Five Metrics You Must Track to Improve Sales
We’ve all heard the saying from Peter Drucker, “What gets measured gets done.” Edwards Deming, a contemporary of Peter Drucker, also said: “If you cannot measure it, you cannot improve it.”
Regular measurement and reporting keep you focused because you use that information to make decisions to improve your results. Your most critical measurements are called Key Performance Indicators (KPIs). What KPIs do you measure?
I was asked by a VP of Sales, “If you could pick only one KPI to measure sales performance, what would it be?” In considering my answer, I thought while revenue per salesperson is ultimately the most important sales performance metric, other areas merit the focus of sales managers, too. Many managers focus so much on quota and making the numbers they lose track of certain vital performance metrics.
My colleague, Barry Trailer, from CSO Insights, makes the point in this short but powerful video clip “Making Your Numbers.” He outlines the key areas for transforming your sales organization. In his example, he uses two companies, company A and B, which are both in the same industry with the same three-year revenue targets.
Company A experiences big spikes in revenue (up and down 50% off target) while company B is within five percent of target all the way. However, in the end, they both meet their numbers. So what do you say other than they made their numbers?
Well, company A is much more volatile, so resources like overtime or discounting price expend faster. Company B is much more profitable, with better forecast accuracy and, in investors’ eyes, more predictable. If it were a public company, Barry says it would have a market cap three to four times larger. It all comes back to measuring KPIs in the sales process.
I’ve witnessed an explosion in the number and types of sales metrics tracked and managed by sales organizations. The 2015 MHI Global Sales Best Practices Study indicates that 84 percent of World-Class Sales Performers are leveraging analytics to measure and predict sales performance. As the number and variety of data sources increases, the metrics available to the sales leader will increase in proportion.
More is Not Better
However, the philosophy of “more is better” does not apply to sales metrics. Too many metrics of limited value can overwhelm the sales leader and distract him or her from important insights.
With so much information available via reports and dashboards, sales operations must organize metrics so that sales leaders can keep the big picture in view, yet not miss details that indicate the health and progress of the organization.
Sales operations should categorize each metric per its definition and purpose to accomplish the goal of balance. What’s more, each metric must be periodically evaluated and retired once it fulfills its purpose.
Five Metric Categories
To keep your data organized, group metrics into five primary categories:
- Core Metrics
- Diagnostic Metrics
- Initiative Metrics
- Exploratory Metrics
- Warehouse Metrics
Your company’s core metrics measure performance and focus on the fundamentals of the business; these numbers should remain relatively stable. They describe the ultimate desired outcome of sales efforts. Only a change in the business model or other major event should drive change in the core category.
Sales leaders must focus on core metrics first, so other metrics do not distract them from what is of primary importance. The following metrics are often considered core:
- Total Bookings/Revenue
- Win Rate
- Gross Margin
- Pipeline Growth
Diagnostic metrics are indicators of the health of a sales organization. Many diagnostic metrics are unique to the organization and its business model. Diagnostics are distinguishable from other metrics as they offer no meaning other than to point out challenges or potential opportunities.
For example, Average Days in Funnel Stage presents little meaning by itself. However, by comparing the days in stage to the average winning opportunity profile, sales leaders see where opportunities get stuck in the buying process. The following metrics can be diagnostic:
- Forecast Accuracy
- Average Sales Cycle
- Product Mix
- New Customer Wins
- Average Days in Funnel Stage
- Average Deal Size
- Retention Rate
Initiative metrics reveal whether a specific initiative takes root and moves toward desired results. As transitory metrics, these should live only for the duration of the improvement initiatives they support.
When an initiative is in the planning stage, metrics should be defined to track the progress of the program. As an example, your sales team seeks to drive new opportunities by moving closer to its customer’s planning process, then sales leaders should track the number of joint planning sessions with the customer, along with the number of opportunities that result.
Too often these temporary metrics become permanent unless sales operations create a specific process and plan for retiring or removing the metric at the end of the initiative. Once the metric behavior becomes routine, the metric should be moved to the “metrics warehouse” so sales leadership can focus on other improvement initiatives. The following metrics are examples of common initiative metrics:
- Forecast Accuracy
- Average Sales Cycle
- Product Mix
- New Customer Wins
Exploratory metrics belong in the domain of the sales operations professional; they’re used to discover new or hidden insights such as the root cause of key business issues. These metrics will rarely reach the boardroom; however, by assessing the data, teasing out insights from the data, and discussing conclusions with sales leadership, you can help the organization uncover areas for improvement. To leverage exploratory metrics successfully, sales operations professionals must be free to spend time exploring and analyzing data, looking for potential insights.
The metrics warehouse is the place where all good metrics are retired and stored until needed again. Keep the number of metrics manageable by retiring those metrics that no longer demonstrate a specific purpose. Each metric must be analyzed objectively and routinely to determine if it is ready for retirement.
The basic rule of thumb: If you are questioning whether to retire a metric, retire the metric. The majority of time, metrics that fall into this category will not be missed or noticed. Even so, users of the metric will let sales operations know (sometimes loudly) if they retired a metric too soon. They’re in the warehouse, so it should be relatively easy for operations to bring a metric back into use.
While warehouse metrics should not be updated, do maintain the historical data gathered during their useful life because it provides benchmark data when, and if, the organization needs to reuse the metric. Warehouse metrics also act as models for other categories of metrics like initiative metrics.
Pruning metrics from those in use keeps sales leaders focused on actionable information while maintaining historical records from the past.
Sales leaders face the challenge of sorting through literally thousands of data points daily. By organizing the data into core, initiative, diagnostic, exploratory and warehouse metrics, information stays prioritized, and sales leadership focused.
I’ll close with another quote about measurement from the great Vince Lombardi:
”The measure of who we are is what we do with what we have.”
Pull out those measuring tapes, my friends.
See you on the upside,Bill
For more information, go to www.pleinairestrategies.com
Or call William L. MacDonald in San Diego at PleinAire Strategies LLC at 760.340.4277 or 213.598.4700