Metrics.
Sales and success are both determined by them. However, it can sometimes feel as if, in 2016, with our unprecedented ability to measure pretty much everything that flows in, out and through the enterprise – from Facebook likes to annual turnover – that our attentions are being constantly misdirected. Indeed, whilst sales managers still demand so much time spent measuring everything under the sun, appropriate levels of energy and resources are left wanting in the areas that actually matter.
When talking or writing of such matters, I’m often reminded of the joke about the modern startup model. It goes like this:
10,000 guys walk into a bar. Nobody buys anything. The bar is declared a lavish success.
I can never decide whether this little gag is funny or deeply concerning because the ring of truth it resounds so clearly.
10,000 guys walking into a bar of course means nothing if nobody puts a hand in their pocket. 20,000 new hits on your website is equally futile if nobody buys anything. 50,000 new Twitter followers, 1,000 more Facebook likes this week than last, 500 more subscribers to your email newsletter.
It’s very easy for management to get excited by these figures, for surely they indicate growth, right?
Wrong. Whilst there are some truths in these figures that signify a certain level of brand awareness and popularity, they are nonetheless far from being indicative of the true current and future prosperity of your business. They are vanity metrics that have the unfortunate consequence of tricking the observer into believing business is on the up, when in fact the exact opposite could be true.
But don’t get me wrong here. Analytics are important – but they are only as important as the results that they signify.
What Are Key Performance Indicators?
When considering what’s important to measure, it’s imperative managers focus the bulk of their attentions on key performance indicators (and please note the emphasis on the word ‘key’).
So what is a key performance indicator, or KPI as they are more commonly known?
Well, simply put, a KPI is a measurement of performance that helps your department or organisation understand how well (or not) it is performing. As you will probably have already gleaned from this post thus far, there are, however, good KPIs and let’s call them misleading ones.
Let’s just focus on the good ones here. So, what makes a good KPI?
First and foremost, a good KPI should act as a compass that will help your organisation or department understand clearly whether or not it is on the right track towards achieving your strategic goals.
As such, a good KPI needs to be well-defined, quantifiable, applicable to your business, and, most importantly of all, crucial to your business objectives.
In sales terms, this means that a good KPI should be crucial to your sales objectives.
5 Key Performance Indicators That Should Define Your Sales Strategy
The problem, of course, is in the fact that any one sales team has dozens if not hundreds of KPIs that they can choose from. And the trouble with focussing on the wrong ones is that managers can end up wasting time and resources measuring things that don’t align with their sales objectives.
And so the solution is to whittle down your KPIs to those that are most essential to your business. I’ve put together here a list of the 5 key performance indicators that should define the sales strategy of nearly all organisations, and for a more bespoke analysis I encourage you to get in touch with us here at Cope Sales and Marketing and let us help you define your specific KPIs that will reveal the true metrics that are at the core of your business.
1. Sales Growth And Profit
Sounds like a no-brainer, but you’d be surprised at how many companies I’ve been involved with that would rather use their rising Twitter engagement to massage their entrepreneurial egos than actually pay attention to the most important metric there is.
Beyond all else, profit is the most important performance indicator out there. Analysing both gross profit and net profit is essential to understanding how successful your organisation is at generating high returns.
I’m bundling sales growth in with this KPI simply because it’s intrinsically linked to profit margins. Growth in sales revenue is vital for measuring your marketing’s effect on sales, and from this data you will be able to weed out the marketing strategies that are failing to convert (and, after all, sales and marketing should be one team with one vision as I explained in detail in my previous post).
When you understand the trends in your sales growth, you can begin to strategize accordingly. I always encourage firms to share sales revenue with the workforce as well, as this does wonders towards instilling a shared sense of ownership among employees, and reinforcing the ‘one team, one vision’ imperative that is often at the heart of successful companies.
2. Lead Flow
To increase sales, many companies make the mistake of thinking that they need more salespeople, when in fact what they need is more leads. You don’t need to be a rocket scientist to understand the mathematics behind it – the more leads that are generated, the more sales opportunities, and the more sales opportunities, the greater the likelihood of sales growth.
What’s important, however, is to ensure that you know the differences between and are keeping track of the amount of marketing qualified leads (MQLs) and sales qualified leads (SQLs), which in itself relies on a meaningful partnership between sales and marketing that should never be undervalued.
3. Lead Response Time
A Harvard Business School study found that firms who contacted leads within one hour of making an online enquiry were nearly seven times more likely to qualify the lead than those that made contact just an hour later – and more than 60 times more likely than companies that waited 24 hours or longer.
However, the same study also revealed that the average response time amongst the 2,241 companies that were surveyed was 42 hours!
It’s not difficult, therefore, to appreciate the difference that speed makes, nor to suddenly realise all the missed opportunities that your company may be making. This makes it essential that lead response time is incorporated into your list of KPIs to monitor and constantly work on to improve.
4. The Cost of Customer Acquisition (COCA)
This is the aggregated cost of all efforts and resources that go into converting a potential customer into an actual one. The higher the COCA, the lower the impact each customer has on your profits, therefore making this an essential KPI that all sales departments should know.
To work out the cost of customer acquisition, you need to apply the simple formula:
Total Marketing Investment / Number of Customers Acquired.
With this data, you will be able to work out just how much money you are spending on acquiring new customers, which in turn you will be able to pit against the average lifetime value of your customers (see below), and adjust your COCA strategy accordingly.
5. Lifetime Value Of Customer (LTV)
This is one of the most crucial KPIs to become familiar with, but one that many companies shy away from trying to figure out. Indeed, understanding your COCA in value terms is practically impossible without also understanding the average LTV of your customers.
Here’s the formula:
Revenue x Gross Margin x Average Number of Repeat Purchases
To be fair, this is a tricky KPI to work out, but it’s important that you do so. Indeed, you will need to work out the LTV of each of your individual customers to help you determine which of them are the most valuable, as well as working out the average LTV of all of your customers so you can begin to strategize how you may start to improve it.
These are just the top five key performance indicators that should be defining your sales strategy no matter what your business. No two firms are the same, however, and therefore further KPIs need almost always be considered on a business-to-business basis.
To get more information on your KPI decisions and operations, get in touch with us here at Cope Sales and Marketing today to get the full insight to our solutions that will help transform the sales growth of your company.
Take a look at the services we offer on our site at www.cope-salesandmarketing.com, and use our Contact Page for all enquiries.