10 Essential Sales KPIs Every Sales Team Should Measure (Less is Better)
A sales rep once reported that the number of key performance indicators (KPIs) measured in the company he works for exceeds the number of employees. A bit funny, but we can’t ignore the growing frustrations with KPIs from customer-facing reps. And sometimes, we’re forced to ask this question regarding the said topic: is less better?
The issue we’ve observed with KPI-obsessed sales organizations is that they toss in several random metrics, and sooner their sales team gets overwhelmed with measuring too much data. The best fix we recommend is to narrow down to the most relevant benchmark that pulls in the punch.
It’s not all about tracking 25 KPIs, it’s a question of if they’re relevant. Tracking the wrong ones as we’ve noticed is like relying on a map to lead you somewhere and en route to your destination, discover you’re heading in the wrong direction. It all changes, if you can identify the most relevant KPIs and stick to them.
After speaking to several sales managers, here are some of the most essential KPIs to measure.
How many KPIs should you measure?
Asked what the golden numbers for KPIs are, Bernie Smith, Founder of Made to Measure KPIs, recommends “aiming between two and four KPIs per goal”.
Starting with less offers a closer look into sales conditions and performance and an opportunity to learn which metric is making a difference and which is taking up space..
10 Essential Sales KPIs to Measure
#1. Sales Growth Rate
Sales growth rate indicates a company’s revenue growth over 2 fiscal years. A positive growth rate indicates that sales aren’t stagnating. While a negative one is a wake-up call for sales to think of a strategic change that could improve revenue.
To calculate sales revenue growth, you have to subtract the revenue of the previous year from the current, and here’s a formula that works best:
Sales Growth Rate = (Current year sales – Previous year sales) / Previous year sales) * 100
For example, if a company makes $200,000 in revenue in January 2021 and $250,000 in 2022, the sales growth rate is 25%. Such numbers offer a good reading of financial health and continuous growth to sales leaders.,
#2. Customer Acquisition Cost (CAC)
CAC is the amount of capital that goes into acquiring a new customer. This cost could vary – depending on the acquisition channel. Knowing your CAC helps you determine your profit margin and the right channel for attracting buyers.
Keep in mind that when calculating CAC, you need to factor in marketing expenditure and salaries. But then, high acquisition cost means nothing if the retention rate is healthy as this ends up in high customer lifetime value.
#3. Customer Retention Rate
Poor retention rate can be likened to having a leaky bucket and not realizing it’s empty. Retention has a higher pay-off than acquisition since recurring sales happen without any marketing or promotional efforts. Plus, satisfied prospects are likely to help generate referrals which increase growth.
The key to retention is a great product and good customer support. The job is 10x harder when you fail to establish either.
#4. Customer Lifetime Value (CLTV)
This is a sales KPI that measures the total amount a customer contributes to your business over time. The cost differs from one customer to another. A paying customer might have a lifetime value of $500 while another contributes just $5. As we’ve come to learn, CAC has little effect on lifetime value. Customers with low acquisition costs can contribute more to a business than those that cost higher.
To calculate CLTV, historical data is required. It’s difficult for new companies to measure this metric as opposed to those that have been around for 2- 8 years. Unfortunately, you will need to retain your customers to maintain good lifetime value.
#5. Customer Churn Rate
Churn rate measures prospects who became buyers but decided to end the relationship. It includes buyers who 2 months after paying for your software opt to cancel their plan. While retention rate focuses on long-term users, churn rate identifies those who no longer want to use your product or services.
This formula allows you to measure engagement rate and active user base from the start as opposed to the end. The formula for churn rate for SaaS businesses could be:
Churn Rate = The total number of inactive subscribers/ the total number of subscribers.
#6. Opportunity-to-Win Ratio
Opportunity-to-Winrate calculates the number of opportunities that end as closed won. The simplest formula for calculating this is by dividing the total number of closed deals over the total number of opportunities created within a certain period.
For instance, if a sales rep closed, 10 deals, out of 50 opps in their sales funnel in November, then the opportunity close-to-win ratio is 10/50 = 20%
#7. Lead Conversion Ratio
Lead conversion ratio measures the number of leads who convert to customers. And doing so entails several marketing techniques. Not to mention, a lot of back and forth with the sales team.
A higher lead conversion rate depends on the quality of leads you attract. More emphasis should be placed on lead qualification and identifying behaviors that match your ICPs.
#8. Sales Opportunity Score
Sales opportunity scoring is a process developed by the sales team to determine the sales readiness of a prospect by attaching a value (ranging from 1 – 10) to them based on interest shown towards the product. In most cases, 1 means unlikely while 10 means most likely to buy.
To create a scoring system for opportunities, both sales and marketing need to settle on behaviors that identify a lead
#9. Average Purchase Value
It shows the average investment made on your product/services per transaction. To calculate the average purchase value, simply divide total revenue for a given period over the total number of transactions.
For instance, if your company made $200,000 in sales in 2022 from 250 transactions, the Average purchase value is $800.
#10. Revenue Per Sales Rep
This measures the revenue each rep contributes to the business over a certain period. It serves as a touch point for analyzing each rep’s performance and fosters healthy competition among the sales team.
Also, this metric can provide useful insights into who needs training and who the top performers are.
Sales reps hate KPIs because there are too many of them. On the flip side, Sales Managers can’t do without it. But there’s a common ground: eradicating outdated metrics and pinning only the relevant ones to the board.
My advice: Start with less, measure impact, and move up from there. Also, making KPIs the driving force for every sales activity could make your company more process-focused. Ensure to know when you’re going overboard, and your clue lies in your rep’s behavior.
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