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Defining Key Performance Metrics for Sales Organizations
For a long time, the creation of sales KPIs was defined through the slow, methodical accumulation of numbers into one cohesive picture. This is because many sales organizations believed that identifying the key performance metrics that mattered to their organization could only be determined through deep data exploration over a long period of time. Now many businesses are hard-pressed to find the time and expertise to source and organize these specific data points. Therefore, many businesses today are starting to think about using data that is readily available in a different way. In doing so, the organization can get an actionable read on how they’re performing that is driven immediately.
After decades of working with sales organizations across industries, the team at Richardson Sales Performance has determined a core group of eight sales KPIs that are the most critical for revealing the effectiveness of sales training. These key performance indicators are:
- Win Rate
- Quota Attainment
- Time to Productivity
- Contact Value
- Sales Cycle
7 Sales KPIs for Measuring Sales Team Performance
These metrics represent a variety of methods for understanding how a business is performing relative to the market. Some organizations will only need to use a few of these. Others may need them all. These metrics work because they are universal and cover operational and financial aspects that apply to both the organization and the individual.
Here, we take a closer look at how each one works and why they matter.
A team or company’s win rate serves as the primary indicator of market competitiveness. As an all-encompassing measurement, the number is easy to track and easy to baseline. This is a simple gauge of how many new pursuits close with a win status.
Nearly all other aspects of the business perform at a higher level when win rates increase. By isolating competitive differentiation from demand creation, a company can see how well their approach to selling resonates in the field. Moreover, different win rates among various teams or verticals can be compared in order to determine the effectiveness of different strategies. Leaders, however, should not view win rates in isolation because the measurement is often a starting point telling leaders where else to look for clues on business performance.
When leaders want to compare performance with expectations, they turn to quota attainment as a measurement. This number answers, “What percent of the sales team is meeting their goal?”
This figure serves to judge performance against expectations and is a function of how all initiatives are operating. Rather than a binary metric, the number is qualitative and signals the effectiveness of business strategies.
Time to Productivity
There are a lot of ways to measure productivity metrics, time to productivity is one of them. Time to productivity measures the time it takes a new sales team member to start adding to the business’s bottom line. This metric is particularly useful when looking to expand team capacity or when an organization is facing high turnover. As Harvard Business Review reports, global companies like SAP examine time to productivity and even ongoing productivity. In doing so, they gain insight into what sellers can accomplish while helping managers more effectively staff their teams.
With this information, a leader can step in to help a new hire earlier in the game for faster course correction.
According to a body of research from the Center for American Progress, the median cost of turnover is 21 percent of an employee’s annual salary. For this reason, attrition is a valuable measurement. Attrition signals the health of the sales team and, to an extent, the demand of the product that they’re selling. However, attrition measures more than a company’s exposure to the cost of high turnover. The number is also a lagging indicator of other measures, such as ramp time, productivity, and engagement.
High attrition signals problems, but understanding the underlying causes often requires a more detailed review. Taking the time to conduct this kind of inquiry is well worth the effort. Why? Approximately one-fifth of workers leave their job voluntarily every year. High attrition should be taken seriously as a warning of systemic problems within the sales team.
Sellers today must work harder than ever before. Many competitive advantages have equalized as technology puts other players, big and small, on the same field. In response to this pressure, more sellers are seeking larger contract values so that the deals they close offer more value. In doing so, contract value serves to gauge the effectiveness of a team’s shift to multi-divisional solutions.
Measuring contract value reveals the ability of a sales team to create strategic relationships that position the value of multiple products and services. Additionally, escalating contract values must be considered in conjunction with rising sales and marketing expenses as a percent of revenues. In some cases, this dynamic can put pressure on profit margins.
Profitability is a function of price and product mix. Moreover, diminishing profitability may stem from price-cutting, which indicates a failure to convey competitive advantages. Sustaining profitability is ultimately about effectively improving the product mix, as different products carry different margins.
For many organizations, the product mix and discounting also tie into the profitability picture. With this key performance indicator, sales leaders can understand their degree of efficiency when utilizing resources to win the sale. In a sense, profitability encompasses all the other metrics here. A company’s profitability comes into greater focus when organizations segment the measurement across divisions, products, and even individual B2B customers.
Adjustments to pricing are the primary driver of profitability. However, controlling pricing can be difficult, as market conditions often dictate movements.
Effective sellers, however, can control pricing and therefore profitability with strong negotiation skills that maintain the value of the deal through to the signed contract. Justifying prices requires a sales team to create meaningful value throughout the sales cycle and eventually elevate themselves to the role of a trusted advisor. Given that most sellers are compensated based on revenue generation, adjustments to price can also influence motivation.
A company’s sales cycle reflects the effectiveness of the sales team and buyer’s engagement. As teams increase their productivity, the sales cycle decreases, which narrows the distance between the start of the pursuit and the contract.
Longer sales cycles drive up costs and can be particularly taxing on the company’s resources. Changes to the sales cycle arise from the ability to adapt to a changing marketplace. Additionally, new customer acquisition requires much more time than selling to an existing customer. Therefore, a shorter sales cycle emerges from improved customer loyalty.
These sales KPIs serve not only to answer questions regarding the health of a business but also lend valuable insight as to where leaders should explore further.
Nearly every business will find that they have quick access to data that allows them to leverage at least some of these eight metrics. The earlier that a business begins measuring, the more complete — and therefore useful — the picture will be for leaders effecting change.
If you would like to work with Richardson Sales Performance to identify and improve the KPIs that matter most to your business click here to contact us or call us at 215-940-9255 to set up a time to chat with one of our experienced professionals.