Five Sales Performance Metrics Key to Successful Business Growth

Five Sales Performance Metrics Key to Successful Business Growth

by | Business

Every metric has a story to tell. Dig in over a period of time, break apart all that goes into the metric calculation, join the dots and there you have your story. But then you also have to ACT – your success depends on what you do after you figure out the story. What do you need to do more of? What do you need to eliminate? With the budget season in progress, Sales Performance Metrics are on my mind again. In this Accenture analysis of Sales Performance Optimization Study, sponsored with CSO Insights, sales leaders say their top priorities for the past year was increasing sales effectiveness (56 percent), followed by increasing revenues (52 percent) and improving up-selling/cross-selling (39 percent). The Operations team can play a big role in increasing sales effectiveness with their clear understanding of the various moving parts and inner workings that contribute to high sales performance. These insights can help determine which levers (metrics) can actually help improve sales efforts and align the sales organization to the business strategy.

When it comes to sales metrics, one size definitely does not fit all. The key is to select a good mix of lagging and leading indicators – a set that not only helps you to measure results but more importantly, gives you the ability to predict outcomes. Going beyond the standard booking or quota achievement vs. target, here are five other metrics that I believe go a long way in ensuring sales effectiveness:

Sales Performance Metrics #1 – Funnel or Opportunity Pipeline:

In the current quarter, there is not much you can do to increase sales radically but you can still implement steps to make the sales grow for the rest of the year if you know where to focus efforts. This metric helps determine the nature of funnel and sales expected in future quarters/months. Organize and record each opportunity the sales team is prospecting and assign them a status such as “qualified” or “suspect” or “proposal” along with an estimated value associated with each of them. Assign probability percentage to each status based on your past performance at each stage. The sales people can then prioritize their time according to the probability of a win (status) and the impact of a win (estimated value). This metric is a dynamic metric and will keep changing as new opportunities come in or old opportunities move out as delayed or lost. The value of sale multiplied by the status percentage gives estimated total sales that you can expect at any period in the future provided the opportunities and stages of each opportunity are diligently tracked and recorded.

Sales Performance Metrics #2 – Sales Mix:

Based on the sales strategy of the year, one can come up with different mixes or ratios that need to be tracked as metrics for the year. This is essentially categorizing your funnel into different fields – say by nature (new, renewals or farming), by market segment (products, services, maintenance), by demographics or geography (Americas, Europe, Rest of World), by channel (direct, indirect). The ratios are arrived at by dividing the mix value by total funnel value. This gives a view on how far your strategy is being implemented at the ground level or if there is a possibility of good returns on investment made in any particular area. The sales mix ratios help zoom in on decision areas and decision types and can change from time to time based on the granularity of information available. Again, here is where the operations team can play a big role in ensuring that data strategy, quality and integrity is maintained in all systems – and garbage in-garbage out decision making is avoided.

Sales Performance Metrics #3 – Cost of Sales to Revenue Ratio:

This is a metric that used wisely and measured as a trend over time can show the overall efficiency of the sales team by segment, market or any other growth area that is in the strategy plan. The calculation should be based on the total costs for the selling efforts of each area of business. Total Sales Costs includes salaries, commissions and expenses for sales management, sales people and sales support. Divided by the revenue in the same period from the area of business, you can arrive at the ratio. I like this metric better than sales productivity (Revenue by number of sales people) as, in a global organization, salaries vary across regions, so does the revenues based on the nature of the business area. Measured over a period of time, it can give useful insights into where sales investments in terms of people is needed to get higher revenues, how long it takes for additional sales headcount to generate revenues and other such trends.

Sales Performance Metrics #4 – Conversion Rates and Ratios:

Conversion rates are very useful in identifying sales methodology or process issues, including poor proposal preparation, inaccurate forecasting or funnel categorization efforts, insufficient research into customer buying behaviors, core strength and weakness of sales persons. Conversion rates need to be measured at various steps of the sales process – the most common one is the win ratio –what percentage of qualified opportunities get closed as won. Other useful rates could be the percentage of deals that get lost after responding to proposals, percentage of qualified opportunities that show no movement over a long period of time, percentage of opportunities that are lost without any reason for loss – to pin point where the improvement is needed in the process and is useful in the qualification and prioritization of opportunities.

