You have probably heard it said your entire career: Sales is a numbers game. And so it is; however, if you want to effectively manage your sales team and help them grow business, drive revenue and outperform the competition year after year, you must decide right now what numbers are the most important to you, and how to communicate those numbers to your team so they understand why they are important and what to do with them.
This unique set of numbers are called Key Performance Indicators (KPI), and while the term KPI is thrown around all the time by sales managers, that doesn’t mean it is always well understood. Does KPI refer to goals? Yes, but not only goals. Is it related to sales quota or forecasting? Sometimes, but not exclusively. Does KPI have something to do with measuring performance? Definitely, but it has to do with more than metrics. Just because you can measure it doesn’t make it a KPI. In order for KPI to be useful, everyone must understand not only what is being measured, but why it is being measured, or else most of the benefit will be lost.
It is KEY to the success of your organization. Is the number of sales contacts per week important to the success of your organization? Do you have a benchmark that tells you that when a sales rep makes at least 5 contacts with Executive level decision makers during a sales cycle the value of the final deal will go up by 40%? That would be good to measure and track.
It is related to PERFORMANCE when it can be clearly measured, quantified and easily influenced by the members of your team. For instance, comparing the year over year raw dollar value of a rep’s sales may seem useful, but there are too many variables to provide a reliable measure of that person’s performance. If the economy has crashed in the past year, or if you have released a new and very popular product line in the last year, those things will impact performance in ways that have nothing to do with the rep’s ability.
It is used as an INDICATOR; in other words, it is something that provides leading information about future results. For instance, one version of the 80/20 rule says that 80% of a sales rep’s production is usually generated by activity in 20% of his accounts. Given that information, it might be a good idea to track the number of calls and the amount of time that rep spends with high value contacts in those accounts, and set some specific expectations there that can be measured. KPI’s should provide visibility to help you influence the outcome of your week, month, quarter and year.
So, keeping this in mind, key performance indicators to track for your sales team might be:
How many times a rep advances the first sales appointment to the next stage (demonstration, send information, survey, proposal, etc.)
How often, or how quickly, is a sales rep able to penetrate an account and build relationships with decision makers?
When a rep does win a new account, what’s the average revenue achieved?
Let’s take a closer look at that last one. This is a valuable KPI because if a sales rep has average revenue per sale that is 30% less than the average revenue per sale for the rest of the team, you should find out why and design a coaching plan to find and fix the problem. There is a good chance this rep isn’t asking the right questions at the right time, and therefore is leaving money on the table.
Another good KPI might be length of sales cycle. Let’s say that your team’s average length of sales cycle is 2-3 months. If you had a rep that was instead averaging 6-8 weeks, you would want to get with that rep and find out if he is doing something differently that could be shared with the rest of the team as best practices.
Here are 10 crucial KPI’s that nearly any sales manager should track regularly:
Lead conversion ratio
Lead response time ratio
Pipeline to revenue target ratio
Year over year pipeline trend ratio
Time per sales stage ratio
Average Revenue per sale
Account share ratio
Account profitability ratio
Year over year sales trend ratio
Win-Loss ratio
Once you have identified KPIs, you can use them in at least two different ways. Obviously, you want to use them to manage performance. You start this process by clearly spelling out to everyone on your team what the KPIs are, why they are valuable to their success, how they will be measured, how often they will be measured, and what will be done with the information gleaned from these measurements. It is crucial that everyone on the team understands every aspect of this process, so don’t skimp on your efforts. Create and distribute documentation that everyone can refer to, send out regular performance updates, make KPI measurements a part of regular coaching. Don’t use KPIs as a hammer; instead, use them as goals to aim for and benchmarks to measure progress. However, when progress is lagging, the KPI becomes the lever that guides your coaching strategy to help reps improve.
To a lesser extent, KPIs can also be used to inspire and refocus the team. Make your KPIs the defining measure of your team’s culture. Use the KPIs to mold the vision and image of your team. Work them into your conversation and help the team see the KPIs as a mission statement, instead of just a set of metrics hanging over their heads. Once your team knows and understands the role of KPIs in helping them measure and achieve success, their ability to meet and even exceed your expectations will rise dramatically.
Have you identified a set of Key Performance Indicators for your team that measure activities that are: Key to your success, based on the performance of your team (not subject to influence from outside factors), and that will function as leading indicators of future success? If not, why not, and how soon can you rectify this situation?
If so, have you clearly communicated these indicators to your team so that they understand what they are, why they are important, and how to use them in guiding their own success?
Do you have a plan for using KPI data as a part of every coaching session and team meeting? Do you use it to inspire and enable, or only to intimidate?
What steps do you need to take next to more effectively leverage your KPIs to help your team grow business and drive revenue?
Walter Rogers is the President and CEO of Baker Communications. Baker Communications is a sales training and development company specializing in helping client companies increase their sales and management effectiveness. He can be reached at 713-627-7700.
This article may be reprinted in its entirety if the following conditions are met:
