Building a Data Driven Sales Team
Defining the Metrics and Key Performance Indicators of the Sales Team @Beamery
In the first part of this series we outlined what it meant to be a data driven organisation and the motivations of why one would want to make that journey and undergo that transformation, and given Beamery’s story, why we are now embarking on this journey to transform ourselves. Having outlined the why in that introductory post, it is now appropriate to start discussing the how. In Carl Anderson’s book, Creating a Data Driven Organisation, he writes:
A data-driven organization needs to set out a clear strategy, that is, a direction that the business is heading, and then determine a set of top-level metrics — key performance indictors (KPIs) — to track whether the business is indeed heading in the right direction and to monitor progress and success. Responsibility for driving those top-level KPIs flows down to divisions or business units where they may define additional KPIs specific for that business unit. Ultimately, this ends up a set of operational and diagnostic metrics that monitor tasks, programs, tests, and projects that drives the KPIs.
In the following parts fo this series, we will go on to present the research we undertook in order to identify the metrics and key performance indicators (KPIs) which would be necessary for the teams of Beamery to measure their success and define their North star’s. These metrics and KPIs came about through both external online research of blog posts, white papers, and textbooks and internal interviewing of the relevant team members here at Beamery. The eight posts in the mini-series will cover the metrics and KPIs for:
- The Sales team
- The Marketing team
- The Customer Success team
- The Product team
- The Human Resources team
- The Quality Assurance team
- The Design team
- A SaaS startup
Presentation of our metrics and KPIs Research — Sales
A High-Level Overview of Sales Metrics and KPIs
Leading Indicators are like inputs — they measure the activities necessary to achieve the goals. As the name implies, these indicators lead to results, they come first. Leading indicators can be hard to measure, but they’re easy to directly influence and describe how to achieve the goals.
Lagging Indicators are like outputs — they measure the actual results. Lagging indicators show the final score of the strategy and/or the efforts. These metrics are easy to measure, but hard to directly improve. Most likely, the primary KPI — Where are we going? — falls into this category.
Leading and lagging Indicators work in tandem to help one track progress through to the final results. It can be thought of as a simple equation where [action] = [results]. Start with the results one wants (Lagging Indicators) and then work backwards to identify the necessary actions (Leading Indicators) to achieve those results.
The most common sales lagging indicators include:
- Total Sales Volume
- Margin Sold or Discount Given
- Growth in Recurring Contracts
- Cross-sale on Current Clients
- Revenue from New Clients
- Average Contracted Length
- Renewal Rate
- Acquisition Costs
- Sales Cycle length
And the most common sales leading indicators include:
- Sales Meetings (or Calls)
- Pipeline Weighted Value
- Opportunities Added
- Opportunities Lost
- Evolution of Client Relationship
- Sales Team Open Positions
- Proposals Sent
- Completion of training Program
- Quality of Pipeline or Pipeline Volume vs Goal
- Compliance to the Sales Process
Low-Level Descriptions of the Sales Metrics and KPIs
Sales Velocity is defined as the speed at which the team is making money. It can be calculated in the following way:
Looking at those variables closer:
Number of Leads. The Number of Leads a sales team can work over a period of time, it can vary widely depending on the complexity and price of the product.
Average Deal Size. The Average Deal Size — sometimes called Average Purchase Value is simply the average selling price for the deals closed in a given month. For a subscription product, it will be Average Customer Lifetime Value.
Conversion Rate. The Conversion Rate is the percentage of leads that convert to paying customers in a given month. 2–3% is a typical conversion rate from Marketing Qualified Lead (MQL) to deal depending on ones sales workflow.
Average Time. The Average Time for Conversion [in months]. This metric is often referred to as Average Sales Cycle Length. Typical results are 1‒2 months for a product with a free trial.
The Sales Velocity variables are interdependent and changes in the Sales Velocity are by far more important than the value of the Sales Velocity itself, as such, the Sales Velocity is most often used for measuring the impact of changes. How one measures the variables is ultimately not important, in that one just needs to be consistent in the way that they measure the variables.
Activity Per Rep is the total number of tasks (or activities) that a sales representative completes in a given time period [(usually) daily]. This includes phone calls (dials and call connects), emails, meetings, presentations, demos, proposals, and live chats. Basically, any activity that draws the lead further into the sales cycle should be counted. Activities are usually tracked daily, but can also be tracked weekly or monthly.
