In this day and age where you can track everything and anything to the most minute detail, it’s important to know where to focus your attention.
Identifying key performance indicators (KPIs) for your industry and business functions is critical to remaining agile to market conditions, which can lead to sustained success.
Like every industry has a different set of KPIs, every function within a business needs to have its own tailored indicators of success.
Take sales for example.
Like any other business function, sales leaders and their respective teams have to sift out what’s really important from metrics that are not so important. You could argue that sales is the easiest function for determining success: you either close a sale or you don’t- that simple, case closed.
However, that's the myopic view that companies with inconsistent performance adopt. To really have sustained success, you need to know why a sale closed and why another one didn't. What happened along the way to determine a lead’s conversion or lack thereof? That’s where having strong sales KPIs in place can make all the difference.
So, if you’re tracking everything and learning nothing about your sales program, read on.
Here are broad-brush examples of 5 KPIs every sales team needs to track and analyze on the regular (caveat: every industry is different and will need to apply there specific knowledge to develop their KPIs. This is a general starting point).
Reach rate is a the percentage of meaningful conversations-or one in which key information is obtained-a sales team member has with a decision maker out of his or her outbound sales activities.
For example, if a sales member engages in 150 outbound actions and they “reach” 12 decision makers, that would be a 8% reach rate, which is likely not going to get it done.
Hubspot states that top flight sales people should have a minimum of 35 “reaches”-and up to 40-out of 100 outbound activities. That said, the right reach rate for your business might be different; that’s something you and your team will have to track, analyze and determine for the business.
Of those leads coming in the door, how many of these are converting into sales and customers?
Marketing qualified leads (MQLs) are top of the funnel leads and therefore should be tracked by leadership, but should not necessarily (every business is different) be a sales KPI.
There are many conversion rates to track-landing page, websites, emails, CRM performance, etc. - but sales has to be tightly defined to be impactful. To start thinking about your benchmarking for conversions, take what salesforce found when it studied B2B conversion rates: “Overall, our analysis shows that on average, 13% of leads convert to opportunities and the average time for conversion is 84 days. Conversion rate from opportunity to deal is even lower-only 6% of opportunities convert to deals, but it takes only 18 days, on average, to convert."
For sales teams, the conversion rate KPI should be built around conversions from sales qualified leads (SQLs), or those leads that have been vetted and qualified as ripe for conversion.
Customer Lifetime Value
Closing 15 smaller deals or 5 larger and profitable deals...which is preferable to most businesses? The latter, of course. Closing larger deals that produce greater client or customer value over its lifetime puts less stress on operations and generally produces greater revenue and profits.
It’s critical for your sales team and your business to know which clients to go after and why. Creating a customer lifetime value KPI can help you close better deals more efficiently.
Remember, as the website Customer Think puts it, "It is 5-10 times costlier to get a new customer than to retain an existing one. Even more, companies on an average lose 20% customers, annually, despite best efforts. Studies indicate that increasing customer retention by 50% results in a profit increase of at least 25%. Therefore, more focus should be on growing business by retaining existing customers that bring in real value."
It's not just about close any deal, it's closing the right deals that will yield the most revenue over time.
Sales Cycle Time
Once you get a SQL to work, how long does the conversion process typically take?
Understanding time to conversion can help you better manage your sales pipeline and plan for future business. It can also help you and your team identify and resolve bottlenecks in the sales process. Knowing how long it takes for a lead to move through your funnel is imperative to improving conversion ratios and profitability.
Selling Costs to Sales Value
Determining how much a sale costs when considering all factors involved is critical to determining trends that could make or break your company.
What is considered with the sales costs to sales value KPI will depend on your industry; ecommerce companies will track different metrics for this KPI than a marketing agency, for example.
That said, knowing how much it costs to generate a sale determines how profitable your business is. If you find you’re breaking even, or losing money for every sale you close, that’s not good. Most business are not in this position (they’re likely out of business or very close to the edge of extinction).
However, many business don’t have a strong handle of how selling costs to sales value fluctuates over time and therefore cannot act quickly to stop a negative trend or to capitalize on a positive one. Build an accurate KPI to measure this category and you’ll do a lot of good for the financial and operational health of your organization.
These 5 KPIs will help you and your team focus on the right things rather than being inundated and overwhelmed by a wave of inactionable data sets.
- Focus on what matters
- Be ready to adjust as needed
- Understand that your KPIs will evolve over time as your audience, market conditions and business strategy changes across its lifecycle.
Want to Identify KPIs For Your Specific Industry?
And get starting identifying and tracking to these key sales KPIs today. The sooner you start tracking to KPIs, or refine your KPIs to better suit your business, the better off you'll be.