Imagine for a minute that you’re trying to cross a busy highway on foot while blindfolded. You have no way of knowing where the traffic is coming from or where your “sweet spot” for a safe crossing is located. Now imagine that same highway, but with the addition of major roadworks and diversions.
The nightmare has just gotten real. You’re leading a group of thirty other blindfolded people across that road who are all shackled together behind you, and it’s only a matter of time before a big old truck leaves you all for roadkill.
That’s quite enough with the graphic analogy, but it’s served its purpose. The longer you go without robust key performance indicators (KPIs), the more hazardous and unknown your objective and performance journey becomes for you and the people you manage. Especially in the competitive world of sales.
If sales managers aren't out in the field every day, it’s difficult for them to keep tabs on sales teams and business operations. The best way to gain visibility into your sales team’s activity is to collect and measure both team and product performance through well-thought-out sales metrics and KPIs.
This article will explore sales KPIs and consider which sales metrics and KPIs every team should measure.
Let’s get started!
What Are Sales Metrics and KPIs?
KPIs are metrics used to track the performance of a business, a department, or individuals against specific goals.
In sales, the importance of KPIs can't be understated.
KPIs are more than just figures you include in your weekly or monthly sales reports. They’re the key to understanding the health and performance of your business. They give you insights that allow you to make well-timed and informed adjustments in your execution to achieve your strategic goals.
Knowing what sales metrics and KPIs to set and measure will help you achieve results faster.
Still not convinced that KPIs are that important? Here are another five good reasons. KPIs will allow you to:
- Monitor your business’s health
- Measure your progress over time
- Make adjustments and remain on track
- Solve problems or tackle opportunities
- Analyze patterns over time
Let’s find out more about sales metrics and KPIs in sales organizations.
Sales KPIs are metrics that inform and track the performance of individuals, teams, and whole businesses and are determined against set goals and objectives. For example, imagine that the next financial year’s strategy across a company is to break a product line into the European market. How each salesperson or team contributes to realizing that is weighed up against this as a KPI.
Benefits of Solid Sales Metrics and KPIs
Let’s shine a light on the benefits of robust KPI planning in sales.
The great thing about sales metrics and KPIs is that when they’re carefully considered, they should work at all levels of personnel; the individual, product team, global sales division, or board of directors, with the intended benefits of determining their:
- Overview of progress towards goals
- Performance visibility
- Performance evaluation
- Behavioral direction
- Decision-making ability
How to Choose the Right Sales Metrics and KPIs for Your Business
There’s no one-size-fits-all approach to sales KPIs and metrics. However, here are some basic rules of thumb to bear in mind when selecting and formalizing yours:
- Select sales metrics and KPIs that are closely tied to your overall business goals.
- Don’t simply adopt the same KPIs as others in your industry. Choose KPIs that are relevant to your organization’s current situation, size, and growth trajectory.
- Don’t try to cover everything.
Top 20 Sales Metrics and KPIs that Every Sales Manager Should Measure
We’ve put together a list of the most critical KPIs for sales that will help you manage your sales team more effectively and put them on the path to success and profitability.
Let’s dive in:
1. Monthly Sales Growth
Monthly sales growth is a measure of how your revenue has increased or decreased over a period of a month. Monitoring this metric allows sales managers to track and act upon sales revenue trends and fluctuations instead of taking a reactive or retrospective stance.
It also ensures that they set sales targets that are realistic and achievable, which keeps their teams motivated.
2. Sales Targets
By keeping track of your sales targets by generating sales reports, you can determine whether your revenue aligns with your forecasts. You can also quickly spot inconsistencies or worrying trends and revisit and, if necessary, tweak your goals at regular intervals.
Additionally, this metric allows you to track how well your team is performing and identify any individuals who may need help or support.
3. Customer Acquisition Cost (CAC)
As its name implies, this metric allows you to gauge all the costs incurred in signing up a customer. This could include the cost of marketing campaigns and sales employees’ salaries.
Ideally, you should be able to recoup your CAC within a year of acquiring a customer.
4. Customer Lifetime Value (CLV)
Customer lifetime value (CLV) is the amount you expect to earn per customer. This is an important metric to track as the longer you have customers that are buying your products and services, the greater your revenue will be.
CLV is calculated by subtracting your CAC from the total revenue you expect to earn from new customers over the lifetime of the relationship.
5. Monthly Calls or Emails Per Sales Rep
The volume of outreach that sales reps make over a period of a month gives you a sense of how effective they – and the channels they’re using – are at winning business.
You can further break this metric down by looking at how many calls were answered and their duration. For email, you can track how many sent emails were opened, responded to, or resulted in click-throughs.
6. Number of Sales Opportunities
Monitoring your number of current and new sales opportunities is a vital element of effective sales management. While marketing teams are (rightly) very interested in unqualified leads, only valid qualified leads are of real use and importance in sales.
For instance, leads with incorrect or out-of-date contact information are of no use in sales environments.
7. Sales Opportunity Score
It’s a good idea to use scoring models to gauge the strength of your sales opportunities. They allow you to assign a standardized value to each sales opportunity, for example, on a scale of 1 to 5.
You can then use these scores to prioritize your opportunities and ensure you make the most of your sales resources – both human and budgetary.
