Monitoring the Sales Metrics That Matter Most
I recently conducted a simple, one-question survey, using sales pros as my target audience. The question was idiotically simple: What is the most important metric for people in sales?
In this era of big data, deep analysis and predictive analytics, you might have thought that some new, performance-based metric would have surfaced as the new secret weapon -- something that indicates revenue compared to time sales spends working, or deals in relation to the number of proposals written, or sales numbers in relation to the investment a company makes in incentives.
You might have thought that. If you did, you thought wrong.
The top response from CallidusCloud's poll audience, given by 37 percent of respondents, was lead volume: How much are we cramming into the sales pipeline?
That was a discouraging result. Sales' insistence on valuing numbers of leads over quality of leads -- which commanded 20 percent of the responses -- sets sales up for failure. More leads in the pipeline actually can result in fewer sales, if those leads aren't properly qualified.
The Wrong Stuff
A glut of leads places heavy demands on your sales team's time, and it keeps them from devoting their time to the leads that are most likely to close. Meanwhile, an emphasis on lead quantity can cause marketers to lower their threshold for lead quality and clog the funnel with even more leads that are unlikely to close.
It's also a number that has very little to do with sales behavior. Lead numbers can rise and fall in relation to a lot of things -- changes in marketing's lead qualification criteria, events, new marketing initiatives, and so on. None of these is a sales activity.
If you're like the 37 percent of survey respondents, your No. 1 metric has nothing to do with your own behavior. That makes it a dangerous metric to make your No. 1 priority -- and yet, for many sales pros, it remains the number they watch most closely.
There are some other metrics that placed in the Top 10 that might be more instructive when examining your sales performance. While they finished as also-rans in the survey, some forward-thinking sales pros already value them.
The Right Stuff
Following are some metrics of note:
Quote-to-close ratio: Are your reps writing proposals and quotes, then seeing prospects melt away without buying? Or are they generating quotes that lead to deals nearly every time? About 10 percent of our respondents cited this ratio as their top metric.
It's an interesting one; it offers insights into the effectiveness of your team in the late stages of a sale. Once that quote is generated, do they close the deal, or is it lost to a competitor?
Some follow-ups to this (which we didn't ask this time around but will in the future) are whether the sellers use configure price quote (CPQ) to deliver quotes -- and if so, how that affects quote-to-close ratios.
If you can create quotes fast, does that have a clear impact on closed deals? Do customers feel freer to ask for changes if they know it's easier to create quotes, thus creating more quotes and shifting the ratio? We don't have the answers -- but the questions are tantalizing.
Conversion Rate: This metric captured 12 percent of the responses, and for good reason. When it comes to leads, qualification by sales or marketing matters little if they don't close.
A high percentage means that both sales and marketing are working together well; marketing is passing good leads, and sales is working well to close deals. A low percentage suggests a problem somewhere: Marketing is failing to find the right leads, sales is doing a poor job in converting them, or you're being beaten by the competition because of pricing, product or some other factor. It's a good barometer of the overall health of the sales/marketing tandem.
Average Transaction Value: Named by 10 percent of respondents as their most important metric, average transaction value highlights the importance of maintaining margin in deals.
It helps you see whether sales reps are too eager to offer discounts, and whether you need new thresholds in your quote approval process to keep the business profitable.
Product Mix Compared to Sales Plan: Only about 5 percent of respondents cited this metric, which examines the effectiveness of your forecasting on a granular level.
Are there new products that should be selling but aren't? Maybe some training for the sales staff is in order. Did a product that was selling up to expectations suddenly drop off the table? Time to do some investigation into why.
From a strategic standpoint, use this metric to see how closely your sales plans are mirroring reality.
Percentage of List Price Achieved by Product: A whopping .8 percent of respondents mentioned this -- which is a shame, since it not only goes to your sales staff's ability to sell without resorting to discounts, but also allows you to see which products in your product mix don't move without discounts.
That enables you to shift products or create bundles that minimize the commodity nature of those products.
Incentive Spend to Quota Achieved: This also managed to get only .8 percent of the vote, even though it's a very useful way for managers to see if their incentives are getting the job done.
Many sales organizations offer incentives -- bonuses, SPIFs, and increased commission percentages -- without fully understanding whether they're actually leading to results. Giving more money to your sales staff is a nice thing to do, but it ought not to be charity -- it should lead to improved behaviors and more money for both the company and the sales rep.
A decline in the bang for your incentive buck means that you should revisit your incentive plan and retune it to reward activities that deliver deals.
Check out the full results of the study, and ask yourself: Are the numbers I'm using to judge the effectiveness of sales and marketing the right ones?