What are the Best Sales KPIs to Follow ?
KPIs is the shortened form of key performance indicators, a factor that comes into play when sales teams want to measure the activities that lead to their main goal – generating sales revenue.
Sales KPIs link to business goals and often asks questions about what the business is trying to achieve. Even though revenue is at the top of the fold of KPIs, other important metrics indicate how companies progress towards hitting that primary goal. And some of the most important ones are listed in this article.
8 Key Sales KPIs to Adapt for Your Business
The most common mistake sales professionals make is thinking metrics and KPIs mean the same thing. As earlier defined, KPIs shows how well you’re progressing toward your main goal, while metrics are numerical measurements of a certain business process.
Hence, if we’re talking about sales – the number of phone calls, cold emails, or follow-ups isn’t considered a KPI. Instead, they’re all metrics for measuring prospecting effort.
With that said, here are 7 core sales KPIs we believe provide an elaborate context to our core business goal:
#1 Cost Per Lead (CPL)
As the name suggests, CPL is the amount it costs to get someone into your sales funnel. This is measured by dividing your spending across all marketing channels by the number of leads generated.
In theory, here’s what that means: If you have a $10,000 monthly marketing budget spread over 3 channels – Facebook, Youtube, and Google Ads, at the end of the day, your database will be filled with leads from all 3 sources.
If $10,000 gets you 10,000 leads, you can say that your CPL is $1. But then, judging leads from a quantitative angle doesn’t mean you will end up with ready-to-buy prospects. Most of the leads generated from paid marketing channels have only raised their hands by taking a tiny step to engage with your brand, e.g. downloads a lead magnet, registers for a webinar, or signs up for your newsletter.
This makes lead qualification a vital step in analyzing your CPL. But why do you have to qualify leads in the first place? Two reasons.
First, you want to ensure the leads you’re passing on to marketing are properly vetted and close to conversion. Failure to do so means sales will have to go through the time-intensive process of qualifying the lead to see if they’re a good fit – something, marketing should have done.
And secondly, lead qualification allows you to determine the channel that brings you more qualified buyers, so you know where to channel your marketing effort. Therefore, the goal is to attract more MQLs which are nurtured into SQLs for the sales team to close.
But then, we’ve been tossing both phrases – SQLs and MQLs around in this article and you might be wondering what they are.
Well, let’s take a look at each of these KPIs, starting with MQLs:
#2 Marketing Qualified Leads (MQL)
A marketing qualified lead (MQL) is someone who has interacted with your brand on a higher level and is fit for sales follow-up. That interaction could range from responding to a cold email, making inquiries regarding details omitted from your marketing messages, or scheduling a product demo. What an MQL is not is someone who engages with your business on a surface level – interacts with social media content, reads your newsletter, or casually skims through your blog.
The good thing about MQLs is that they’re higher up in the sales funnel and are waiting for the right timing to strike a deal. With such kinds of leads, no hard sell is required; you only have to fill them in on the missing details and prove the integrity of your product.
Hence, as soon as a lead is marked as MQL by marketing, they’re handed off to an SDR for a demo, who, in turn, passes on to an AE who does the close. But then, there’s no general definition for an MQL. Both marketing and sales have to settle on the criteria deemed suitable.
But, how many MQLs end up as customers?
According to UserPilot, 13% of MQLs are likely to convert to SQLs. That means for every 1,000 MQLs in your sales pipeline, 130 of those will be endorsed as SQL by sales. Hence, MQLs report a higher lead conversion rate to regular contacts.
#3. Sales Qualified Leads (SQLs)
While filling your pipeline with sales opportunities, it’s also important to determine if the leads are worth your effort. In other words, if there’s no qualification system to convert MQLs to SQLs, you risk nurturing the wrong crowd.
Regarding SQLs, they’re a subset of MQLs with a purchase capability. Unlike the regular MQL, SQLs have progressed further down the funnel and meet the criteria set by the sales team. This could be anything from booking a demo, signing up for a free trial, or viewing the pricing page.
While MQLs are owned by marketing, SQLs are completely owned by sales. With our previous analysis, you would think all SQLs will smoothly convert to customers, but that’s not the case. UserPilot also reports a measly 6% sales conversion rate from SQLS. That makes it 7.8 from the initial 130 SQLs.
#4. Customer Retention
According to Semrush, 44% of businesses focus on customer acquisition, while only 18% focus on customer retention. Salespeople often attribute customer acquisition to building a house, while retention is like furnishing it. This proves that acquiring new customers costs 5x more than retaining them.