8. Lead Conversion Ratio
Lead conversion ratio is a measure of the level of interested people or organizations that you convert into paying customers. It makes sense to establish some form of baseline to give you an idea of how many leads you need to turn into customers to keep your team running at full steam over a given period.
This metric also assists with human resource planning.
9. Average Conversion Time
To operate a profitable sales organization, you need to set up an efficient system that tracks and manages the time that elapses between your first contact or touchpoint with a lead and a closed deal.
This sales KPI provides you with a high-level understanding of the effectiveness and productivity of your sales funnel.
10. Average Cost Per Lead
This sales metric gives you an understanding of how much it costs your sales organization to generate a single lead.
The most accurate average cost per lead KPI tallies up all sales and marketing expenses (including your team’s salaries.)
11. Sales Per Rep
This sales KPI lets sales leadership see at an employee level how many sales were made per rep. It’s helpful in setting a sales baseline and in setting individuals’ personal goals.
It can also give you a sense of each salesperson’s areas of strength and weakness, which can inform personal development and training initiatives.
12. Sales by Contact Method
Every sales team and every individual working in it will have their own preferences as to the contact methods they like to use and which they find most effective.
This KPI can also open your eyes to opportunities to drive greater efficiencies and save valuable time by automating away mundane, less value-adding tasks. Finally, it can also provide insights regarding the costs and time associated with existing contact methods.
13. Revenue per Sales Rep
Every sales manager needs insight into how their team members are performing and the targets they need to reach.
It’s a good idea to compare current revenue against historical data when looking at this sales metric to see if there are any notable trends in individuals’ success rates and productivity.
14. Average Purchase Value
This sales metric shows you the average sales value of every transaction. It’s especially useful if you compare it against the number of opportunities.
This sales KPI can also give you insights about which lines you might consider offering new incentives on to boost your chances of customers buying higher-end products or services.
15. Average Sales Cycle Length
If you wish to shorten your sales cycle, you must first understand how to optimize your current one. A good place to start is by analyzing the cycles for individual reps at the different stages of the cycle and comparing them to others in your company or team. The shorter the time each lead spends in each stage of the funnel, the better.
This metric can also serve as a way to monitor reps’ progress over time.
16. Lead-to-Opportunity Ratio
Most new leads begin as unqualified leads. A qualified lead is understood as a lead that meets certain qualification requirements. In sales organizations, a qualified lead is usually deemed to be an opportunity. Sales managers often determine if leads are qualified by using the BANT requirements method (Budget, Authority, Need, and Timeline.)
This process aims to determine if leads can become customers. The lead-to-opportunity ratio gives you an idea of the number of leads you need to achieve your revenue goals. And as soon as you’ve established a baseline ratio, you’ll be clear about the number of leads you need to reach your growth targets and enjoy a predictable stream of revenue.
17. Opportunity-to-Win Ratio
This sales KPI gives you an idea of how effective your sales team or reps are at closing accounts. While tracking leads to opportunities gives you a sense of how initial contacts turn into conversations, this sales KPI measures how discussions get converted into cash.
Some sales reps are great at speaking to potential customers but may be less adept at following through and closing the deal. Sales KPIs like this one can help you identify any such weaknesses or areas for improvement.
18. Retention and Churn Rates
Churn is the percentage of customers or the revenue lost over a certain period.
If you struggle to keep your churn under control, it’ll harm your revenues to the point where your business is no longer sustainable. This makes it an essential sales metric to measure.
19. Average Profit Margin
This sales KPI lets managers assess profit margins across their entire suite of products and services.
It’s a particularly important sales metric for businesses that have a complex and multifaceted value proposition.
20. Product Performance
By tracking this sales metric, you’ll be able to see if and when certain products or sets of products are selling better or worse than others. There could be many reasons for this happening. For instance, targeted PR or advertising campaigns could see sales and new customer acquisitions jump during a certain timeframe.
Sometimes, you’ll notice that products go through a period of underperformance because one of your key competitors recently dropped their price.
Closing Thoughts on Sales Metrics and KPIs
Whether your business is a start-up, scale-up SME or a global enterprise, strong sales metrics and KPIs can be designed, implemented, and measured with ease – especially when reviewed in tandem with reliable and value-rich sales performance management (SPM) software, such as that offered by Varicent.
And as some of the most widely used sales KPIs and metrics include monthly sales growth, new leads and opportunities, average profit margin, client acquisition rates, monthly sales bookings, and average cost per lead, bringing in a software suite that lets you measure these and others is a sure-fire way of being able to back-up the figures with both real-time and historical reporting and analytics.
A final consideration is that ill-considered and poorly thought-out sales metrics and KPIs could potentially derail your sales team and every piece of strategy that comes with it. As KPIs tend to go hand in hand with objective-setting and targets, everyone in the business needs to understand their purpose and how they relate on an individual basis.
Such is the dissent that poorly executed sales metrics and KPIs can create, you may find your team willingly throwing themselves (or you) under that truck rather than blindly following impossible targets.
Align yourself and your sales team with rationale and sensible and incentivizing sales metrics and KPIs, and you’ve got yourself a clear road ahead to success.
Find out what Varicent’s sales software packages can bring to your business at www.varicent.com.