KPI for sales teams: what and why you should track
There is a well-known axiom, which sounds like “the process can be managed efficiently only if you can measure it at all stages”. This statement is also true and works well when it comes to sales. Setting up key performance indicators for your sales team may be something you should think about if you want your company to grow.
Based on my more than 7 years experience in sales and management, I have created the list of KPIs that I usually use for my sales teams. Hope, this list will help you create own list or to rethink the way you control your team for the moment.
1. Total income
It is a basic indicator, which tells you how much money has your business earned during the given period. Your sales may be grouped by sales managers, regions, product categories or services etc.
Despite the obvious simplicity, this indicator has some pitfalls you should remember and take into account. For instance, when you are setting up your sales plans, you have to keep in mind such factors as market volatility and seasonal changes in demand. If you just create your sales department and do not have any historical sales data, you have to be very accurate when you set up a sales plan for your managers. Sales managers, who have received hardly achievable sales plans, can lose their motivation.
Surely, when it is taken without the linkage to other KPIs, the income indicator does not allow you assessing your sales activities sufficiently.
Let’s imagine that you signed 5 contracts during the last month with the average price of $30 k each. The total income was $150 k. This month, you got $160 k income in total but you signed only 2 contracts. You have increased your income indeed but the number of contracts signed has dropped. Will you, as a sales director, be happy in such case?
That is why we have to consider the next performance indicator, which is sometimes even more important than the total income.
2. The number of new contracts
Thanks to this KPI, you can understand if your sales process is systematic and consistent. The number of contracts signed goes before the invoices paid in a sales funnel. It is proportional to the number of leads generated, negotiations held, and commercial proposals sent at previous stages.
If you signed 1–2 contracts in the current month but in the previous, you had 5 contracts, probably, your “sales machine” failed at some stage of the sales process in the previous periods. And you will have to find that bottleneck in your processes if you want to have a steady and predictable income.
The number of contracts signed also show how balanced your income structure is. If VIP client generates around 80% of your total income (which happens very often in the case of Ukrainian IT outsourcing companies) your business becomes too dependent. There is a risk that when your client gets some issues in his business and decides to cut expenses, you can lose the largest part of your income in one moment. The task of every sales department is to minimize such a risk by balancing clients’ portfolio. It is possible only if you have a constant flow of the new contracts signed.
3. Revenue per contract
If you have 2 indicators, which are the total income and the number of contracts signed, you can easily calculate the average sum per contract.
Understanding how much you charge per contract is important for sales planning and gives you a lot to think about your pricing policy.
If you have a chance to sell the same services 50% more expensive than now, you will increase your income automatically even without increasing the productivity and performance of your sales managers. The only question is if you can do it without losing in sales. In order to check the price elasticity and to find the optimum pricing for your services, you have to make a lot of experiments.
4. Lead-to-client conversion rate
This is one of the key indicators, which have to be controlled by the sales director all the time. You can calculate the conversion rate at any stage of your sales funnel but the most important indicator is the one, which tells you how many leads have become your clients or have signed a contract. No doubts that exactly this KPI is a basis for the assessment of the efficiency of your sales managers and the quality of lead generation channels.
The importance of this indicator becomes even higher if your sales department is responsible for the lead generation.
Also, this KPI will definitely help you define if you need and have a chance to scale up your sales further. If you understand that you have a chance to increase the number of leads generated through a given channel and save the quality of leads received, you have all chances to increase your income just by intensifying your lead generation process.
5. Repeated sales
No service-providing company has a more important asset than a happy client. All your lead generation and sales activities can become in vain if you don’t have repeatable sales and at least a part of your clients does not get back to you for more services.
The importance of this indicator can be proved mathematically. If you have signed 100 contracts in a year and you know that, on average, 25% of your clients get back with new orders during the next year, you can expect 25% increase in sales if you sign the same number of new contracts. Vice versa, this indicator can show you that the number of contracts at this period decreased. If you have 100 contracts and 25 of them can be classified as repeatable sales, you have a drop in the new contracts.
In addition, this indicator shows not only your sales performance but also provides important information about the quality of your service delivery. So, one more consumer of this KPI will be your tech department.
6. Average time to close the deal
Every process, if it is a true process, has some time limits. It takes time for your lead to go through your sales funnel stages. If you have a systematic sales approach, you will be able to calculate the average time needed from the point of the first contact to the deal-closing moment.
This indicator will help sales directors to:
1. Forecast the sales.
For example, we know that the average time to close the deal is 2 months. We also know that our lead-to-deal conversation rate is 2.5% and the average price per contract is $30 k. This month, we generated 100 leads. In this case, our forecasted income may be:
Income = 100*2.5%*30k ≈ from 60k to 90k will be our expected income in pessimistic and optimistic scenarios.
2. Plan needed resources.
Your sales department is linked with the operational department and vice versa. If your company plans to deliver all orders in time and with a given quality, you have to plan your development capacities ahead. In this case, knowing the average time for deal-closing becomes vital.
3. Motivate your sales managers in the right way.
Newcomers in your sales department have to know the average time to close the deal in order to manage their salary expectations. In other words, your sales managers have to predict the time when they will get their first bonuses.
7. Other quantitative and quality indicators
Every company has its own methods of a lead generation. Sometimes, in order to manage the work of the sales department, you will have to set up some more operational indicators. For instance, they could be as follows:
- The number of calls
- The number of personal meetings
- The number of demos
- The average time per call etc.
To my mind, setting up some more qualitative indicators as KPIs does not make much sense. The task of every sales director is to motivate, train, and control his teammates, who have to bring the new clients and generate income. Surely, you can set up some indicators, which will help you standardize the quality of the sales process but finally, you will always get back to your main indicator, which is always income.
Best wishes,
Max Sidorenko
Co-Founder at NoviLeads Sales Outsourcing
https://novileads.com/
