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What metrics and measurements support sales performance management?by
We’ve all heard the old adage ‘what gets measured, gets done’. But the big question is, are these very measurements steering our sales teams to work in the most efficient and effective way possible or doing exactly the opposite?
Traditionally, sales people have been graded against certain metrics based on counting sales activity rather than outputs - so things like the number of customer calls they have made or how many site visits they have undertaken.
The problem with this approach though, says Kevin McGirl, co-founder of sales performance management (SPM) and analytics software provider sales-I, is that it can end up creating perverse incentives, which results in them behaving in a counterproductive fashion.
“If they know they have to make 20 calls a day, they’ll do it to keep their boss happy,” he explains. “So by using certain measures, you encourage people to behave in a certain way rather than enable them to act intelligently themselves.”
If adopting a SPM-based approach, however, the objective is to introduce metrics that are designed to measure each individual’s effectiveness.
To get this right, however, before doing anything else, it is necessary to benchmark your current performance. Key issues to understand include how well you are managing your existing sales process as well as how long it takes for leads to come in and go through the various stages of qualification before being converted.
The aim here is to help you define what challenges your sales organisation faces and, therefore, where you need to focus your improvement efforts, whether that be in relation to people, processes or technology. This means, in turn, that investment may be required in areas such as staff training or introducing new analytics tools to help in decision-making activities.
Seeing things in the round
But Richard Neale, director of marketing for Europe, the Middle East and Africa at Birst, warns that sales performance should not be seen in isolation and that a range of factors should be taken into account.
“Decisions made in marketing or finance can affect sales performance – for example, cutting spend on marketing for budget reasons can have an impact on sales performance that the leadership team is not aware of,” he says. “Similarly, if marketing is focusing on different market areas or company sizes compared with what sales considers the ‘sweet spot’, there will be a disconnect and, therefore, poor performance.”
As a result, it is important to look at business activity in the round. But as well as seeking out the challenges, it is just as important to explore where the company’s best sales opportunities lie. Sales analytics tools can be of great benefit here in slicing and dicing data and enabling you to see patterns.
Even more important though is sussing out your most profitable customers, and establishing what has been the most effective way of selling to them in the past in order to try and get a clear picture of what ‘good’ looks like.
In return on investment terms, ‘good’ might include:
- A reduced time and cost of sale.
- Improved profitability in relation to each customer.
- Less time and effort spent on customers that are either less likely to convert to a sale or are likely to be less profitable if they do.
So what are the right metrics to measure sales performance?
“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.”
Jim Dickie, managing partner at CSO Insights, 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.”
Interestingly, there are indications that financial metrics are increasingly being supplemented with other measurements in newer branches of sales. Ken Krogue, a founder of InsideSales.com, inContact and the original inside sales division of FranklinCovey, notes: “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.
“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.”
Certinly the most appropriate metrics will vary from organisation to organisation based on what they do and how they operate. So, for instance, a services business is likely to employ very different metrics to a more traditional product manufacturing business.
Birst’s Neale explains: “Are customers on service contracts that pay based on consumption, or is it about one-off purchases that have to cover the whole process? Are purchases true ‘one-off’ deals or are there opportunities for repeat business over time? Asking these questions should help you build up a customer journey that can then be mapped against the business units involved.”
For example, a services business that is paid monthly will likely want to track the lifetime value of its customers and compare that figure with customer acquisition costs - i.e. sales and marketing expenditure - in order to understand what profit it is making. If money is being lost on each sale, action may need to be taken to reduce customer churn, for instance.
Such an approach is helpful as it “can provide metrics that will work for the whole business rather than just for each team,” explains Neale. “For the sales team, this might seem a world away from how they perform but, if the wrong kinds of customers are being sold to, then the business as a whole will suffer.”
Other more generic key performance indicators include:
- Revenue growth and profitability targets for each business unit to help inform the product or service mix and give an understanding of margins.
- Pipeline measures such as number of leads generated and qualified, win rate and cycle time from lead to order.
But as Michael Connor, chief executive and founder of sales management software provider SalesMethods, points out: “You need the KPIs to reflect what is important, have the discipline to drill down into the root causes and then take action to improve matters. So you need to make sure you’re measuring the right things.”
Again sales analytics tools can help here as they can be used to analyse data from across the business to understand the impact of any given decisions on performance. This means that action can be taken swiftly if they are no longer proving effective.
But as McGirl concludes, the key thing to bear in mind is that: “It’s not about monitoring the activities your sales people and treating them like children. It’s about setting realistic goals, giving people the right tools to achieve them and then measuring their effectiveness, so that everyone can see the benefits.”