Sales Key Performance Indicators – Numbers to Live By
Running any business effectively requires good decision-making ground in good management information. This is especially true when measuring the performance of your sales organization. Surprisingly, many companies still don’t take the time to understand what sales key performance indicators (KPIs) they should track and how often. They end up relying on a few simple metrics such a pipeline size, number of sales calls, or sales cycle time to manage their business and then become surprised and alarmed as their sale year progresses and they fall behind on their sales quota.
Understanding the leading and lagging indicators important to your sales model will help you determine actions needed to achieve your selling goals. There could be several key KPI’s depending on your sales model, but at a macro level every company has these basic functions that need to be measured and managed.
The Basic Set of Sales Key Performance Indicators
- Quantity of leads needed in your sales funnel
- Conversion rate of leads to qualified prospects
- Close rate of qualified leads
- Revenue conversion rate on closed deals
- Average sales cycle time
Quantity of Leads
Ask people on your sales team for the definition of a lead and you will likely get a different answer from each of them. Simply stated a lead is an individual that can buy (or influence the decision to buy) your product or service. Once you determine the percentage of leads that can be converted into qualified prospects – and your closing rate on those leads – you can then determine the actual quantity of leads you need to be working ‘above your sales funnel.’
Try 3FORWARD’s Do I Have Enough Leads Calculator to lock down these percentages.
Conversion rate of leads to qualified prospects
Understanding the conversion progression of a lead to a qualified prospect is an important factor in understanding the overall size of your lead database. A low conversion rate means that you will need a large prospect universe. In some businesses the lead conversion rates can be improved by more focused prospect segmentation but in others the conversion rate will remain flat.
Even if a lead becomes qualified there may be factors that preclude you from pursuing the opportunity, such as your firm is considered to be to small, geographic misalignment, portfolio weakness, etc. The next metric to track is conversion of qualified leads into opportunities bid or worked. These deals become your qualified pipeline.
Close rate of qualified leads
This calculation is usually measured as total wins divided by opportunities bid, (also called a ‘bid/win rate’). This should be the easiest metric to track but may be deceiving based on the way you categorize “no-decision “ opportunities. It’s best to remove no-decision opportunities from the calculation, as many of these opportunities may have been poorly qualified by inside or outside sales. (If you do leave them in, remain consistent and always count them).
Often the quickest way to raise win rates is to not bid poorly qualified or unqualified opportunities. This can be hard to enforce but can be improved with a robust qualification process. After removing no decisions it’s a sound practice to calculate closing rates on RFP’s against the closing rates on non-RFP opportunities, the numbers may be surprising. Also consider doing the same for clients versus new logos.
Revenue conversion rates on closed deals
Another metric worth tracking is revenue conversion. Many companies sell services or products that are delivered over periods of a year or longer. It’s a good idea to track whether (on average) the revenue received is more or less than originally expected. If you convert more than 100% of revenue expected you have a built in buffer to allow for unexpected erosion. If you traditionally convert less than 100% of revenue expected you should increase your lead funnel size to allow for the shortfall.
Consider the following example for a company with these KPI’s.
Sales Quota $1M
Average Deal Size $125K
Close Rate 35%
Leads needed in sales funnel 8,000
Opportunities identified (8%) 640
Opportunities initially qualified (20%) 128
Opportunities bid (20%) 26
Opportunities won (35%) 9
Quota attainment based on above metrics 112%
As you can see changes in conversion rates can have significant impact on several categories.
Average sale cycle time
Tracking you average sales cycle time is important for two reasons. First it shows whether you have enough qualified prospects in your current pipeline to meet your quota based on business already sold and time remaining in your plan year. It can also indicate when qualified opportunities begin to age and become less qualified and likely to close.
As a general rule, opportunities that age more than 150% of your average sales cycle time should be removed from a qualified status unless there are verifiable extenuating circumstances. If your sales cycle is 6 months a deal that ages to 9 months or more should be removed from the pipeline.
It’s often said that what gets measured gets done. KPI’s must be meaningful, measurable and goal oriented. Take the time to start a basic sales KPI program and refine it as you become comfortable with the process.
Want to talk sales metrics with a 3FORWARD partner? Schedule a Sales Optimization Review with us here.
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I am glad to see that this list of KPI’s has many common elements to those I recommend to track through my revenue formula:
Number of deals, average deal size, overall conversion rate and velocity
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