Sales Metrics: Via InsideSpin, a thought leadership portal created by Stephen Pollack – an entrepreneur, advisor, speaker, author, husband and dad living in Toronto.
There are many things to understand about the sales process, the more you understand quantitatively, the more you can manage sales activities predictably towards defined revenue goals. Too much knowledge can also be a detriment to business management as it takes time to collect data, analyze it properly, take any corrective action and determine if corrections are working. You typically only need a handful of core sales metrics to build a base model, the rest become points of interest but not something that affects the way the business is managed.
When first starting out, you may not have enough history to generate reliable metrics but the data is important to keep from the start of the business so that you can move to a repeatable and predictable result as soon as trends develop. Creating a working model of how metrics relate to the business plan is also helpful (e.g. to forecast breakdown of revenue and all the operational dependencies)..
Managing exclusively by sales metrics is not a bad strategy. Many large and fast growing sales organizations almost have no choice but to rely on metrics as a primary way of reaching targets (or knowing that they will not so corrective actions are taken quickly). You do have to add qualitative assessments (the soft stuff like intuition and personal knowledge) as well to round out the methodology of being successful.
Sales metrics come in many flavors — the quantitative measures like how many leads occur in each territory, what stage they are in, how long they remain in each stage, etc. The qualitative measures like impact of demos on close times, which reps are better than others, territory influence, product maturity, competitive issues, etc.
In this section we’ll look at a series of metrics to keep track of, how they impact sales and what you might want to do based on how the metric changes over time. For clarity, if your sales model foresees a few deals per year, large in nature, your approach to metrics would be quite different than what is primarily described in this section which assumes a volume-oriented model (see Large Deal Metrics below).
As CEO (and VP Sales), you should always have a handle on how the business is doing. You should establish what you want to know, why you want to know it, who is responsible for getting it and how often it will be reviewed. Metric-based decisions should be ironed out in advance to establish an emotionless way of steering the ship.
A simple example might relate to raw leads from a marketing campaign — if the desired threshold is not reached, the campaign is automatically cancelled, if thresholds are reached, more investment is made to scale up the initiative moving the thresholds upwards appropriately. Regardless of what decisions are made through preset criteria, sound business practice still requires a review just to make sure poor results or excellent results are not due to implementation or analysis flaws.
Don’t be surprised to find out that business analysis can be done wrong — it’s simple to have errors in spreadsheets, or to be tracking erroneous data without realizing it. Make sure the team has a second look whenever possible (for both positive and negative decisions as both affect cost and revenues). In our marketing lead example, you might find leads are being double-counted if multiple lead sources for the same lead are being recorded and the lead count metric is being totaled by campaign without duplicates removal (it’s starting to sound complicated).
Quantitative (countable) metrics tend to work best in terms of making decisions. The data tends to present an unambiguous view of the state of sales. Sales can be measured. Care must be taken to collect data from a variety of angles so that the right decisions are made. As in our example above, raw leads can be used to measure campaign success but a low overall count may still have a set of successes in individual territories. This could lead to deeper campaign analysis to see why interest is stronger in one region or market than others — the campaign would not be cancelled but instead refocused where areas of strength appear. As you can start to see, the core metric of lead counting is useful, but some additional context can change the way in which results are measured and actions are taken.
Qualitative (opinions, feelings, intuition, experience) metrics tend to be hard to shake given their often lack of measurability. People attach themselves to how they believe the business is doing (or their part of it). They lead to a variety of arguments to continue down a path (for a little longer), despite what other metrics might indicate. This is not all bad, but does require a fairly hands-on view for the CEO (or VP Sales) to make decisions by — over-riding core data points should not be done lightly given how quick fingers can be pointed if things go wrong. A simple example is the feeling people get from a trade-show — lots of leads, excellent discussion at the booth, good coverage from the on-site press — but downstream analysis often shows the leads from a show that converted to closed deals was less than most other campaigns you could run.The straight-up metrics would often indicate shows are the worst form of marketing in terms of measured results, especially in this age of on-line sales and marketing. Do you not go to shows? Spend less on them? Do you define other business reasons to attend because you “feel” they have benefit? This remains an open discussion in many companies. In the meantime, go to trade shows but track their benefits so you can gauge future such investments as you grow.
As indicated above, following only quantitative metrics blindly can easily lead you down the wrong path. Metrics looking at only one dimension of data can guide you in the wrong direction. Driving only qualitatively removes a strong business tool that can save time and money. Mixing strong quantitative metrics with a variety of well thought through qualitative metrics provides the best balance overall.
The Importance of Defining a Sales Cycle
For most products, there is a defined method of selling that can be identified. You often evolve towards it as experience is gained from both winning and loosing accounts (sometimes more is learned from loosing than winning). Establishing a repeatable sales model is very important to building a scalable and predictable business. It defines a cycle or series of steps each rep should follow in pursuit of a lead through to closure. Similar to a perfect day athletes often strive for, the more the cycle is followed, the more likely a rep has of closing a deal within the needed parameters of time, cost and revenue. The formality of a sales cycle allows certain metrics to be generated which are outlined below.
The steps followed are often formalized in the sales tracking system. Anywhere from 3 to 10 steps are commonly defined, the count depends on the nature of the product, the path to market (direct, indirect), competitive issues, etc. As a lead is worked on, the steps are checked off in the lead tracking system. This level of sales tracking provides excellent metrics that can be used to fine tune the sales cycle, perform territory analysis, identify rep strength and weakness and much more. Examples of steps in a sales cycle along with possible metric analysis might be:
- Lead contacted — the lead has been contacted. This should ALWAYS be more than just sending an email. Ideally the sales team attempts to directly contact each lead by phone. If phone contact is not appropriate or possible, some email criteria should be established to decide on the achievement of this step. Don’t let the reps invent their own email content — it should be developed jointly with product marketing to make sure competitive positioning is being followed, consistency is occurring and there is a call to action.Analysis at this stage tends to isolate campaign effectiveness. If higher degrees of responsiveness occur, the value proposition is hot so pour fuel on the fire. If lower responsiveness is occurring, you attracted a future buying audience but not one to focus on today (or the campaign is a poor one if you feel it should have generated better results).Analysis can also be used to determine which reps are following sales policy. Generally the number of leads contacted should be largely equal amongst all reps although if a territory is more aligned with the message in a campaign than others, better contact responsiveness could occur — so look at the analysis from multiple angles before jumping to negative or positive conclusions.
- Web Seminar or Demo Attended — probably one of the most important steps to get through given how much tire kicking is often required when selling technology. Reps can be incented to get people registered to attend web presentations (typically costs are minimal to have larger audiences). Incentives should only be offered for people who attend — anyone can register which is not worth much.Analysis at this stage helps you understand whether or not a web demo influences the likelihood of closing a sale or shortening (or lengthening) its sales cycle. This is also an expensive step as you should have a fluent sales SE deliver the presentation — reps tend to focus on selling whereas SE’s tend to focus on proving the value proposition. The audience of a web demo often wants to see the value proposition not the sales pitch.
- Proposal Sent — don’t send one unless budget is confirmed, you would be wasting time starting business discussions if the lead is not in a buying mode. Some reps have trouble actually asking for the deal so make sure the team is well equipped with an effective proposal and quoting system.At this point in the cycle you are pushing for close. Analysis would track how long the lead stays in this stage before closing. You can easily track rep efficiency, measure the effect on average selling price, on time to close, etc.
- Closed Won — deal is closed, purchase order is in hand (perhaps invoice is sent as well). This stage should not be selected lightly as it should trigger a variety of other activities in the Company for which shipping your product is but one. Big deals should be acknowledge across the team as soon as practical (confidentiality issues should be considered).Now you have one of the best and most important metrics to establish — a lead-to-close time — how long does it take to sell your solution. With this metric established you can start to work backwards to decide on how many leads you need to achieve a certain number of wins. If you factor in average selling price and other related quantitative metrics, you can build a sales business model ready to scale. You should also go back to the team and challenge them to shorten the lead2close metric — offer great incentives for this one as it hits at the core concepts of sales productivity.
