Five Sales Performance Metrics Key to Successful Business Growth

Five Sales Performance Metrics Key to Successful Business Growth

by | Business, Business Operations, Leadership, Management, Performance, Productivity, World of Work

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.

Pic courtesy: http://www.flickr.com/photos/ericparker/1537862310

Five Thoughts through Five Favourite Quotes on Performance Metrics

Five Thoughts through Five Favourite Quotes on Performance Metrics

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

Numbers tell stories – and metrics are the tools through which these stories get shape and substance. And yes, I am mad about metrics. And I know I am not alone in my fascination for metrics. There are tons of metrics to choose from and the right performance metric for your business may not be the right one for mine. I have been asked many times on how to know when to introduce metrics, what the right metric is, and how to work the metrics so that the metrics work for you. So through this post, I will try to answer these questions through another passion of mine – quotes! I LOVE quotes (as do the majority of internet users going by the number of quotes shared every minute) – do you too get the feeling sometimes when you read a quote – ahh, I totally get that one, I wish I had written that – an Eureka Moment ?

Quotes are distilled pieces of wisdom. And when it comes to metrics, my experience is that getting the perfect metric and the perfect outcome as a result of tracking the metric needs a lot of hard work and experimentation – so wisdom from people who have been there, done that certainly goes a long way in making the metrics journey easier. So, here are the five quotes on performance metrics, pieces of wisdom that have helped me crystallize my approach to key performance metrics:

“Measure what is measurable and make measurable what is not so.” – Galileo

From the Father of Modern Science comes this gem. The thought to keep in mind when you have to begin from the beginning with metrics. The second half of the quote – make measurable what is not so – stands out to me – just because you can measure something easily is no good reason for measuring something. Metrics need to be tied to the desired business outcomes. And we need to spend some time assessing what metrics we have already and what metrics we need, and then going back to work on creating the systems and processes that will provide the data for quantification in a shape and form that will allow us to measure that. Data collection, analysis and management is most often cost and labour-intensive – so that part should always be weighed against the benefit derived from the metric. Don’t start something you can’t sustain in the long run.

“The ability to simplify means to eliminate the unnecessary so that the necessary may speak.” – Hans Hofmann

What not to measure is sometimes more important than what you do measure. Selection of the right performance metric for your business is critical. Do not introduce metrics just for the sake of metrics – it serves no one and the whole purpose is defeated. Start with what is the business goal that you need to track and improve, what are the processes related to that goal, and what metric would best reflect the productivity of the process. Measure only that which is important, that which provides real value to the process in question, which can be easily understood by all stakeholders and is ACTIONABLE.  Control your love for metrics and don’t produce reams of excels and slides and/or dashboards that make peoples’ eyes glaze over right from the start. Be ruthless in cutting down the unnecessary so that the necessary can stand out and shout.

“If you torture the data long enough, it will confess to anything.” – Ronald Coase

One of my favourites and sorry to say, one that I am reminded of time and again in the corporate world. Data through metrics must speak the truth even when (and especially when) it does not serve our personal needs. As professionals, we have a responsibility to ourselves and our organizations to be honest, transparent and collaborative. How you measure is as important as what you measure. Don’t devise metrics out of the data just to show things in a good light or in a bad light – keep doing that and there will soon be nothing left to measure. Design the metrics and the data collection systems in such a way that it throws the spotlight on the business outcome and is balanced to reward productive behaviour and discourage “game playing”.

“There is nothing so useless as doing efficiently that which should not be done at all.” – Peter F. Drucker

This one is a popular quote and one that has served me well every time I enter a new setup or review a long running process. Business is dynamic, why should metrics remain static? What made sense to measure last month, quarter or year may have become completely irrelevant to measure today. Many a times I have found during reviews, a metric that no one remembers why it is being used, knows who is using it or where it is being used. Trust me, the same is true for many processes as well. There may have been a good reason once sometime in the past that makes absolutely no sense today. So keep reviewing, keep questioning and keep going back to the drawing board with your list of chosen metrics so that they remain relevant and useful.

“An idea not coupled with action will never get any bigger than the brain cell it occupied.” – Arnold Glasow

Do I see you nodding your head to that? All data, dashboards, metrics are useless unless the knowledge and insights derived from them are translated into action.  Ask yourself – what story does this metric say, how can it help the leadership make the right decisions (more, less, better, different?) and arrive at an action plan when necessary? Every metric should be mapped to an end goal and have an action plan defined for improvement, sustenance and excellence. The action plan reviews should go hand in hand with the metric reviews feeding each other in a continuous loop. If the metrics are chosen carefully and presented properly, then, in the process of achieving their metrics, people will make the right decisions and take the right actions that enable the organization to maximize its performance. And that is when you know you have done your job well.

