“It’s hard to get somewhere if you don’t know where you are going.” This old adage rings true in many forums, but especially with sales teams and groups focused on improving revenue for an organization.
Sales KPIs are useful for leadership and management in the following ways:
- Direction for the Team
- This can be viewed as day by day, week by week, month by month, and/or quarter by quarter direction. Sales KPIs can drive focus and can help team members understand what success from a revenue stance looks like. It’s not all about money. It is still important to enjoy our work and be passionate about what we do. That said, revenue is a major lifeblood in an organization and it should be viewed as such.
- Future Production Decisions
- If your sales KPIs are dialed in and obtainable, this should also guide your future production team decisions. If you are selling something, often you are providing a product or service on the back end of that sale (I hope). If your sales KPIs are coming to fruition, they can and should guide what the production on the other side looks like. If you’re projecting a 20% growth from Q2 to Q3, this should give you time in Q2 to prepare your production team.
- Measure, Test, and, Adjust as Needed
- Sales KPIs allow you to forecast what you are predicting you will sell for an organization. From there we get to swing for the fences and see if we can hit these goals. If we don’t, the appropriate response is to gather together as a team and see what can be improved. This allows the team to adjust the goals and tactics as needed.
We are a service-based organization. Using the above mentality for why we should develop sales KPIs, we have peeled back the onion and taken a more granular approach to understanding our Sales KPIs. Like many service-based companies, we have several streams of lead flow. For us, this includes but is not limited to the following:
- Outbound lead generation (email outreach to targeted prospects)
- Inbound lead generation (SEO, ads based work, blog content to name a few)
- Networking groups
- Tradeshows and events
- Client upsells
- Client referrals
- Partner opportunities
Our team has then taken a micro approach to each lead channel and measured the following as it relates to each of these channels:
- Average deal time
- Average deal revenue
- Average close rate
- Average churn rate
- Average project length (the time a client is paying for services)
The next layer is to take a more macro approach as it relates to our sales organization. Using the measurements for each lead channel, we are able to aggregate the Sales KPIs and project possible sales outcomes with the following:
- Projected leads from each lead channel
- Number of salespeople
If we know we have 40 qualified leads each month in our outbound channel and our team has five salespeople, then we can assume each salesperson will receive 8 leads each month. So if our historical close rate is 30% from this channel with an average of $5,000 in revenue per month, we have the following:
- With one salesperson, we have 8 leads and a predicted 30% close rate of those leads thus resulting in 2.4 deals closed per salesperson per month.
- We know we have 5 salespeople so we are projecting to close 12 deals per month from this channel (5 salespeople * 2.4 deals closed per month = 12 closed deals per month)
- Our average revenue per month from this channel is $5000/mo so we have 12 deals per month * $5000/mo = $60,000/mo in revenue projected from this channel.
For our business, we predict churn and the average project length. So if our projected churn is 10%, we would expect to lose $6000 of this revenue, so we would normalize the projected monthly revenue to $54,000 ($60,000 – $6,000 = $54,000) for this channel.
From here, the final piece is to project the project length. If we predict 6 months in average project length, then we can assume $54,000 * 6 months = $324,000. This amounts to our projected annual revenue from this lead channel. Additionally, we have gained insights into the following:
- The Size of Our Sales Team and its Impact on this Channel
- Once we complete the full channel overview, this should also guide if our sales team is adequately sized or not.
- Marketing for Our Sales Team
- We shouldn’t just stop at projections for closed deals. These deals require leads and these leads don’t just come out of nowhere. You need to project the monthly spend to achieve this lead volume as well as your marketing strategy to obtain these leads.
- Production Team Decisions
- As previously mentioned, if you’re able to start hitting your targets, you have to predict and scale the production team to fit this growth.
Remember, this is far from perfect. Our analysis above doesn’t perfectly map the timing of these deals and when they will hit. I find for this, you need to create a month-by-month prediction of what you actually think will happen. You can build out your predicted leads per month and then roll forward into the following months with closed deals related to predicted deal close timelines and predicted project lengths.
Lastly, we can’t forget that stuff happens, markets change and even if all goes to plan, the above is not a perfect representation of what WILL happen. This is a model and it is one that should be measured, tested, and adjusted. Happy hunting!