But how do you keep old customers coming back? There are a couple of tactics to employ. The first is ensuring you have the right people on the frontline. This means the people interacting with your customers must lead with empathy and understanding.
Your customer-facing rep has to be easy to reach via multiple channels: emails, phone calls, or live chat. It’s one thing to listen, and it’s another to ask for feedback. Surveys should be utilized to draw out feedback about your product from customers.
A continuous need to educate existing customers is equally as important as great customer support. The general rule of thumb is to continuously reach out to them via email, blog content, or social media.
#5. Cost Per Acquisition (CPA)
Cost per acquisition highlights the total cost of acquiring a single customer via marketing campaigns. This is measured by tallying the total marketing expenses against the number of customers acquired.
In theory, it looks like this:
CPA= (Sum of marketing and sales expenses)/ (Number of new customers)
While the formula is simple, businesses omit certain sales and marketing expenses when calculating CPA. To minimize errors, you need to consider investment in activities that bring you customers.
For instance, if you’re an enterprise SaaS company, you should expect a long sales cycle from 3 months to a year. Your typical marketing and sales investment will consider the accumulated cost from content marketing, email marketing, SEO, web copy, funnel design, and UI/UX optimization.
Add up the expenses incurred from these activities over a fixed period and divide it by the total number of customers acquired.
Putting this into practice, let’s assume that the total cost adds up to $20,000 in 12 months, and got you 500 customers, your CPA will tally up to $40.
#6. Average Sales Cycle Length
The sales cycle length measures the duration it takes a contact to go from a lead to a paying customer. The sales cycle length varies from business to business. For B2B, the sales cycle is affected by the complexity of the product, the vertical covered, and the size of your offering.
Ideally, the sales cycle of a small business would range from 1 to 3 months, while that of a mid-market industry should take 4 – 6 months. As expected, enterprise-level products have the longest sales cycle of 6 – 9 months.
This is because enterprise-level products require more sales effort – build good customer relationships with the market, meet market leaders to understand and adjust your product to their needs. The deal also hinges on the stakeholders involved since it’s difficult for one person to make the purchase decision.
Notwithstanding, the numbers listed here are mere assumptions for each business size. Depending on your sales process and product pricing, it could be less or more than one month. From experience, you would expect a product that costs around $10,000 to have a longer sales cycle than one that goes for $100.
#7. Customer Lifetime Value
The customer’s lifetime value indicates the financial gain a business acquires from its relationship with a customer. By tracking this metric, businesses can tell the average amount they stand to gain for the duration a customer uses their product or service.
Accurate CLV data helps sales teams identify the higher, low, and mid-range spenders. So how do you calculate the CLV?
Let’s start with an example:
Assuming you have a SaaS product, and a customer purchases your $100 monthly subscription plan for the next 36 months (3 years). His lifetime value will be $3600 ($100 X 36) minus the resources you spent acquiring and nurturing that relationship.
This is just for one customer but the whole formula changes when tallying this up for the number of customers acquired within a specific period. Le’s say 2 months.
To calculate the LTV for your SaaS business for 2 months, you will need to identify the following data:
- Total number of customers acquired
- Total number of transactions
- Average order value (AOV)
- Gross profit margin
- Customer lifetime
- Average churn rate
Customer Lifetime Value Formula= ( Transactions * AOV * Gross Profit % * Customer Lifetime ) / Total Number of Clients
Here’s how to put the formula into use:
Our SaaS startup signed up 800 paid users who contributed to 1500 transactions for January and February.
- 800 new user signups
- 1500 transactions
- The AOV was $100
- The gross profit margin is 70% on this product
- 20% of customer churn (cancel) each month
So, the average customer lifetime = 2/20% = 10 months.
Customer Lifetime Value = ( 800 * $100 * 70% * 10 ) / 1500 = $373
What does this mean?
This means that each customer contributes $373 to your business and can make up for the same fee in advertising. Your business will witness immense growth if your customer lifetime value exceeds the cost per acquisition.
#8. Sales Revenue
Arguably the metric that matters most in sales. Revenue refers to the sum of income generated from sales of a company’s product. It measures the income brought in by major sales activities.
For instance, if a software company Generates $100,000 in subscriptions from Q1 – Q3 and later sells the company for $10M in Q4, you would like to think their revenue is $10.1M, right?
Well, that’s wrong. The revenue brought in by their major business activities was $100,000. Sales revenue is therefore calculated by multiplying the quantity of the product sold by the unit price.
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