Measuring What Matters in Sales
RESULTS! Yes, that is ultimately what matters in sales and should always be measured. Most companies are pretty good at that. They slice and dice the data by sales person, by territory, by product, etc. The only issue with that is focusing only on that one metric doesn’t tell the whole story. It is analogous to trying to coach a football/baseball/basketball team by only looking at the scoreboard. Just think if Mike Zimmer (coach of the Minnesota Vikings) only used the scoreboard as his sole statistic to manage the team. He could see that he was ahead or behind, but what adjustments would he make based on that data alone? It would be pretty difficult. Do you pass more? Blitz more? How in the world would you know what to do?
This is the scenario that many sales managers use when managing their sales team. They can see that they are ahead of quota or behind on quota and then start making decisions and taking actions with their people based solely on that data. It typically comes off as “You are behind and I need you to work harder and sell more.” Sometimes it is a Performance Improvement Plan (PIP) that states if they don’t get their numbers up, they will be terminated. STOP THIS!!! You don’t have enough information to make these decisions. Plus, you are doing nothing to help your sales person. Believe me, they know they are behind. You telling them this offers very little value to them.
Let me present a different scorecard. When we help companies develop their metrics, we like to look at the Big 3. They are:
- Opportunities – this is a leading indicator that measures whether the sales person is generating enough “at bats” to hit their goal. If you don’t get enough opportunities, it is very difficult to hit your goal.
- Close Rate – when the sales person gets opportunities, how effective are they at closing them? Even if you scare up a ton of opportunities, it doesn’t matter unless you can close them.
- Average Deal Size – how big are the deals, accounts, monthly recurring revenue, etc. that they are landing. You can be awesome at scaring up opportunities and equally as good at closing them, but if your average deal size is $100, it’s going to take a lot of deals to hit a $1M quota.
That’s it – pretty simple. The key is there should be a mixture of leading indicators and lagging indicators. It provides more information for the sales leader to understand what is happening and where they can help. For your leading indicators, we suggest picking two to three that are significant for your company. In a high volume inside sales organization, that could be calls (although that metric is getting less significant with contacts being made via social media). For longer sales cycles it may be new qualified opportunities (with criteria on what ‘Qualified’ means), discovery meetings, demos, proposals, etc. All of these are leading indicators which can help the sales leader predict sales and analyze performance better. Close Rate can be measured by the percentage of proposals/quotes that close. After you’ve picked your metrics, set goals around them. What should a sales person be able to achieve in each category in order to hit their number? Now put it in a scorecard that looks like the following:
For this example, we used Qualified Opportunities and Proposals as our two Leading indicators. We have set goals around both of those metrics as well as Close Rate and Deal Size. Now what does the data tell you? Well if you take a closer look, you can see that although Johnny is behind on his Revenue number, that doesn’t tell the whole story. He is working hard generating opportunities and his close rate is actually good. He is just focusing on the wrong deals? With that information, you could probably help him by focusing on larger accounts or selling more of your offerings. If you look at Sally, she also has generated many opportunities but her issue is Close Rate. Specifically she is losing deals somewhere between the early stages and proposal. You can help her by making sure she is doing good discovery, getting to the right decision makers, etc. Also, look at Susan. She is above goal ($80K vs $75K goal). Many sales leaders would pat her on the back, but this data shows that she could have a big issue next month or quarter because she doesn’t have many opportunities in the hopper.
This type of scorecard tells a much better story. I’m not suggesting anybody stop looking at results. We absolutely need those. I am only suggesting that more data can help you be a better leader.