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Analysing your sales metrics can transform your sales and profits
Does your company sell through a sales team?
Managers usually employ a sales team if they sell a product that’s a big purchasing decision (e.g. because it’s expensive or involves a long-term commitment) and the benefits of the product are complicated and need explaining. In cases like this a sales team is more or less essential.
But a sales team is an expensive resource — salespeople aren’t cheap. If you use a sales team and you want to maximise the profits from your business, it’s vital to make sure your salespeople are performing at a high level. You can’t afford mediocre results from expensive employees.
To optimise performance you need to analyse the key metrics you can extract from your sales team data so as to identify what your people are doing well and the areas where they can improve. There are two types of metric you should focus on: activity metrics (e.g. number of calls made to customers) and performance metrics (e.g. conversion rate from new leads to new customers).
Here’s what I’ll cover in this article:
The difference between activity metrics and performance metrics.
Identifying the most important metrics to track.
How to calculate each metric.
What each metric tells you.
How to use each metric to improve your sales performance.
The difference between sales activity metrics and sales performance metrics
To analyse and monitor the effectiveness of your sales team you should gather two types of sales metric: activity metrics and performance metrics.
Sales activity metrics
Sales activity metrics measure effort — they are the inputs to the selling process. You can use activity metrics in two ways.
First, you can calculate metrics based on historic data that record the work your sales team has already completed. That enables you to see who’s been working hard and who hasn’t. If one of your team made 100 client calls last month and another made only 50, it’s clear who was putting in more effort.
Second, you can use activity metrics to create a system of Key Performance Indicators (KPIs) that will form the basis of targets for your staff. It’s an efficient technique for directing your staff without micromanaging them.
To begin with you identify the initiatives your company must make progress on to be successful (e.g. expand your sales in a new customer segment). Then you identify the activities that are crucial to advance those initiatives (e.g. identify potential customers in that new segment and add them to your list of sales leads).
By setting targets for sales activities (e.g. adding new leads to your database) you communicate to your staff which tasks they should prioritise (and by implication which tasks are less crucial). It’s an effective way of linking the day-to-day work of your staff with your top level business strategy.
Sales performance metrics
The second type of sales metric you should capture is performance metrics. These measure results — they are the outputs of the selling process, not the inputs. In the long run these are the metrics you really care about.
To continue the example above, let’s assume the salesperson who made 100 client calls last month secured 15 new sales while the sales person who made only 50 client calls secured 30 new sales. You would praise the first sales person for their effort but you’d praise the second one for their results.
By capturing both the activity and the performance metrics you would also spot that the more successful sales person converted calls into sales 4x more effectively than the less successful sales person. Notice that you only capture this insight by measuring both the inputs and the outputs of the process.
This should prompt you to investigate what the more successful sales person is doing differently to the less successful one. How are they achieving such standout results? Once you’ve identified the best practices that your successful salesperson is following, you should ask them to coach the rest of the team to apply the same techniques.
This type of exercise can boost the performance of your sales team significantly. Make sure you hold up your successful salesperson as a role model. You’re not stealing their ideas, you’re putting them on a pedestal for their colleagues to admire. Who doesn’t like being told they’re an example for their team to emulate?
Setting targets
One final word of advice about using sales performance metrics. Don’t create targets for these. Managers often set targets for salespeople based on sales achieved, new customers won and so on. This is usually a mistake.
Remember that performance metrics are the outputs of the process — your sales people can influence them but they don’t control them. They only control the inputs, such as how many calls they make and how effectively they pitch the USP of your product. The golden rule of targets is to only set people targets for factors they can control.
Next time you watch an interview with a top sports coach after a big match, notice what they focus on. They usually spend a few seconds commenting on the result (i.e. the output) and then spend the rest of the interview discussing how well or badly their team played (i.e. the input).
Sometimes you play well and lose the match. Other times you play badly and win the match. Because outcomes don’t only depend on what you put in — external factors play a role and so does luck. Even though in the long run, luck evens out.
So if there’s a downturn in the economy, your salespeople will struggle to sell as much as you’d like them to. But if they consistently do a good job on their sales activities — capturing leads, building credibility, pitching effectively — then they’ll generate the best outcomes that are possible under current circumstances.
If you want to set your sales team targets, set targets based on the inputs to the sales process, not the outputs from it.
Important sales activity metrics
Which are the most important activity metrics to track? There are lots of them but here are some of the most common ones:
New sales leads identified.
Outbound calls made.
Client meetings held (you could split between existing and potential new customers).
