before they embark on their sales analytics journey, tend to focus on tracking sales numbers rather than on truly understanding how they were achieved.
This means that they do not necessarily have much insight into the mechanics of how they make money or what opportunities they might be missing. But if sales insight can be combined with performance data, it becomes possible to obtain a rounded view of what is working well or where possible problems are taking place.
This is where key performance indicators (KPIs) come in. They provide a standard way of defining and measuring how well sales teams are doing in terms of achieving their sales goals and can be tweaked to modify behaviour in line with strategy changes.
One of the chief reasons that sales analytics can under-deliver, is the adoption of vague KPIs that are not really measurable. The clearer you are on what you want to measure, the more likely you are to achieve the results you are looking for.
Here we provide a guide on just what KPIs actually are and how to get them right:
What are key performance indicators?
KPIs are a set of quantifiable measures that assess the elements of organisational performance considered most important to a firm’s current and future success. In other words, they enable you to understand whether a company, business unit or individual employee are performing in line with desired business outcomes.
As a result, says subject expert David Parmenter, these behavioural measures need to demonstrate seven core characteristics in order to be effective. They should be:
- Non-financial – no monetary value is assigned to them.
- Timely - they are measured frequently.
- CEO-focused – the chief executive or other appropriate senior manager acts on them.
- Simple – all employees understand what is being measured and what action needs to be taken if they are not being achieved.
- Team-based – responsibility for hitting them is assigned to an individual team or teams that work closely together.
They should also have a:
- Significant impact – this means they influence more than one of the organisation’s key critical success factors.
- Limited dark side – they are tested to ensure a positive impact on performance rather than introducing unexpected perverse incentives.
In a sales context, KPIs are generally based on internal metrics such as sales conversion rates or reps calling a given number of prospects per week. The aim is to make it clear where they should focus their time and efforts in order to hit goals.
So for example, if your sales analytics data indicates that most of the team concentrates on small-to-medium enterprises as the sales cycle is quicker and easier, even though there is much more money to be made from large companies, your KPIs will need to reflect your requirement for them to switch focus.
Why is it important to use KPIs?
By having pertinent KPIs in place, it becomes possible to modify the behaviour of your sales staff to ensure it is aligned more effectively with the wider sales strategy.
This means that if you combine such measures with sales insights and performance data, you can gain a more holistic view of what is working well or where possible problems are occurring in a given sales campaign or wider sales process in order to take swift action. Such action could involve either tweaking things to ensure you stay on track or even coming up with an entirely new approach before any real damage is done.
So for example, if a given campaign isn’t performing as well as hoped, spotting the situation early is likely to make it easier to turn around. Possible action here might include setting new KPIs to ensure that sales people personally call on up 10 customers a week to raise awareness - or even pulling the campaign entirely before there are any negative financial repercussions.
How do you go about defining KPIs?
The KPIs that you choose completely depend on your sales strategy and what it is you are trying to achieve so there are no hard and fast rules. But examples can help to illustrate the point.
So for instance, your target as a manager might be to see sales increase by 10% over the year ahead. But when you look at your customer data, it becomes clear that, while your team are great at winning new customers, they are less successful in keeping them for any length of time or in cross- or up-selling to them.
As a result, you set KPIs to ensure that your sales team spend 50% of their time each week working with existing clients and making two new contacts there a week in order to build on and develop the relationship.
But it is also worth bearing in mind that the more granular and specific a KPI is, the more effective it tends to be too. So, for instance, asking reps to speak to five new prospects a week will generate more positive results than just requesting that they talk to customers more.
Although getting such measures right takes experience and is an iterative process, by tracking behaviour regularly, it becomes possible to see what works and what doesn’t.
Where do people go wrong with KPIs?
A common pitfall is getting carried away and trying to measure too much. Generally up to five KPIs is quite enough and less is generally more - particularly if sales staff are not used to having their performance measured in this way.
Another mistake is simply pushing out KPIs without explaining properly to the team what they mean or why they are being tracked in this way. Failure to educate people properly is likely to see staff trying to find ways to pervert the process, which simply doesn’t help anyone.
Input contributed by:
- Vera Loftis, UK managing director of business consultancy, Bluewolf
- Clive Longbottom, founder of IT research and analysis company, Quocirca