- Closed Lost — deal is lost. Few companies do much when this stage is reached, which is a shame. Loss analysis should be at least as important as win analysis, even though there is nothing to celebrate per say. This is especially true for young companies or young products — without facing the music as to why a sale did not occur you don’t learn what you need to do to improve overall productivity, or in the worst case, abandon that line of business.Reps are notorious for hiding lost deals behind simplistic summaries such as “lead was not qualified”, “budget was lost”, “customer implemented internally”, etc. If you can manage the time, have someone, even the CEO, follow up a lost lead by calling the prospect to explore the reasons. Learn first hand how to improve the selling process of the Company. You would be surprised how many people would talk to the CEO to explain their reasons, especially if you don’t approach the call as a sales call (initially!).
With a sales cycle formally defined, some basic quantitative metrics start to emerge. They mean more when you have more than a handful of leads on the go, they mean a lot when results begin to become repetitive — you can take action to control sales results. Ideal.
Formalizing Basic Sales Metrics
With a structured sales cycle established, you can now hone in on some core metrics to drive the business forward — at least the sales side of it. Many sales metrics also reflect on the performance of marketing activities so are often integrated in terms of any analysis that is done. The following represent a sample set of basic sales metrics to build your sales model around:
Lead-to-Opportunity Conversion Ratio (Lead2Op) — A measure of overall lead quality combined with the effectiveness of the first stages of the sales cycle. Leads often come from many sources so correlating this measure with campaign type (e.g. email, show, web event, white paper, etc) is almost mandatory to have any meaning (it’s too watered down otherwise). You can also assign a cost to this measure which helps forecast future sales and marketing expense (the CFO or Controller should be able to produce this).
Lead2Op is often also affected by age of lead requiring yet more detailed analysis to get the most from it. Perhaps you can define a few time buckets for the analysis — Lead2Op for 7 day leads, 30 day leads and 90 day leads. This helps the team appreciate the importance of staying on top of lead processing, something hard to get across when the end of a sales period starts to arrive (e.g. quarter end, month end, year end — everyone focusing on closing but leads are still coming in). This is one of the areas you can focus on to avoid the ‘hockey stick’ effect in your sales results — keep converted leads flowing in consistently not just at the start of a sales period. The analysis can also help you justify hiring people just to focus on processing new leads given how age potentially affects their convertibility.
If Lead2Op starts to drift on you it typically means one the following:
- competition is increasing causing the buyer to evaluate more options prior to engaging in a sales process. Updating primary competitive research may be indicated.
- the market opportunity is evolving away from your type of messaging (this is a common real-world dynamic that requires you stay on top of messaging and positioning materials).
- the market opportunity is waning, the need for your solution is declining. Obviously this is a drastic business indicator so lots of work required to decide if this is the case — typically adjustments in product plans, marketing programs, etc or even basic go-to-market strategies need to shift before you give up the ghost on some core technology.
- sales training refresh is required. Perhaps you have had many new hires or staff turnovers and the core approaches to how leads are converted needs to be updated.
Lead2Op is often an easy metric to track and analyze, it is useful and effective. Make it visible to your team so they gain confidence in the approach to sales management and their ability to make money working for your Company.
Don’t forget to reward top performers — cash, watches, primary parking spot access are all great short term incentives to keep people focused on converting leads.
Opportunity-to-Close Ratio (Opp2Close) — A measure of how many qualified leads actually result in sales wins for the business. More than just a percentage measure, Opp2Close is an acute way to understand sales effectiveness. Many elements of the business come into play at this stage of analysis including the role of the SE, quality of sales materials (play book), suitability of product pricing, competitive strengths, etc.
Opp2Close as a percentage should be very high, perhaps 75% or more (50% is also good for most businesses). If measured lower, it can indicate either the lead qualification process is ineffective resulting in wasted sales team cost (and time) or the sales team is not good at selling. Both require some immediate action, continually wasting time on sales cycles that do not close is one of the largest demotivators for a Company. You may also need to revisit when qualified leads are abandoned as a further remediation — make sure reps are not giving up before they should (sometimes a rep will decline to call in sales help preferring to work on other leads — a potential sign of sales skill weakness).