Product or service demonstrations given to actual or potential new customers.
Formal sales pitch meetings or calls conducted (again you could split between pitches to existing customers and to potential new customers).
Product or job estimates/ quotes submitted to existing or potential new customers.
Note that these metrics are all recorded as absolute numbers, not as ratios. But for them to be useful as a measure of activity you need to analyse them over a period of time, such as a month. That way you can compare activity in the current period with the same period last year or with any other targets you’ve set.
You can analyse activity metrics for your sales team as a whole and for salespeople individually. By measuring the numbers for individuals you can also compare from one person to another. As I mentioned above, that’s a key method for spotting best practices and spreading them more widely.
Important sales performance metrics
Sales performance metrics measure the effectiveness of your sales team rather than their effort. Specifically, the results they produce rather than what they put in.
Performance metrics are usually expressed as percentages or ratios rather than absolute numbers.
To make the metrics useful you need to measure them over a defined period of time. For example, you could measure them monthly.
Here are some common performance metrics:
Lead conversion rate
This measures how good members of your sales team are at taking on qualified leads, nurturing the relationship and eventually closing a first sale.
You calculate the ratio like this:
100 x new customers won / new leads taken on
Pitch (bid) win rate
This measures how successful members of your sales team are at closing a sale once they’ve developed a new relationship and won the opportunity to make a formal pitch to a potential customer. The pitch might be to sell a specific product or service or to be accepted onto the customer’s supplier list, depending on the nature of the business you operate in.
In other words, the pitch win rate metric zooms in on pitching skills, as distinct from a person’s broader aptitude for building trusted relationships with potential customers over time.
You calculate the ratio like this:
100 x pitches won / pitches delivered
Sales cycle length
If you want to grow your business, it doesn’t only matter how successful your sales team is at turning pitches into sales or turning leads into customers. It also matters how quickly each of them does it. If someone has a 100% conversion rate but it takes them 5 years to convert, you probably won’t thank them. In fact you may well have let them go long before they achieved their first conversion.
Here’s how to calculate the average time your sales team needs to win a new customer:
Sales cycle length = total days from first contact with new customers you later onboard / total new clients onboarded
You can also calculate the metric for product sales rather than customer wins:
Sales cycle length = total days from first pitch to closing the sale for all sales made / total number of sales made
Cross-selling and upselling
Once you’ve won a new customer there are usually two main ways to maximise their value:
By selling them additional types of product or service from your range (cross-selling).
By persuading them to upgrade the product or service they bought initially to a more highly specified one that commands a higher price point (upselling).
Here are two metrics to analyse how well your sales team is performing:
Number of instances of successful cross selling or upselling in the period.
Share of your customers to whom your team has successfully cross-sold or upsold in the period.
You should calculate these metrics over defined periods (monthly, quarterly or annually). You can measure them for your sales team as a whole and for each individual salesperson. Again, I’d advise you use these metrics to spot your top performers so you can spread their best practices more widely.
Average number of services per customer
Closely related to cross-selling is the average number of products or services your customers buy from you. It’s particularly relevant in service businesses that sell multiple service lines.
Here’s how you calculate it:
Total number of service contracts or relationships / total number of customers
Over time, if your cross-selling efforts are successful, your average figure should increase.
To identify which cross-selling tactics are working well, calculate your number of services per client for each client individually and then rank your clients from highest to the lowest (the lowest value will necessarily be 1). You can then investigate the reasons why some customers buy multiple services from you and apply the tactics that work across the rest of your customer base.
You can also compare results across your sales team. Do some of your sales team have a lot of clients buying multiple products or services while others have clients who mainly buy only a single one? What works well for the salespeople who are good at cross-selling?
Conclusion: Analysing your sales metrics is vital to maximise the performance of your sales team
Hopefully you can see from this article that strong sales performance isn’t an accident. And sales skills aren’t simply an asset someone’s born with.
Instead, with careful use of key ratio analysis focused on sales metrics you can have a major impact on the performance of your salespeople and your business.
By gathering data on your sales team’s activity and performance you can:
Identify who’s working hard and who’s working effectively.
Identify the sales techniques that work well for your most successful salespeople and spread their best practices across all the members of your sales team.
Identify the salespeople who need extra coaching and help them lift their contribution.
Set targets for activity metrics as part of a system of KPIs to guide your team to focus their effort on your key priorities.
You can apply these analytical techniques regardless of what industry you operate in and regardless of whether you’re a B2B seller or a B2C seller.
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