Sales Performance Metrics #5 – Gross Margin % by Sales Person:

This metric is a bit controversial as it is not generally used to measure performance of the sales team nor used in sales incentive plans. The general idea is that sales team is responsible for getting in the bookings and revenue and the rest of the organization has to ensure that margins are made. I am of the view that unless we track and reward sales people based on not only the volume of the bookings but also the quality of bookings, the organization cannot achieve its margin mandate. Discounting practices, pricing, “value” selling, terms and conditions on scope, timelines, milestones all affect gross margins and sales team has the highest influence with the customer to ensure favourable terms in these areas. So why not measure not only the actual gross margins of revenue by sales person but also future margins based on the funnel details? This will help the entire organization to plan and also help the sales teams to make the “right” (read profitable) sales.
“Gut feel” is all good but you also need the right data and indicators to validate your gut feel. On the other hand, no sales leader will want to go overboard on metrics and measurements that put additional load on the bandwidth of their teams taking time away from “selling” to filling in all sorts of data requirements. So, it is important to choose the right set and number of metrics to help focus strategy and efforts based on not only past performance but also through a rationalized view into the future to enable course corrections as necessary for the success of the business before it is too late.

So what is your story? What sales performance metrics do you think are must have leading indicators to improve forecasting accuracy? What are some of the more creative sales metrics that you have seen ? I would love to hear back and learn from you.

Five Key Considerations for Efficient Knowledge Management – Business Operations Performance Management

Five Key Considerations for Efficient Knowledge Management – Business Operations Performance Management

by | Business, Business Operations, Leadership, Management, Performance, Productivity

If a man empties his purse into his head no one can take it away from him. An investment in knowledge always pays the best interest ~ Benjamin Franklin

What is knowledge? Is it the information we gather from various sources available in today’s always-on and seamlessly connected world? Is it the data we deal with in our daily life?

Well, not really! Data is the raw material used to create information. Information is just data in context. Information and Data are not Knowledge until we know how to extract value out of it. Knowledge is the understanding the significance of Information, filtered through people’s skills acquired through experience, and trends and patterns.

How we extract value out of available data and information, and how we club this with lessons learnt through experiences, ideas and competencies, is where knowledge management comes into play.

Knowledge management is the disciplined approach to achieve organizational objectives such as improved performance, competitive advantage, innovation, sharing of lessons learnt and continuous improvement by managing knowledge as a strategic asset. It focuses on processes such as identifying, creating, representing, sharing knowledge and enabling adoption of insights and experiences.  It is a dynamic approach as Knowledge depends on how, when, and from where it is acquired.

Organizations now clearly believe that Intellectual capital is a strategic and valuable asset that can be managed as effectively as physical assets which will set them apart from their competitors and drive their success.

So, how do we establish Knowledge Management and its underlying philosophies within an organization? The key is in bringing cultural change within the organization by making it knowledge based, working with people to increase their ability in the organization to influence others with their knowledge and encouraging free flow of ideas.

Here are five key considerations to take into account to set up an efficient Knowledge management framework in the organization:

 Consideration #1 : Identify the Key drivers for KM

 Key drivers for KM are:

  • Mergers/ Acquisitions/ Downsizing
  • Employee Attrition
  • Globalization

According to data from Deallogic, U.S. companies have spent $219 billion on mergers and acquisitions so far (February) in 2013, a sharp increase from 2012, when firms spent just $85 billion during the same period. And U.S. firms are slated to have the biggest year in M&A activity since 2000.

In such an environment, it becomes highly important to manage different knowledge models of two organizations getting merged or involved in acquisition. And if the merger is between the companies who were formerly competitors, the strategic alliances that are formed between competitors to pursue an opportunity, the workforce, the changes in technology, global teams and diverse stakeholders, are just a few of challenges we face without a proper KM framework in place.

Employees who leave the organization take their knowledge with them which actually results in Knowledge attrition for the organization.  And there a challenge is to establish a system for knowledge transfer or transition before employee exit to avoid the cost of ramping up new employees. In absence of knowledge assets, learning curve for new employees becomes even more difficult.

Global culture and global environments necessitate virtual teams – this demands knowledge sharing and seamless accessibility to the stored knowledge irrespective of location. E-learning is one of the effective mediums for managing knowledge across the globe.

Identifying the key drivers for KM in the organization helps in arriving at the mission and the appropriate frameworks that best fit the organization.

