Too often when looking at a sales team’s success, managers only focus on the actual sales — aka the closing of the business. Of course this is important, but the sale is a lagging indicator. If you have no sales closing today, it indicates that your team hasn’t been performing well for months. By the time you’re at the stage of no business, you’re already well into trouble. In fact, you’ve reached the point of no return.
So how, as sales leaders, do you create leading markers that track the behaviors required today for successful sales tomorrow? The answer is Key Performance Indicators (KPIs). KPIs are important leading indicators that ensure you have a healthy pipeline and future business. They provide an objective form of measurement that allows you a glimpse into your future — before it’s too late to change direction or solve issues with your team.
The Top Three KPIs
The first step in determining which KPIs to measure and how to gage them correctly is to differentiate between a sales pipeline and a sales forecast — two terms that many sales professionals mix up or don’t distinguish between. A sales pipeline provides clear visibility into all of your opportunities, regardless of their probability of closing, whereas a forecast is a subset of the pipeline that only includes those qualified opportunities that are expected to close in a defined reporting period.
A properly-defined pipeline and its stages help you organize your sales process and create effective tools and benchmarks for your sales team, making it much easier to predict the future success of your sales force. In fact, by using KPIs it’s possible to get within five percent forecast accuracy, meaning that you’ll always know not only how your team is currently performing, but also what roadblocks might lie ahead.
A sales forecast is a forward-planning tool for budgets and spending, and measuring KPIs around lead conversion success — such as the cost per lead — can help you budget appropriately as well as accurately predict your revenues and sales growth.
The three KPIs that every sales team should measure are:
Early-Stage KPIs: Indicators for Opportunity Development
- Number of qualified leads in the pipeline
- Sales cycle length
- Total length of time to qualify a new prospect
- Qualification to proposal ratios
- Number of evaluations/short lists per year
- Number of new (first) client meetings per month
- Cold lead to qualified ratios with conversion rates
It’s important to not only measure your opportunity-to-close ratio but to measure conversion from stage to stage, which may be a new concept to you. Keeping an eye on the length of your sales cycle, the number of new client meetings you have each month, and the conversion ratio of new leads to qualified leads, will provide insights on whether you will be ahead or behind on future revenue. And how you can best adjust now to ensure you’ll hit your future revenue goals.
Late-Stage KPIs: Profit and Quota-Focused Measurements
- Proposal to closed ratio
- Average deal size
- Number of sales per year
- Annual quota
- New vs. existing client sales
KPIs for Account Management and Client Retention/Growth
- Average client growth year over year
- Client retention rates
Depending on your business, you may have additional KPIs to take into account. A product distribution company, for example, might measure target margins versus actual margins achieved on a per product basis. A parts manufacturer with a supply agreement in place might measure the estimated annual value of the supply agreement versus the actual parts ordered on a monthly basis. Software as a Service companies would measure average contract value and average length the client stays in the program.
Be objective and use data when establishing KPIs. Each should have an appropriate benchmark based on actual data and information from your sales history or benchmarks from the industry if you’re a new startup. Review your sales from prior years or quarters to help you calculate averages and quotas. Understanding your average deal size and combining that with your lead conversion rate will give you an idea of how many opportunities need to be in the pipeline in order to hit your quotas in a very objective and scientific way.
Stay on Top of Weekly Indicators
Of course, measurements are only helpful if they’re paid attention to. Get to know your KPIs and review your data weekly. Pay close attention to any trends — both worsening and improving — so you can react appropriately. It’s helpful to include your sales team in this process. Review each person’s KPIs once a week in a coaching session. This will help them to understand the types of behaviors that are important for sales growth, and will ensure that you spot any lags in performance early and can course correct quickly.
No one likes to be blindsided by poor sales, and there is no reason to not see what’s coming! There are few opportunities in life to accurately predict the future, but paying attention to leading indicators now is an opportunity not only to predict, but to help change the future course of your sales.
This article was syndicated from Business 2 Community: The Value of Key Performance Indicators for Tracking Sales Growth
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