How do you measure sales performance? Usually this question is answered with traditional sales measurements goal achievement or quota attainment, but these aren't the only things that impact performance. While they give a very high-level picture of overall performance, they don't show how each part of a sales organization is performing.
The Need to Measure Sales Performance Accurately
Let's first discuss the need for the deepest level of visibility into performance. Leadership develops plans to guide the organization to reach their goals—but what are those decisions based on? More often than not, they're based on a gut instinct. Here's why this is bad.
When decisions are based on instinct and what leaders think will happen, they aren't based in fact. This means every part of the sales plan, forecast, etc. is a best-guess. Think of this in terms of your paycheck. What if the payroll department was in charge of paying you based on how much they expected you to work. Chances are you'd be pretty concerned that their decisions were based on their instinct rather than than actual amount of time you worked.
The same applies to sales planning—you can't base the company strategy on gut instinct instead of data and expect performance to meet your expectations. It's unrealistic. You need to use your sales data effectively to make well-informed decisions and design accurate plans.
So what information do you need to uncover from your metrics to measure sales performance fully and completely? Here are four metrics to track to ensure you measure sales performance accurately.
1. Sales Productivity
How much time do your sales reps spend selling? Sales productivity is key for leadership to understand because time spent selling helps measure sales performance in terms of efficiency.
Average-performing sales reps spend only about 35 percent of their time in direct selling, but 65 percent dealing with non-selling activities, according to a Sibson Consulting productivity study. On the other hand, high-performing reps flip that breakdown, devoting 65 percent of their time to selling and 35 percent in non-sales activities.
With that said, where’s the sweet spot? There are arguments made in favor of the fact that reps should be spending as much time as possible on direct selling activities. But, regardless of the situation, reps will never spend 100% of their time selling—and you shouldn't expect them to.
For example, perhaps reps are spending too much time on administrative tasks, or large amounts of time shadow accounting, tracking their own commissions, and talking with finance about the accuracy of their payments. (Learn more about how this can easily be solved with commission tracking software for all of the dependable answers).
Other common time sinks include reps getting sucked into non-sales calls and internal conversations/meetings, socializing, or even traveling. All of these activities seem harmless on the surface, but like all things, they add up—and ultimately are costly and harmful to performance.
2. Lead Response Time
Time is just as valuable when you’re looking at how long it takes reps to follow up on leads. Waiting even more than a short five minutes might be too long. Long story short, the longer your lead response time, the worse your performance is. Need more convincing? Here's a breakdown on how time impacts the success of lead conversion:
- Inside Sales notes that reps experience a “21x uplift in qualifications” if they reach out within five minutes compared to 30 minutes.
- Hubspot says those who perform outreach within five minutes are “100 times more likely to qualify the prospect.”
- If you wait an hour, you might be seven times more likely to qualify the lead than if you were to wait another hour.
- And, this Docurated post warns against waiting a full 24 hours or else you might be 60 times less likely to qualify the lead. Ouch.
Putting the stats aside, think about the resources that go into creating leads from marketing and other areas. Capturing such interest in your product or service is a crucial first step on your way to achieving more sales. These leads then go on to build your sales pipeline, which without that, you can't close deals, and really, you can't exist as a sales organization.
3. Opportunity Win Rate
Before you can close a deal, an opportunity must first be created (from the leads just mentioned above). Just how every person who visits your website isn’t ready to trade their information for more of your content, not every lead that is generated is going to be one interested in making a purchase.
Win rate is the measure of how many of those created opportunities were actually sold to. If win rate is found to be low or in decline, it begs the next question of “why?” Was it lost to a competitor? Did the prospect opt for an internal solution? Or did they decide not to pursue any solution altogether?
Likewise, it’s not enough to know a deal was lost and why, but you want to track where it fell out of the funnel. If early, then it could be a symptom of poor rapport building or lack of effectiveness with demo presentations—or it could mean you need to improve qualification altogether in order to ensure the right opportunities are entering the pipeline.