 Consideration #2 : Focus on What Values KM can add

 Many successful organizations fail to realize full value from their investments in projects by not learning lessons in the process. This further means that organizations then fail to continue those processes that were successful in the process and fail to discontinue those that resulted in errors and rework ~Ernst & Young (2007)

Every project/process offers several learning opportunities to generate knowledge and increase both individual competencies and organizational assets. A creative approach to KM can result in improved efficiency, higher productivity and increased revenue. Structured knowledge management provides the following business benefits:

  • Improved customer satisfaction with fastest response times
  • Ideas can be shared and innovation encouraged
  • Decision making is improved with access to facts and past experiences
  • Enhanced Cross team communication and inter functional problem solving
  • Redundant processes and process handling are reduced, hence business operations becomes more effective and margins improve
  • Ultimately revenues increase by getting services and products faster to the market

Business operations performance improvement and revenue gains as a result of KM are indicated by numerous organizations, for e.g. Ford Motor accelerated its concept-to-production time from 36 months to 24 months and the flow on value of this has been estimated at US $1.25 billion, The Dow Chemical Company saved $40 million a year in the re-use of patents, Chase Manhattan, one of the largest banks in the US, used Customer relationship management KM initiatives to increase its annual revenue by 15%, and Pfizer credits KM practices for discovering the hidden benefits of the Viagra drug.

Look at the processes in your organization and identify the specific benefits in the short and long-term that knowledge management could bring in to the business. It is important to tie in the knowledge management initiative to measurable impact to gain agreement and support from key stakeholders in the organization.

 Consideration #3 : Define clear objectives of KM

Before you jump into KM, you must first gain clarity on what you are doing and why and then spread the awareness around the objectives. The message should be absolutely clear without any ambiguities which will help in building strong trust and credibility. Creating a successful brand around a KM initiative takes a lot of effort – the cultural immune system of any organization is highly volatile when it comes to knowledge sharing and collaboration. The main factor that contributes to the volatility is the fact that technology is breaking the barriers and conventional hierarchy is losing its influence. People take the “knowledge is power” adage too seriously and hoard the knowledge sometimes – thinking that sharing the knowledge would result in loss of their control or influence. KM is all about bringing cultural change. Hence it is important to define the objectives and build the awareness and enthusiasm around these to make people more comfortable to become active participants of the KM initiative. Motivating people by recognizing the value of employee’s knowledge and by rewarding them for it not only benefits KM but also improves employee retention rates.

As per International Data Corp (IDC), following are the top objectives for knowledge management initiatives:

  • Capture and share best practices
  • Enhance internal collaboration
  • Improve Customer relationship management
  • Better Competitive intelligence
  • Build Intellectual capital

 Consideration #4 : Ensure data accuracy and completeness

Data quality is a critical aspect of knowledge management, source and accessibility of data to KM  should happen in a defined and structured manner.  If the quality of data is questionable, the value of data goes down and if major decisions are made based on this data, these actions may wrongly influence organization’s objectives. Data is a valuable organizational asset and should be managed carefully by ensuring adequate quality, integrity, security, availability and effective usage.

Assess the current state at each stage of the Process and define guidelines for right data, right time and right tools and infrastructure to arrive at high quality and accurate data for your KM initiative.

 

Consideration #5 : Earn a strong Fan Base to drive KM acceptance

Buy in from people at all levels is required for knowledge management to be a success. Creating a strong case study on the benefits of using KM helps – Identify a willing group and implement a set of initiatives around KM (e.g. Knowledge Map, Build taxonomy to capture the K- Map, Identify SMEs, and scout for content and disseminate the same) and build a story around the same. This will be like a story board where the user narrates a live example of a crisis or some critical situation and how KM has intervened and helped. Also create a picture of current state and the desired state and how this gap is narrowed down by implementing a structured KM. For example the project can be an application maintenance services for a client. The kind of skills required (L1, L2 etc) in terms of managing the applications, number of tickets generated around each of the technology area within the application and resolving the customer issues can noted down. Now bring in the KM system and process and observe the change like reduction in number of tickets, L1 person handling L2 tickets etc. Map the same to productivity numbers. This has a high impact as people can relate to their own situation and will be open to try KM out.

Use Metrics wisely. A perfect blend of qualitative and quantitative metrics should be available to the management to assess the current level of improvement – either top line (revenue) or bottom-line (customer satisfaction through higher productivity). This justifies the investment that an organization is making in terms of resources and technology infrastructure that supports the KM framework. Theorizing the intangible nature and value of Knowledge Management will not convince the leaders as much as measurable indicators that prove the business benefits will.

In summary, every organization wants to perform at its best in delivering products and services with enhanced gross margins, reduced cycle times and in maintaining consistently delighted, satisfied customers. Knowledge Management can act as one of the catalysts in speeding up the process of achieving these organizational objectives.

The value of Knowledge Management relates directly to the effectiveness with which the managed knowledge enables the members of the organization to deal with today’s situations and effectively envision and create their future – Gene Bellinger

What are your experiences with KM setup in your organizations? What challenges have you faced in KM establishment?    Would love to hear and learn from you.

 T0day’s post is a collaborative effort with Kavita Verma and Ramprakash L – both of whom are SMEs in this area. Thank you, Kavita and Ram for your inputs.