Published in Spring 2023
Measuring sales performance in any company is relatively easy. You simply track the number of new deals, renewals, margins and revenue. These are well-understood key performance indicators (KPIs) for any sales team, and it’s been repeatedly demonstrated that those organizations that focus on KPIs get better results.
Given that KPIs are essential to the sales team and management, are you tracking the right ones to achieve your business goals? When management sets the appropriate KPIs, the sales team better understands how their performance is measured and where to focus their time and energy. KPIs also identify weaknesses and direct your sales training’s focus. Choosing strategic KPIs provides a barometer for individual sales performance and helps determine the sales tools, training and compensation required.
KPIs also need to adapt to suit changing market conditions and business goals. Since the COVID-19 pandemic, companies have had to cope with supply chain disruptions that affect customer buying decisions. Inflation is having an impact on budgets. Buyers are better educated and more proactive, directly affecting how to approach selling.
The result? Your KPIs may no longer be relevant. Sales leaders may fail to adjust KPIs, which affects sales performance. Uncertainty can also result in too many KPIs, too few or ineffective KPIs.
Choosing the right KPIs depends on your industry, business model, goals and other factors. Once you identify those key behaviors that help reach company goals, you can fill the gaps in your sales training.
How to Establish Curated KPIs
Choosing the correct KPIs results in higher profits. The management consulting firm ZS surveyed 200 middle managers about their success with KPIs, and found that market leaders weren’t tracking more KPIs than market laggards but were tracking different and more complex APIs.
High-growth companies tend to curate their APIs, identifying the factors most relevant to business objectives. Approximately half of the companies ZS surveyed also started tracking new KPIs, aligning desired sales results with business objectives and abandoning KPIs that were no longer relevant. Their research showed that high-growth organizations revisited their KPIs regularly, whether annually or quarterly, and adjusted them as needed.
It also pays to use calculated KPIs (i.e., metrics with multiple data points that can be shaped into a single metric). Calculated KPIs can give you a better indication of performance and enable better-informed decision-making. For example, ZS reports that 50% of high-growth companies look beyond customer spending and track customer lifetime value, including purchase frequency and longevity factors.
In curating KPIs, choose KPIs that connect sales to the organization. Sharing the data with other departments provides greater transparency and a perspective on overall performance. Shared KPIs also translate into shared values. For example, tracking leads by source and pipeline velocity becomes a shared value for sales and marketing.
Managing Keystone KPIs
In his book, “The Power of Habit: Why We Do What We Do in Life and Business,” Charles Duhigg describes the idea of keystone habits; small changes in one area that lead to other positive changes, so you continue to move toward your objectives. You can apply the same principle to KPIs. Choose a small number of keystone KPIs that push the sales team to become more effective sales professionals.
Tracking the source of new business opportunities can be an excellent keystone KPI. Finding leads is a constant struggle but tracking the number of referrals is relatively easy and low-cost to track and can be an essential keystone KPI. Leads from existing customers are a measure of customer satisfaction, plus referrals also tend to be easier to close since the referral is the result of a trusted relationship. Selling to existing customers is the easiest way to increase revenue. That’s why customer service performance indicators should be keystone KPIs.
Many companies find customer satisfaction hard to measure. Questions like “How satisfied are you?” don’t yield reliable results since unhappy customers are more likely to respond. Bad experiences are more likely to trigger a review than good experiences. Existing client engagement, churn rates and customer lifetime value are more reliable metrics to gauge customer satisfaction.
Measuring the amount of time spent with customers can be a keystone KPI. More customer interaction yields more sales. A McKinsey study shows that top sales performers spend 40-50% of their time communicating with customers by phone, teleconference or in person, while salespeople in laggard companies averaged closer to 16%. The study also found that sales reps who spent more time with customers were four times more productive than the lowest-producing salespeople.
More specifically, you want to gauge the amount of time spent gathering what Maddy Osman of Cirrus Insight calls “conversational intelligence.” Measuring conversational intelligence as a keystone KPI means assessing how well your salespeople communicate with prospects and customers, creating personal connections that foster trust and promote collaboration. The keystone KPI is how well a sales rep can articulate the unique value they bring to a prospect. Sales management can grade conversational intelligence as low, average or high and match those grades against performance metrics such as win rates, the understanding of each sales rep and time-to-close.
Outbound versus Inbound Focus
Should your sales team’s focus be outbound on new customers or inbound on current accounts? When we ask sales managers how much time they would spend as a sales rep on new business, the average was 70%. When we ask salespeople how much time they should spend on new business, the response average was 20%, although in practice, that often translates to 5-10%. The discrepancy is for two reasons:
- The way sales reps are compensated: The cost of losing an account usually outweighs the incentive to win a new account.
- Salespeople have more responsibilities and less support: Sales reports, proposals, internal meetings, data entry and other tasks consume more time. You can ask your sales team to spend more time prospecting, but does that mean they can spend less time updating the customer relationship management (CRM) system or creating reports?
If you plan to use prospecting as a keystone KPI, consider whether you need to revise compensation models and make it easier for reps to spend more time on outbound calls.
Matching KPIs to Account Management
Any sales leader must manage the sales funnel and the sales process. A smooth funnel drives sales results, but most keystone KPIs focus on the sales process. For example, do marketing-generated leads have a much lower conversion rate than sales-generated leads? If opportunities fail to move through the pipeline, is there an activity or content that can move those prospects to close?
Tracking the number of opportunities against the average value of your salespeople at each step of the sales process provides a pretty good barometer to determine if there are enough qualified prospects in the pipeline and if reps are on track to reach their targets. It also tells you about the performance of individual salespeople. If you compare your best sales performer, your worst performer and your average performer, you can establish a median close rate as well as individual benchmarks. Even a small improvement in close rates will significantly impact the bottom line.
Applying metrics to the sales funnel reveals where sales reps are faltering. For example, you may want to develop KPIs for win/loss rates, length of the sales cycle, upsell/cross-sell rates, the average cost per lead, conversion rates, etc. See Figure 2.
Your keystone KPIs should be based on those behaviors you want to improve. Once you identify the gaps in your team’s sales performance, you can determine what to measure to establish KPIs.
It’s tempting to inventory every gap in the sales process and develop KPIs to improve performance. But if you try to track too much, then vital information may be lost. The sales team will also be frustrated trying to prioritize the right activities to meet objectives. When it comes to KPIs, less is more. Keep the total number of KPIs to no more than eight and keep your meeting scorecard or dashboard as simple as possible.
Training your sales team to fill the gaps in your sales process will promote greater business agility and increased sales. You can adapt your training and KPIs to meet changing business needs while helping your sales staff succeed by providing the right tools. KPIs are an essential tool to guide staff coaching and decision-making. Applying well-defined KPIs with better training to achieve them increases staff satisfaction as well as performance, reducing staff turnover. Matching coaching and training to fill the gaps in sales performance makes business objectives more tangible for the sales team while giving them the tools they need to succeed.