Sales is all about the numbers, right?
If you’re in a sales job and you’re falling short of budget then you’ll have questions to answer.
In some organisations if you miss target for three months in a row you’ll be out of the door.
It’s a target-driven environment and results count.
But this is all about outcomes. Sales revenue (or profit if you get sophisticated) is a result of lots of activities coming together to generate customer orders.
If you want to run a successful sales organisation with predictable results then you need some means of measuring these input measures too.
What makes effective sales KPIs (Key Performance Indicators)?
Beyond the sales or profit number itself you can split these into two areas: Sales funnel metrics and sales activity measures.
In this post we’ll focus on sales funnel metrics and we’ll return to input measures and sales KPIs in a subsequent post.
What do sales funnel metrics tell you about your business’ performance?
Your sales funnel metrics measure how many potential customers you have at each stage of your funnel. Every business has different stages, but a very simple model might define just four steps as Suspect – Prospect – Quote – Sale.
If you’ve never pulled together this data the most valuable metric is the proportion of quotes that convert to a sale.
Again, this varies by industry and service offering. It’ll also be affected by the way your sales and marketing works.
In some industries, or for larger orders, your customer might force you through a procurement process. It’s not unusual for this to result in a shortlist of say, 5 companies. Your chances of winning that pitch are therefore 20%. It’s often a lot of work for a relatively low chance of success.
On the other hand, if your leads come from introductions then you’ll probably convert more quotes than not. In this situation you might convert 60-80% of quotes.
Such wide variation in results focuses your mind on the sales and marketing strategy your business should take. Do you go after larger customers with a lower chance of success… and what resources do you need to win this way? Can you scale the business as you hope just through reliance on introductions and referrals?
How to make your sales forecasts predictable
This is another reason why understanding sales funnel metrics is so important.
Once you have enough data to track how new customers typically engage with you then it’s possible to figure out how many leads you need to deliver one sale.
That’s a figure you can calculate by understanding each step of the sales funnel. What percentage of leads become Suspects. How many Suspects become Prospects – and so on.
That will probably give you a smallish number. Perhaps fewer than 5% of leads will eventually become customers.
Importantly, tracking these measures helps you identify where in your funnel things might be breaking: Then you can work out whether it’s a skills gap, a process problem or so on.
Calculating the number of leads you need to meet sales targets
Armed with the information about your sales funnel metrics, you can work back to figure out how many leads you need to generate. Let’s say your success rate from lead to sale is 2% and you want 20 orders.
For each of those orders you’ll need 98 leads that don’t covert and two that do. That’s 100 leads for every two sales. So for 20 orders you’ll need ten times that = 1000 leads.
From here you can set targets for lead generation and ask yourself whether that’s possible for your business.
Let’s say you’re paying for leads via GoogleAds. Can you afford to generate 1000 leads?
Once you’ve got all those leads do you have enough resource to follow up with each of them and arrange sales calls?
By measuring these sales funnel performance criteria you’re able to build a sales capability that matches your aspirations.
The right number of leads, supported by an appropriate level of resource, gives you a much better chance of hitting your goals.
It helps take away the guesswork and improves your chances of sleeping at night!