Running any business effectively requires good decision-making grounded in good management information. Yet many companies still don’t take the time to understand what sales key performance indicators (KPIs) they should track and how often. Understanding your leading and lagging indicators will help you determine actions needed to achieve your selling goals
Quantity of leads. Ask people on your sales team for the definition of a lead and you will likely get a different answer from each of them. Simply stated, a lead is an individual who can buy (or influence the decision to buy) your product or service. Once you determine the percentage of leads that can be converted into qualified prospects—and your closing rate on those leads—you can determine the actual quantity of leads you need to be working above your sales funnel.
Conversion rate of leads to qualified prospects. Understanding the progression of a lead to a qualified prospect is an important factor in understanding the overall size of your lead database. A low conversion rate means that you will need a large prospect universe. In some businesses, the lead conversion rates can be improved by a more focused prospect segmentation, but in others the conversion rate will remain flat.
Close rate of qualified leads. This calculation is usually measured as total wins divided by opportunities bid (also called a “bid/win rate”). This should be the easiest metric to track but may be deceiving based on the way you categorize “no-decision” opportunities. It’s best to remove no-decision opportunities from the calculation, as many of these opportunities may have been poorly qualified by inside or outside sales. (If you do leave them in, remain consistent and always count them).
Often the quickest way to raise win rates is to not bid poorly qualified or unqualified opportunities. This can be hard to enforce but can be improved with a robust qualification process. After removing no-decisions, it’s a sound practice to calculate closing rates on RFPs against the closing rates on non-RFP opportunities—and the numbers may be surprising.
Revenue conversion rates on closed deals. Another metric worth tracking is revenue conversion. Many companies sell services or products that are delivered over periods of a year or longer. It’s a good idea to track whether (on average) the revenue received is more or less than originally expected. If you convert more than 100 percent of revenue expected, you have a built-in buffer to allow for unexpected erosion. If you traditionally convert less than 100 percent of revenue expected, you should increase your lead funnel size to allow for the shortfall.
Average sale cycle time. Tracking your average sales cycle time is important for two reasons. First, it shows whether you have enough qualified prospects in your current pipeline to meet your quota based on business already sold and time remaining in your plan year. It can also indicate when qualified opportunities begin to age and become less qualified and likely to close.
As a general rule, opportunities that age more than 150 percent of your average sales cycle time should be removed from a qualified status unless there are verifiable extenuating circumstances. If your sales cycle is six months, a deal that ages to nine months or more should be removed from the pipeline.
It’s often said that what gets measured gets done. KPIs must be meaningful, measurable and goal-oriented. Take the time to start a basic sales KPI program and refine it as you become comfortable with the process.
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