So, there you have it, the method and mechanism behind key performance metrics through learned wisdom. Metrics matter, metrics need work for them to work, metrics tell a story – the ending of which you have the power to change. Make your Metrics Rock!

What are your favourite quotes on performance metrics? What wisdom have you gathered on setting key performance metrics ? What has worked for your business and what has not? I would love to hear back and learn from you.

Pic Courtesy: http://www.flickr.com/photos/rubyblossom/4674821065/

Business Operations Performance Metrics: Gross Margin – Five Steps to Improve your Margin

Business Operations Performance Metrics: Gross Margin – Five Steps to Improve your Margin

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

~~The success combination in business is: Do what you do better and do more of what you do. David Joseph Schwartz ~~

Margin improvement – this phrase usually conjures up images of budget cuts and lay-offs – and strikes fear in the hearts of the toughest managers.   But it really does not have to involve any of these things – costs reductions though important should not be used as the only lever in any margin improvement strategy as you soon run out of cost reduction options.    Gross Margin (as I wrote in my earlier post on key performance metrics) is the mother of all metrics and the quickest way to determine if your business in on track or not   and acts as an early warning system to put in place margin improvement initiatives. So, a quick definition of gross margin:

Gross Margin (%) = (Net Sales – Cost Of Goods Sold)/Net Sales

The gross margin represents the   percent of sales that the company keeps after incurring the direct costs associated with producing the goods and services sold by a company. The levels of gross margin may vary dramatically based on the nature of business (products or services, manufacturing or retail, etc.) but the principles and strategies behind improving margins boils down to two things – increasing your sales and increasing your operational efficiency to   bring down the cost of goods sold.

Thinking through some such initiatives that I have been involved in and noting what worked and what didn’t, these are the five steps that I came up with that I believe are critical to the success of any margin improvement initiative:

Margin Improvement Step #1: Customer profiling or Knowing your best customers – It all starts with the right data that gives you the information that you need, in this case a profile of your customers (or customer segments) that gives you a view of where your profits are coming from. Pareto’s principle applies here too; around 80% of your profits would come from 20% of your customers (or segments). Now you have identified where to focus your energies on – sell more in high profits areas and less in the low profit ones. This will also help in reducing the cost of sales that arise from keeping alive or going after customers where you are consistently not making any margins.

Margin Improvement Step #2: Order to Cash process or Leaving no money on the table – Take a close look at all your internal business processes and systems that are in place to book orders, bill them and collect the cash. Where are the revenue leakages – do you have a method to track unbilled and deferred revenues and plug these?  Are invoices being raised in time or are customers being essentially financed by you? Do you have policies to regulate and control warranties, refunds, credit notes, etc.? Little things add up to a big dent into your margins over a period of time.

Margin Improvement Step #3: Pricing Policies or Enabling your Sales force Effectiveness – The quickest way to increase the gross margin is to increase prices. Even a 2-3% increase in prices brings in a big jump in margins and the people who can do this are the sales team. So are the sales people in the company aware about the linkages in pricing and margins? Is there clear communication and transparencies in how pricing is done within the organization and how it translates into bottom line for the company? Are there tools that can help sales make better decisions by giving them access to real-time data on profitability?   Making key stakeholders aware of the tools at their disposal and how their actions impact the outcomes is a big step forward in any improvement initiative.

Margin Improvement Step #4: Operational Excellence or Reducing inefficiencies – This is all about doing more with less and driving performance improvement through the smart use of metrics. Look at all areas of waste and inefficiencies  – space that is not being used, people that are not being utilized, advertising that is not working, projects that are out of control, inventory that is gathering dust, supply chain expenses, travel costs, etc. Translate this into a plan with measurable outcomes and deadlines and assign clear ownerships.

Margin Improvement Step #5: Rewards and Celebrations Or Creating a Customer-focused Culture – Tie the incentives, awards and rewards that you give to your employees clearly with the margin goals. Tie Sales bonuses with the levels of margin that each sale brings in and not just the revenue. Celebrate early wins to reinforce the importance of the margin improvement initiative. Positive reinforcement works best here.   Research shows that companies with a customer-focused culture that consistently deliver value beyond customer expectations grow at rates that exceed industry averages. Customer Focus is a profit strategy and the way to achieve long term profitability is to build and sustain the culture of customer focus within the organization

What steps have I missed ? What business operation metric do you use to measure margins?   What has worked for you in improving margins? I would love to learn from you.