To calculate Activity per Rep:
Average Follow-up Attempts refers to the average number of activities the sales representatives make to close a lead (whether or not the lead converts to a customer). One can drill down on this figure by calculating average follow-up attempts for only closed leads. This will provide a benchmark that’s specific to the company, the product, and the industry.
To calculate Average Follow-Up Attempts:
Average Purchase Value is the average monetary amount spent (in an individual transaction) on the product or service. One could either calculate it based on the value of the overall contract, annual value, monthly value, weekly value or daily value depending on the business model and the length of the average contract. The time period should be defined based on the purchase regularity.
To calculate Average Purchase Value:
Average Sales Cycle Length is the amount of time from the first touch with a prospect to closing the deal, averaged across all won deals.
To calculate Average Sales Cycle Length:
Step 1:
Step 2:
Lead Response Time is the average time it takes for a sales representative to follow-up with a lead after self-identifying as a lead (submitting a form, downloading an ebook, etc.). This is more meaningful if one calculates the average time it takes to follow-up on a lead segmented by Lead Source since the warmer a lead is the more important it is to follow-up quickly. For example, someone requesting a demo of software is warmer than someone who simply downloaded a white paper.
To calculate Lead Response Time:
Step 1:
Step 2:
Marketing Qualified Leads, commonly known as MQLs, are individuals who have indicated they’re more interested than other leads, but not quite ready to fully commit. Ideally, one should only allow certain, designated forms to trigger the promotion of a lead to the MQL stage, specifically those which enter the bottom of the funnel, offers like demo requests, buying guides, and other sales-ready calls to action.
Sales Qualified Leads (SQLs) are individuals whom the sales team has accepted as ready for a direct sales follow up. Using this stage will help the sales and marketing teams stay in sync regarding the quality and volume of leads that one is handing over to the Sales team.
The sales metric MQL to SQL Conversion Rate is the percentage of Marketing Qualified Leads that get converted to Sales Qualified Leads. It’s one of the best ways to determine lead quality and an excellent indicator of how well the marketing team is qualifying and screening leads to maintain a high quality pipeline.
To calculate MQL to SQL Conversion Rate:
Monthly Recurring Revenue (MRR) Closed Vs. Quota is the amount of new MRR closed by a SaaS sales team Vs. the quota or target they were set.
How to calculate MRR Closed Vs. Quota:
Pipeline Volume Vs. Goal compares the number of leads in the sales pipeline to the target goal (the number leads required to hit the quota). This is a more complex KPI made up of a combination of sales metrics - one for each stage of the sales pipeline. NB: one will need to know the conversion rates for each stage of the pipeline.
To calculate Pipeline Vs. Goal:
Step 1: Define each stage in the sales pipeline. For this example, we will use the following stages.
- Marketing Qualified Lead (MQL)
- Sales Qualified Lead (SQL)
- Sales Accepted Lead (SAL)
- Deals Won
Step 2: Calculate the conversion rate between each stage.
MQL to SQL Conversion Rate:
SQL to SAL Conversion Rate:
SAL to Win Conversion Rate:
Step 3: Calculate the goal for Number of Deals Won.
Step 4: Work backwards to calculate the Pipeline Volume Goal for each stage.
SQL to Win Conversion Rate is the percentage of Sales Qualified Leads that convert to customers (deals won). By monitoring the conversion rate at this stage, the team will be able to identify potential opportunities to improve the overall sales cycle.
To calculate SQL to Win Conversion Rate:
The Key Dashboard Metric for the Sales Team
As highlighted in our quote from Carl Anderson, one needs to differentiate between top-level company metrics, also known as key performance indicators, and those which are additionally defined by the individual business teams. The key performance indicator for the sales team, and the one that will allow the C-level team to monitor there progress and success is:
Current Annual Recurring Revenue
The remaining metrics as set out above will be used by the sales team themselves to monitor their own progress and success on a more granular level.
To Be Continued …
In this post we have described and defined the various metrics and key performance indicators relevant for the sales team here at Beamery following extensive online research and internal interviews.
The next post in our series will be defining the metrics and Key Performance Indicators of the Marketing team.
The primary external source used in our research for the sales metrics and KPIs was Leading, Lagging, or Lost? How to Find the Right KPIs for Your Sales Team. This was supplemented with articles posted by GeckoBoard. Some of the definitions have been copied verbatim, where this is the case, every reasonable effort has been made to provide a link to the original source material.