Opp2Close when measured as a length of time, tends to be less than 6 months. Anything longer can mean either your product has an unusual sales cycle that can’t easily accelerate, your value proposition is not compelling, your sales team is not very skilled or the market is not in a buying mood among other obstacles. You may need to bucket this time measure according to certain deal sizes as cheaper deals should take less time to sell on average than larger deals. This can help indicate where to focus your overall sales efforts and perhaps visit or revisit sales model options like Telesales or Inside Sales versus Direct Sales.
Don’t forget to reward top performers (another reminder) — more cash, fancier watches, primary parking spot access are all great short term incentives to keep people focused on closing deals quickly. One caveat, don’t inadvertently cause reps to focus on small deals just to drive up their measures so think through what behavior you want to incent and define the criteria properly (but with simple terms). If you overpay a bit it probably does not matter as you are likely in an overall winning scenario when it comes to achieved sales goals.
Win-Loss Ratio — somewhat of a variation of the above metrics but provides some focus on the concept of market leadership. You obviously want a high win/loss ratio but you only gain value in how you respond to the details. Are you loosing for loss of budget, too long in sales cycle (buyer moves on to some other business priority), poor product quality (lost deal on hands-on evaluation), competitor stealing the deal near end of sales cycle (you did the work to show buyer what is needed, someone else gets the deal), pricing too high, reps not involving other key resources (e.g. executives, SE, product management).
A good practice is to convene regular loss-analysis meetings with all the relevant sales stakeholders involved (reps, SE’s, product managers, marketing, support, etc). Much like good hospitals regularly review reasons for patients dying (sorry for the morbid analogy) your business should review why you do not win accounts. Some things to keep in mind:
- avoid positioning this as a head-hunting event or no one will provide thoughtful input. Mediate any tension in the room (e.g. blaming poor product quality is a key one).
- competitive loss will happen, don’t let sales whine about it. Make sure they actually understand what they are selling, they know the SWAT for key competitors and are demonstrably experienced in dealing with sales objections (perhaps schedule a roll-play for them to practice and prove).
- call directly or have a third party call lost accounts to develop a profile. Perhaps marketing is targeting wrong or some sales assumptions are not panning out.
With the above three primary basic metrics in place (and all the sub-analysis that can be done), you can start to establish a formalized model for sales growth. If Lead2Op and Op2Close are firming up, you can confidently allocate budget to increase marketing and expand sales capacity knowing that revenues will increase. Nothing in business is a guarantee of course, but the above analysis-based investments will provide business confidence which would otherwise have relied on guesswork and intuition alone, which is harder for investors and shareholders to bet on.
Advanced Sales Metrics
Looking to develop more advanced sales metrics runs the risk of looking too closely at available data, spending time on the wrong aspect of sales, the right aspect is to be with the customer espousing the value proposition of your solution. Nonetheless, scaling a sales model takes on growing risk for which increased analysis tends to be the right hedge.
The first step is often to go back to the basic metrics and drill down further into the detail. Breaking down the data by territory, by rep, by product, by segment, by deal size, etc … can yield useful information to strengthen all aspects of the underlying sales model. Focusing on strengthening the weakest link and strengthening the strongest is a good way to look at the work to be done. The middle of the pack become reliable and steady sources of revenue while the over and underachievers become the key to overall Company success.
The second step towards advanced use of metrics tends to be more product or market specific and are therefore hard to generalize. Perhaps there are some special steps in the sales cycle needed to move a deal along — reference calls, live trials, executive visits, etc. Each step may have some useful metric to help guide its effectiveness.
The final step tends to be how to institutionalize the use of metrics as a sales model weapon. As mentioned at the start, metrics are not the be-all end-all of sales management — but they do provide a solid insight into what is working and what (or who) is not. If all a company needed was some fancy spreadsheets to be successful, more would be. Clearly product quality, value proposition, sales skills, communication, leadership all play a key role in success. Integrating intuition and experience with the factual aspects of sales metrics creates the best result.
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