Managing a sales team can be a lonely job these days. Just a few years ago, the energy in a typical sales office was positively electric. The office reverberated with the sound of ringing phones, demonstrations, strategy sessions, pipeline reviews, and the clanging of the sales bell after a deal was closed.
At many or most companies today, selling takes place “elsewhere.” In fact, two out of three sales pros work from a home office, coffee shop, park bench, or anywhere with a palm tree and Wi-Fi connection. Irrespective of where sales activity is conducted, leaders need to maintain order in the court. In the absence of the high-touch, they need to be able to measure the performance of their team members – wherever they are – to ensure that they are meeting their goals and contributing to the overall success of the business.
That’s why establishing, and managing to, a set of key performance indicators (KPIs) is not just essential to the bottom line – it’s the best way to gauge the effectiveness of each and every performer.
At a high level, KPIs provide insight into the individual levers that measure the overall performance of the company. The operative word here is “key.” Companies often make the mistake of creating dozens of KPIs. That can have your sales pros running in circles – lacking clarity as to what they are working toward while making it nearly impossible for you to know where to optimize and improve. A comprehensive set of KPIs should provide insight into lead generation, sales pipeline, deals, quota attainment, recurring revenue, and customers. Ultimately these indicators provide insights to measure the health of the growth strategy.
Let’s take a closer look at these KPI types and why they represent the cream of the crop:
Lead generation KPIs measure the quality, quantity, and velocity of leads. It is also important to use these to gauge lead generation by channel (i.e., cold call, website, 3rd party, etc.). Understanding lead cycle time, channels, and conversion allows for a more predictable forecast. In addition, it provides critical insight to marketers in terms of how to allocate marketing spend. A proven (and eye-opening) approach to understand lead generation is to run a reverse funnel exercise. Start at the bottom of the funnel with the number of closed/won deals required, then traverse up the funnel using historical conversion rates at each funnel stage. Don’t forget to factor in the time required to move from top of the funnel to the bottom. Velocity is just as important as quantity. Candidate KPIs include: Number of leads created, Number of MQLS Created, Lead velocity.
Sales Pipeline KPIs provide insight from the time the lead is qualified (SQL) to when it becomes closed won/lost. They can highlight “leaks” and points of inefficiency during the sales process. For example, are ineffective or poorly targeted demos slowing down deal velocity? Are we targeting the wrong personas? Are we losing momentum at the end of the cycle due to pricing miscues and contracting issues? Understanding both lead and pipeline cycle time will ensure a more predictable revenue forecast. Candidate KPIs include: Pipeline by sales stage, conversion rates by sales stage.
Deal KPIs allow you to peer into the metrics that gauge how each product and service (both revenue and margin) is contributing over time; company performance by market segment; and deal term length. Candidate KPIs include: Annual recurring revenue (ARR), Monthly recurring revenue (MRR), CMRR (Committed monthly recurring revenue).
Quota KPIs give you a handle on individual and overall sales team attainment. As deal velocity increases, companies frequently move to measuring quota attainment monthly instead of quarterly. Quota KPIs should break our new business versus existing business and provide visibility on a product-by-product basis. Candidate KPIs include: Sales Revenue and Volume, Gross Margin, New Logo and Cross-Selling/Up-Selling performance.
Recurring revenue KPIs have taken on new significance as companies have embraced an “___as a Service” mindset (SaaS, PaaS, etc.). Recurring revenue is the lifeblood of these businesses, and much of the recurring revenue comes after the initial sale. High customer retention rates can also be a great driver of customer acquisition by providing referrals and case studies as evidence of the value you provide to potential clients. Renewals, upsells, new deals and churn metrics all factor into revenue planning. Candidate KPIs include: Net MRR Churn, Customer Count Churn.
Customer KPIs are just as important as recurring revenue KPIs. CAC (customer acquisition cost) measures the cost of acquiring a customer. The cost of acquiring a new customer is often quoted as five times that of retaining an existing customer. That expense must be amortized over the life of the customer relationship. And that’s why CAC is always compared to CLTV (customer lifetime value), which looks at the value of a customer relationship over a finite length of time. A company’s long-term profitability must take both into account. Candidate KPIs include: CAC, CLTV.
As you can see, KPIs are essential for sales accountability – and perhaps the best way to gauge the performance of a distributed sales team. By providing clarity, motivation, accountability, a basis for decision-making, a benchmark for comparison, and a basis for continuous improvement, KPIs can help sales leaders drive their team's performance and achieve their goals.
We’ve developed The Chief Outsiders Sales Readiness Assessment – a guided process designed to walk CEOs through a detailed understanding of the issues at hand and provide a framework to help set the business on the proper path forward. Email John Blessing to request a link to the assessment.
In case you missed the first three blogs in the series: