In a world of high-tech tracking platforms and big data analytics, there are a myriad of metrics to choose from when trying to gauge the performance of your sales organization and identify areas for improvement. Sales executives may find that trying to track everything provides a lot of noise but can obscure the signal—that is, which indicators are actually driving sales performance? Indeed, it is crucial to pinpoint which metrics or KPIs matter most for each particular sales organization. The question, then, is how to decide what matters most for you?
As a first step, it’s important to make a key distinction: between results-based metrics, and action-based metrics. While traditionally, people tend to think of metrics that answer the question “how are we doing?”, it is often more helpful to ask “why are we doing things that way?”. There will, of course, always be a place for the former—it is important to measure metrics such as average deal size, percent of employees meeting sales quotas, sales cycle length, or the cost of sales to revenue ratio – these help executives know if the sales organization is hitting its targets and doing so efficiently. However, the key to really driving performance improvement is in tracking action-based metrics. That’s because results-based metrics only tell half the story. They are not causative. By breaking down the sales funnel into increments, from first contact to sale closure, and tracking the actions taken to move a lead through each step, managers can understand where their reps need to improve and can provide the tools to help them do so.
As a starting point, we explore six of the action-based metrics managers should track in order to successfully manage and improve a sales organization.
1. Number of calls made / Prospects approached
This metric allows managers to understand the quantity of prospects entering the sales funnel. This is an important causative metric to track, particularly for an organization with a business model based on short sales cycles. If it turns out that the most successful sales reps are entering a higher number of prospects into their sales funnel, then a manager can easily take this information and use it to alter the behavior of the lower performers. Rather than telling a rep that he or she is underperforming, managers can give targeted, quantified feedback about why that might be, and how he/she can take actions to improve.
2. Number of follow-ups per contact
Another important metric for an organization with short sales cycles is the number of follow-ups made per contact. This is another quantifiable action metric that enables managers to easily pinpoint an area for improvement and adjust a rep’s behavior. In this case, findings will indicate whether persistence improves performance or if reps are best served investing time elsewhere.
3. Percentage of leads qualified
For an organization with a longer, more complex sales cycle—for example, if the product requires significant buy-in from the customer and multiple stakeholders must be convinced to close a sale—it becomes less about volume and more about quality of leads. It is more important to identify truly interested, high-probability customers and concentrate resources on them, rather than spreading limited time and resources across a broad pool of leads, most of whom will never result in conversion. Using a metric such as percentage of leads qualified per sales stage can tell a manager how discerning sales reps are being at each stage, and whether they are appropriately focusing resources or wasting them on too many distant prospects.
4. Points of leakage
Rather than simply quantifying the rate of conversions or sales, organizations should analyze where most leads are being lost, and assess the associated processes across the organization to isolate pain points. For example, some reps may instigate a high volume of initial communication, and move large numbers of leads through the sales process, only to fall short of closing the deal in its final stages. By tracking precise “leakage” points, managers can pinpoint exactly where in the sales process reps are struggling and address the particular issue through coaching or training.
5. Average size / level of qualified prospects
This metric can help managers determine if sales reps are concentrating on the right target pool of prospects. By comparing top-performing reps to the rest of the pack, managers can infer the optimal company size or title level for prospects and adjust the targets for underperforming reps so they are better directing their efforts. This metric is often more helpful than showing a sales rep the average deal size of the sales organization, because it can explain why they are achieving a particular outcome and give them an avenue for redress, rather than simply highlighting a gap.
6. Investments in key accounts
There are several ways to track account management, such as amount of time spent on accounts over a certain revenue, or the number of interactions per month with existing accounts of a particular size. These metrics can indicate whether sales reps are investing in the right customers, and whether these investments are yielding commensurate retention and growth. This is especially important if an organization derives recurring revenue from subscriptions or retainers from a small number of large accounts. As with the other metrics examined here, the key to tracking account management is not just telling reps whether they are missing the mark on recurring income, but rather attempting to provide some insight into the question “why?”.
Not all reps perform equally – and nor should they. When designing and tracking KPIs in a sales organization, it’s important to consider the different expectations at each level of seniority, and to set targets accordingly. Organizations should consistently review and refresh these metrics – much as they would the sales pipeline itself – to ensure career development is being encouraged and facilitated at a healthy rate. Benchmarking across the organization can help to align expectations around performance levels for each role, and to build a more accurate picture of the competencies and gaps within the organization. Combined with robust action-based metric tracking, this approach will allow managers to effectively set expectations for reps at each level and simultaneously raise the performance of all levels of reps in the organization.