If later in the funnel, then losses could be a symptom of poor negotiation skills or the inability to skillfully close. While training and coaching can help boost any lacking skill, always remember that training might not be enough in some cases. As this Salesforce article points out, it might be time to move poor-closing reps into different roles so they can excel at opening doors for others who are better equipped in sealing deals.
And an important point—you aren’t just measuring sales performance in an attempt to identify poor performance. You also want to identify where individuals are succeeding – then also dig into why – in hopes of discovering something you can roll out to the rest of your team.
Last, as a reminder, when a metric like this is viewed in isolation, your ability to take action is difficult. A low win rate might not have as much to do with the individual rep’s skills and abilities as it does with size/difficulty of the deal, or likelihood to close based on the original source of the lead.
According to David A. Brock, Founder and CEO of Partners in Excellence (as stated in our guide, “Inspiring Sales Rep Performance”) “focus on vicious disqualification.” Pipelines can become clogged with low quality deals, with time being wasted for poor returns. “Know your sweet spot, focus on finding the right deals with customers that have a high sense of urgency to change. Your win rate will skyrocket.”
4. Average Deal Size
What is the average sales price or amount of revenue brought in from your closed deals? If you’re spotting deals coming in below average, it may be a sign of reps opting for smaller, easier wins, or, that they are even discounting “normal” or average deals down too much just to make the sale.
On the flipside, if deals entering the pipeline exceed the average, you might want to reevaluate the opportunity. Meaning, if you’re going to lengths to ensure reps are spending as much of their time selling, perhaps them “selling” by chasing a difficult deal isn’t the best use of their day, either.
Which brings us to another point. How does all of this fit together? If you’re tracking these different metrics, how can you make sense of it all. The Sales Blog breaks things down a bit in this regard. For example, consider the following scenario:
- You have a rep with a revenue target, say it’s $1 million in sales.
- If your average deal size is typically $100K, that’s 10 deals that need be closed.
- If your rep’s win rate is typically 25%, that means they’ll need chase 40 total opportunities.
- How does that impact their work in nurturing those 40 opportunities?
- What if an opportunity enters at $250K, is that good or bad?
Sure, a simplified illustration, but when measuring, you need to constantly be asking if the results you’re seeing are painting a picture of a realistic or achievable landscape. If larger deals are on the table, that would mean your rep needs to close less deals in the long run, but they’ll also need to expend more resources in attempt to close the big ones.
Measuring Sales Performance Continuously
A sales organization's worst nightmare is discovering they're not going to hit their goals. And when the sales team isn't performing at peak performance it's the VP of Sales and other sales leaders whose jobs are on the line. Once you’ve been hit with the fact that sales have fallen short of forecasts, it’s too late for adjustments. You’re just left knowing you have to be better and scrambling to make a change to hopefully save performance.
What causes this all-too-common situation to occur? It's simple—organizations aren't measuring sales performance frequently enough. They create their sales plans and let them run, only stopping to check in on them at the end of the year before planning or when they notice a problem is hindering performance. If you'd been tracking performance more frequently, you might have discovered a problem sooner and taken action before there was a detrimental impact.
Let's think back to the need for sales data and measuring sales performance accurately. Knowing what you should be tracking and measuring, how frequently should you be doing this? At the very least, on a quarterly basis, but ideally, on a continuous basis.
Yes—this does sound like a daunting process. In sales, time is money—and no one seems to have time to gather data from different resources to make sure all is running smoothly—there are deals to close. The illusion here is that this process sounds daunting. The reality is that it doesn't have to be. To be successful, organizations must be willing to take the necessary steps to measure sales performance effectively and efficiently.
In today's competitive sales environment, this means a journey to automated sales performance management (SPM) tools. Using SPM, leadership has key data at their fingertips (as so Finance and HR leaders) to plan more accurately and ensure performance is consistently on track. Without it, companies rely on unreliable gut instincts when they're already behind the competition.
Want to learn more about how SPM helps you design plans and measure sales performance more effectively? Download the guide, "The Cost of Manual Processes."