How is your year going? If you are ahead of your sales goals, I’m guessing you are smiling – and if not, biting your nails throughout the 4th Quarter!
If you have read my previous posts, you’ll recall my strong belief in metrics. Sales management and salespeople need to be fully aware of the bigger picture and trends. Sales metrics are the “buttons” we all can press to repeat successes and dramatically improve your sales odds. You don’t have to over analyze, but you should automate via your CRM the numbers which can be easily tracked below. If you are a Salesforce user, check out http://www.funnelsource.com for a little more gusto to your forecasting and sales pipeline. We’ll discuss sales CRM’s in depth another day, but make certain you are able to track all of the metrics below in your system. Manage every rep to enter their activities like their job depends on it (if it isn’t recorded, it didn’t happen!). Every goal listed should be examined by the individuals and the team as a whole.
The only 8 sales metrics that you need to pay attention to:
1. Total Conversations, Meetings or Demos, Proposals & Closes:
The math between these steps is critical to everything that follows on this list and will help you understand gaps and strengths in which to improve or capitalize. Here is an example: In a month, Beatrice makes 160 calls speaking with a decision maker; she also goes out on 20 face to face meetings, delivers 8 proposals and closes 2 deals. Her ratio is 160/20/8/2. It takes 8 “spoke-to’s” (not calls) to achieve 1 meeting, 80 conversations to close one deal, and 20 meetings lead her to 8 proposals… Understand these ratios for every salesperson. Understand these ratios for the entire team (the larger the sample set, the better – so be willing to look at annual numbers). Overall, understand what it takes to close business (and the average margin attached to those closes). If you can track these ratios, then you can set fair expectations for the salespeople – and even better, become somewhat of a fortune-teller for sales results in your company!
Note that I want you to chart sales conversations, not the number of attempts it takes to reach decision makers. I would count emails returned as spoke-to’s but don’t give your sales reps credit for left messages and outbound emails. It’s a great way for a salesperson to hide from management if all your tracking is their attempts. Find a way to track real conversations as these are what lead to appointments, proposals and closed deals. Chart these numbers weekly and share them with everyone in the sales team.
2. The Effectiveness of Every Sales Activity:
Start with the team averages. How many conversations does it take to set to meetings and demos? How many meetings and demos result in proposals? How many proposals to prospects convert to closes? If you have a baseline high/low expectation pulled from your top producers’ results, you will start to see the gaps in individuals.
In 2011, Blue Octopus closed 24 deals. We wanted to close 30 but we only delivered 40 proposals/presentations. Yes, our close percentage was great, but the following year, we delivered over 100 proposals and doubled the number of deals. Everyone on your team should have a goal to improve a certain category based on their shortcomings. Ideally, focus on a salesperson’s closed deals, but if they aren’t meeting goal, analyze the activity at the top of the funnel to understand the cause and effect down the pipeline.
3. The Percentage of the Deals Won/Lost:
In 2011, Blue Octopus’ close ratio was 65%. In 2012, it fell to 48% but I was happy with that. Four years into running this business, I’m not sure what the right number is, but I know it’s lower than 65% based on the sales structure of my business. This year our run rate is 45% so I suspect the right answer is actually even lower (somewhere between 30-45%). Examine your win ratio by each sales rep and then the entire team. Does the number need to go up or down? What will cause it to change? What will it take from the salesperson – from you – and from the team?
4. The Profiles of Clients Closed:
This isn’t exactly numbers data (unless you are focusing on SIC codes), but it is data nonetheless. If you win 50 deals this year, examine the basic profiles.
- What industry?
- Location?
- Size of business (employee count and total sales)?
- Titles you are selling to?
- Department?
- Any commonality in personality types?
- Which profiles result in better gross margins?
The more specific you can get, the better. In retail, you want to break this down even further into age range, income, ethnicity, marital status, occupation – the list could go on and on (there is a $ reason Amazon, Wal-Mart, Clear Channel, Facebook and Google are tracking our buying behaviors!).
There’s tremendous power in understanding who your customers are and why they buy from you. It is also powerful in the closing stages to provide your prospects with references of similar businesses that have purchased your product or service.
5. The Length of the Sales Cycle:
I’m sure you have an idea of the length of your sales cycle, but it is often broad and based more on feelings and history than actual data. Examine the closes made this year. When did they start in your sales cycle? How did they start? How long does it take to go from prospecting to conversation to meeting to proposal to close? In many businesses, all four of these steps should be measured in average days. If you examine the profiles of your best clients – they likely made a faster buying decision.
A salesperson’s number one job is to speed up the sales cycle but they need help from you in understanding how to improve it. That starts with precisely tracking the length of their sales cycle.
6. Closing Performance against Monthly, Quarterly & Annual Goals:
These numbers shouldn’t be very difficult to measure. There’s only two questions that will arise if you aren’t on track to hit your annual numbers: (1) Does our sales force have the ability to close deals? (2) Are we making enough calls, setting enough meetings, and pitching enough deals this year? #1 is complex, but #2 is fairly simple to drill down. I would much rather be working on coaching good salespeople to become better closers as opposed to micromanaging them to make more calls and set more meetings!
7. The Number of Real Opportunities in the Pipeline:
There is a lot of qualitative measurement under this category. The length of your sales cycle, the profile of the prospect and the success of the individual sales rep should all factor into the likelihood of closing a single deal. Let’s go back to Blue Octopus’ 2012 numbers: we made 104 proposals and closed exactly 50 deals. If we deliver 30 proposals this quarter, next quarter I should be able to predict 15 closed deals. Throw in a little chaos, and I would predict the actual number to be 12-13 (ask me in 4 months!). Real close opportunities means applying a little bit of a fudge factor. Do I want to close 20 deals? Yes! Do I want to provide my investors with a safe number for our budgeting? Yes, please.
8. The Number of Deals Forecasted to Close:
Remember the comments above about being a better fortune teller? You are now equipped with a lot of data and should be able to break it down by quarter in your forecasts.
I’m not sure I really believe in an annual forecast (I prefer 6 month forecasts). Predicting numbers 12 months from now is like throwing darts. Annual forecasts usually do not take sales turnover, economy and chaos into account (and every business has swings in all three categories).
If you want to throw a dart at doubling your sales in 2014, you obviously need to improve the causes that will give you a shot at making that leap. Are you doubling the size of your sales team? Are you plugging in a huge, new marketing effort? Are second and third year sales reps expected to make big leaps in performance? All of these come into play and your darts are more accurate as you tie them into your historical and ongoing sales metrics.
If you’d like a broader perspective (beyond the numbers) on sales forecasting, check out a great Forbes article by Scott Edinger: http://www.forbes.com/sites/scottedinger/2013/06/03/four-principles-for-great-sales-forecasts/. He not only looks at the metrics, but also presses that customer behavior, sales strategy and continual improvement are key to hitting your marks.
If you’ve done a great job of measuring all of the data in #1 through #7 above, then you should be able to make three forecasts: (1) minimum expected sales (2) goal (3) and a stretch goal – ideally you can convince your management to do these in 6 month increments and twice a year. I believe in setting all three of these and rewarding the team as they climb the ladder of success. Good luck as you fine tune those sales forecasts!
Make every day count!
www.linkedin.com/in/andrewschmitz/
http://www.blueoctopusllc.com
drew@blueoctopusllc.com
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Twitter: @drew_schmitz
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Tags: business development, Closing, sales, sales cycle, sales funnel, sales leadership, sales management, sales projections, selling
Blue Octopus LLC 