When it comes to sales metrics, you can't manage what you don't measure. Here is the ultimate guide to creating sales metrics that work for you.
When it comes to business, sales metrics are important. Gone are the days when sales reps simply used their intuition to sift through information. Successful companies are currently embracing sales metrics and constantly improving their business processes to ensure they get the best result. For someone who has never come across the term "sales metrics," you might be wondering what it means. Let's dive in!
What are sales metrics?
This is data that represents and gauges the performance of the company, team, or employee. Tracking sales metrics will let you know whether or not the performance is high. The results will let you know what works for the company and what doesn't. If your sales team is struggling, the sales metrics will reveal it all. They track several concepts, including:
Adjust sales compensation
Prepare for future growth
Identify any strategic issues
Progress toward a goal
Are sales KPIs the same as sales metrics?
Most people tend to confuse the two. KPI stands for Key Performance Indicators.
Sales metrics only track the performance of the company. On the other hand, sales KPIs measure progress and set expectations toward crucial business goals. KPIs give a more general outlook on the company's performance toward achieving its goals. Sales metrics are more business specific. It zooms in on the business's more specific activities and processes to achieve its goals. Therefore, you are on the right track when your sales metrics outperform your KPIs.
How do sales metrics increase sales performance?
In today's data-driven world, the marketplace is very competitive. Therefore, if you want to only rely on your knowledge and intuition, you will be at a disadvantage compared to your competitors. This is where sales metrics come in. When you apply the right sales metrics, you will be able to:
Know whether your sales goals are attainable
Know how fast your sales department can meet their targets
Identify your most effective sales strategy
Sales metrics you should be monitoring to determine success
You might wonder if one sales metric covers it all or if there is more than one. Below are the leading sales metrics that every business in the sales industry should track.
1. Sales expense ratio
You need to compare your revenue to these three sales metrics, namely:
Direct customer acquisition cost
Indirect operating expense
A sales organization with a high sales expense ratio does not make much profit. For startups, it is normal to get a higher sales expense ratio. However, as the market matures, you should expect your sales expense ratio to reduce.
Use this formula to gauge the ratio:
(Operating Expense/Net Sales) * 100
2. Quota attainment
The quota attainment sales metrics let you know if your sales rep has met their sales quota within a specific time and the percentage of their quota. Low quota attainment is a sure indicator of issues within the sales team. If you have low quota attainment, look out for issues like capacity planning, rep ramping, or inadequate coaching.
Use this formula to gauge the quota:
Closed revenue/Target Revenue
3. Net promoter score (NPS)
If you could estimate the likelihood that your customers could recommend your product or service to their network, the Net Promoter Score can help you gauge your referrals. Most businesses who ask their customers the likelihood of them recommending their businesses to their network by word of mouth should apply these sales metrics. Customers will only share a service or product they respect and trust, so this is one of the sales metrics you can use to know your customer satisfaction rate.
Use this formula to gauge the NPS:
[(Number of Champions-Number of Detractors)/Number of Responses] * 100
4. The lifetime value of a customer (LTV)
The LTV is the revenue that you can expect through the time of the average relationship with a customer. Once you have locked in a customer, your sales team will ensure that the relationship gives optimum growth and satisfaction. When gauging your LTV, the churn and retention rates come in handy. You can increase your LTV in two ways, namely:
Increasing the customer retention rate
By increasing the average contract value
Use this formula to gauge the following:
The lifetime value of a customer -Average contract value * retention period (years)
Lifetime profitability of a customer -Average contract value * retention period (years) * profit margin
5. Churn rate
That dynamite sales pitch won't count if the customer doesn't like your solution, especially if you work on a subscription basis. Every business experiences churn, but there are things you can do to reduce customer churn or avoid it, such as:
Monitoring the accounts regularly to pick out any areas that need to improve or flag any problems before it's too late.
Going above and beyond your product offering by providing consultative and valuable insights about your industry and competitors.
Ensuring that your prospects match your specifications for your ideal customer so that you don't waste time.
Use this formula to gauge the churn rate:
Number of customers who churned in the period/Number of customers at the start of the period
6. Customer Acquisition Cost (CAC)
How much do you spend to get the customer to say yes (including both marketing and sales efforts)? The costs that go into this include the following:
Your sales team
Tracking and reporting
Your marketing team
If you want your business to grow, always ensure your CAC is less than the customer's lifetime value (LTV).
Use this formula to gauge CAC:
Costs spent on acquiring customers in the period/Number of customers acquired in the period
7. Win rate
This is the most loved of all the sales metrics because it translates to paying customers. Most businesses focus on tracking this. Why? Because the win rate of the business feeds into the team's performance tracking, benchmarking, forecasting, and pipeline.
Use this formula to gauge the win rate:
Number of closed-won deals/Number of deals you had in the pipeline
8. Marketing penetration
Out of all the sales metrics, market penetration will need you to understand your market share. Your market share gives you a clear picture of where your business is compared to the expected growth set in your business plan. Markets are dynamic, so they contract and expand for very many reasons. Most businesses measure their market penetration against the total addressable market (TAM). TAM estimates how big a given market is for a service or product.
Use this formula to gauge marketing penetration:
Total revenue/total addressable market
9. Total revenue
This is one of the most important sales metrics for measuring revenue. It can be measured on any time scale. Most businesses measure it either annually, quarterly, or monthly.
Use this formula to gauge total revenue:
Total contract value/ contract duration (annual, quarterly, monthly)
10. Lead Conversion Rate
Do our best leads come from social media?
Which leads are working for the sales team and which aren't?
If leads are purchased from lead generation companies, are they meeting our standards?
Are we getting fewer leads from our website than expected?
Use this formula to gauge the lead conversion rate:
Number of captured leads/Total visitors
There are so many ways to track sales metrics. You can use SaaS tools and spreadsheets of CRM solutions. With the guidance of an effective sales metrics framework and accurate data, your sales team will stay ahead of the game and guarantee success.