Defining Your Sales KPIs. With the new financial year approaching, your business has undoubtedly completed a budget and set revenue targets for the next 12 months. An important contributor to the success of these goals is the company’s sales team. However, for them to be successful, you need to be clear about what you expect from them, and then know how to measure their performance.
The first step of the process is to define what you need your sales team to achieve. This means that sales targets need to be set and the team needs to know it will be held accountable for achieving these goals. This process requires buy-in from the team, as people can often be uncomfortable with the idea of being held to a specific number.
The necessity of clearly defined sales targets became apparent when I was working with Tandy Coleman, CEO of Polyflor South Africa. When Tandy and I teamed up, year on year revenues had started to decline. Part of the problem was that Tandy and her team had not established a well-defined budgeting process for the upcoming financial year, nor were they communicating the budget to the sales team. Once we had identified this as a challenge, we started working with them to improve their discipline around budgeting and setting appropriate targets for, and with, the sales team.
One challenge that the Polyflor example highlighted, was that establishing appropriate budgets for a sales team can feel like a guessing game. To help with this, I encourage business leaders to remove a lot of the guesswork by using a simple analysis tool.
We start by doing a top-down analysis. This looks at the business holistically and the revenue number or growth that the business needs to achieve in the next financial year to maintain shareholder confidence. Once this figure has been decided on, for example 15% revenue growth, the sales team has a target to work towards and can plan how to achieve that.
The next step is to do a bottom-up analysis. This is where the business starts to look at its sales resources and determines how to use these efficiently to reach its goals. Let’s return to the Polyflor example, which involved 14 salespeople, each operating in a different geographic region. Each year the company examines the potential growth that each region potentially has to offer. They then have to ensure that the sum of the regions (bottom up) equals the top-down number in terms of where the leadership want the business to go.
If these two figures do not meet, then work needs to be done to get them to the same point. Either the growth must be re-evaluated, or the sales team’s resources must be reassessed.
Once clear sales goals have been identified, it is then important to ensure that each sales team member is able to reach these targets. Most importantly, we don’t want to leave it up to chance that each team member is successful. Nor do we want to wait until a team member has missed their targets, to take corrective action. Too frequently, leaders assess sales performance using lagging metrics, meaning they look at a salesperson’s performance at the end of each month, quarter, or year; by which time it is too late.
My advice to leaders is to look beyond lagging metrics and to work with leading metrics; leading metrics give us early-warning indicators that a problem is looming in the future. They give us predictability as to whether or not we will be successful in achieving our sales goals for the year. And give us time to take corrective action before it’s too late and targets are missed.
The best way to predict whether a sales team will succeed during the year is to work with the concept of pipeline management. Pipeline management helps identify what sales opportunities are available to the organisation at every stage of the sales cycle – from the early stages where new prospects are initially identified, all the way through to the late-stages where deals are about to be closed.
An exceptional book that I encourage all business leaders and sales leaders to read is Sales as a Science by Jaco van der Kooij and Fernando Pizarro.
The authors give us the following advice, “Revenue is the product of connected activities across a series of meetings working together in a system. To take advantage of the unique characteristics of a system, companies must measure and optimize around: Volume metrics (#), Conversion Ratio metrics (CR) and Time metrics (∆t).
What does the mean? It means that we need to drive a certain volume of leads (#) through our pipeline at a certain rate (∆t), moving leads from early stages through mid-stages to late stages knowing the ratio of losing deals at each stage vs advancing deals to the next stage (CR).
The metrics #, CR and ∆t are the only leading metrics needed. If Sales Leaders know #, CR and ∆t for their entire sales team as an aggregate, and for each individual salesperson, then sales success is simply a case of playing by the numbers.”
To successfully quantify leading metrics, it is imperative that businesses employ the use of a good Customer Relationship Management (CRM) systems, like Pipedrive, HubSpot, Zoho, Skynamo or another suitable tool. These systems can help business leaders establish and monitor the leading metrics for each salesperson. They can see what leads are coming into the business and how long it takes for those leads to be translated into sales. They also help leaders measure the conversion rate for each salesperson.
By using a CRM tool, a sales leader can quickly spot if, for example, a salesperson has a lot of deals in the late stages of their pipeline, but only a few leads in the early stages. Defining Your Sales KPIs
The conversation between that sales leader and the salesperson should then be as follows, “I can see that you are likely to make target this month if you close the deals you have in the late stages of your pipeline. However, I am concerned you will be in trouble next month because you have insufficient new deals coming through. I need you to focus this month on closing the late stage deals AND adding at least seven new deals into the early stages of your pipeline.” In this example the number seven is merely an example of a number that would have been calculated by the sales leader based on that salesperson’s known CR metric.
Again, we look at Polyflor. With the introduction of HubSpot, Tandy was able to see how many deals were being brought into the business, when they were likely to be closed, and what their rand value was.
With this information, Tandy knew she would not only be able to measure the performance of her sales team better, but she would also be able to make important strategic decisions on the operational side of the business more effectively.
What caught my attention around CRM systems were Tandy’s insights. She shared with me that in September the previous year, she had looked closely at her team’s pipeline and was worried. She warned her team that she sales for the following February were not looking good (Polyflor has very long sales cycles). The team reassured her there was nothing to worry about. They were not paying close enough attention to the data in their CRM system, but Tandy was. She repeated her worry to her team, consistently each month, but was met with the same answer – everything would be fine. By the end of February, the team had, as per Tandy’s expectations, not met its sales targets.
This example highlighted that not only is a CRM tool only as effective as the information being inputted, but the power of a strong CRM system is the data that is being generated and what it is revealing. To improve her sales team’s understanding of the system, Tandy invested heavily in time and training to ensure that everyone was well-versed and comfortable in using HubSpot and understood the data being produced.
By implementing this growth formula for a winning sales team, Tandy and Polyflor have successfully turned around the performance of the sales team and can now better plan the future trajectory of the business.