Sales effectiveness - Top Question from Google
How do you measure sales effectiveness?
Here’s the short answer:
How you measure sales effectiveness will depend on your company goals and objectives. Here are 5 measurements or sales KPIs (key performance indicators) to get you started:
Revenue growth. Not everything should be about money, but if your revenue growth is stalled or even worse, going backwards you will need to take action.
Conversion ratio. At a big picture level you will need to ensure the sales team are converting new sales leads. For more detailed conversion ratios, examine the conversion rates between each stage of your sales process such as MQL to SQL.
Average deal size. Increasing your average deal size via cross selling and upselling is a great way to improve your sales effectiveness.
Sales Cycle. Your sales cycle is the time between what we call first contact with a prospect and when you receive money in the bank for your goods and services. The shorter the sales cycle the more efficient your process.
Customer satisfaction. Never forget your customers and ensure that any improvements to your sales effectiveness are not at the expense of customer satisfaction.
In this article we will cover...
1. What is Sales Efficiency anyway?
Sales efficiency is simply measuring the ratio of the value gained from the costs of your sales team and the revenue they generate. The greater the ratio then the greater the return and the more effective the sales unit are.
In order to track and measure your sales efficiency you will need to be familiar with all the costs within your sales and marketing departments. Ideally you will have identified your cost per lead and your lifetime customer value.
These sales metrics may vary across products, departments and even salespeople and are the key to any sales improvement plan.
2. Sales Effectiveness framework
Over the years we have found great value in simplifying our own systems and processes, which we then share with our clients. For the last 10 years we have focussed our sales strategy, planning and improvements around what we call the four high value areas of B2B sales. These are:
Finding: you have to find people, companies and opportunities before you can sell to them.
Klozing: once you’ve found a deal you need to be able to take the deal through a sales process and win it.
Growing: once you have done all the hard work of finding and klozing new paying customers you need to keep and grow that account.
Developing: lastly, finding, klozing and growing are all activities undertaken by sales reps and we need to keep them, grow them and build a winning sales culture, all with scalable sales processes.
If you simply spend as much time as possible in these four areas it’s almost impossible not to sell more and improve sales effectiveness.
3. Finding - Lead to Opportunity Conversion Rate
Before we can convert leads to opportunities we need to first measure how good we are at generating leads. What is our process for filling the top of the sales funnel with potential customers and is it scalable? Have we explored all the different channels available and then identified the most fruitful ones.
Furthermore it’s important to define what is a lead? How close are they to your Ideal Client Persona (ICP) and what process do we use to qualify them? In our own business we use MQL and SQL which stands for Marketing Qualified Lead (MQL) and Sales Qualified Lead (SQL).
We deliberately keep this simple so in our world a marketing lead is simply a contact that has downloaded an asset from our website or attended a webinar, or following us social channels. An MQL is a lead that has actively asked to talk with us whether that be via our website, telephone or email. The key differentiator here is that we have never spoken to them.
Next up is our Sales Qualified leads and these are defined as people who have spoken to sales and meet the criteria of both our ICP and BANT (Budget, Authority, Need and Time) which is a simple sales qualification process.
In our own business we measure our conversion ratio of MQLs against deals closed. Most companies would use SQL against deals closed but our system works well for us and our conversion ratio of MQLs when last measured was 42.22% which we think is pretty good.
It’s also worth noting the importance of lead response time here. According to a Lead Connect survey 78% of customers buy from the first responder. Also sales conversions are 391% higher when the first response is withing 1 minute. Lastly, leads that older than 5 minutes receive an 80% drop in lead qualification. Speed is your friend in lead generation.
New Customer Acquisition Rates
Whilst conversion ratios are important, what is equally important is new customer acquisition rates. If you have a 100% conversion rate but you only generate and close one deal a month you are unlikely to get the sales results you want or need.
Wherever possible we would recommend a data driven approach and starting with your ICP. The most efficient marketing is laser targeted on the ICP which then generates a better quality of lead. Small changes in messaging and design can have a huge impact on this.
Often times an easy win for both marketing and sales is to use campaigns and special offers to increase conversions and new customer acquisition. Most often recognised as tactics for B2C we have had huge success with clients building campaigns around a special offer.
Interestingly the most successful special offers we have worked with clients on ended up being more expensive than the original offer. The art of selling is not about discounting, it’s about selling your product at your price.
For obvious reasons it’s important that your customer acquisition rate exceeds your customer attrition rate which we cover later in this article.
4. Klozing and Sales Performance
As previously stated Klozing comes when you have found a deal or opportunity, and you then take that deal through your sales pipeline and win it. Most companies will base their sales metrics and how they measure sales effectiveness on closing sales qualified leads.
These sales metrics are influenced or driven by the sales team’s ability and performance. Ability refers to the skills and traits of the sales team to close deals and performance refers to their output. You can have the most highly trained sales reps in the world but unless they perform and are highly engaged they will not close deals. We therefore define sales effectiveness as Ability + Performance = Sales effectiveness.
Let’s break down Ability first. If ability comes from traits and skills what does this mean in real terms?
Traits are important at the hiring phase – what are the sales reps hobbies out of work? Would you hire a gamer who is stuck in their bedroom overnight of the captain of the local football team? Sports people normally excel in sales because they have great traits, self discipline, good work ethics and they are team players.
Skills are obviously important, however, in sales there are a myriad of skills required some of which are more or less relevant depending on the role. For example an AE (Account Executive) will potentially need communication skills, presentation skills and negotiating skills to close deals.
A salesperson focussed on selling to the public sector via bids and tenders would require a completely different skill set.
5. Growing - Retention and Expansion.
A major part of sales effectiveness comes from the ability to not just win new business but hold onto it and expand within those accounts. After all the most difficult and most costly part of sales, namely new client acquisition is done. Growth & retention via cross selling and upselling should be mandatory in every company strategy.
Often the first step in growing is to ensure retention and reduce customer attrition or churn. Companies measure sales churn in different ways for example saas companies may measure churn on their monthly paid subscriptions, however, some companies may be heavily geared to annual subscriptions and this then needs to be taken into account.
Our own belief is that reducing churn is the area of sales effectiveness that every sales organisation should address first. There is no point winning new business if you cannot retain it.
The Critical metrics most often used to reduce churn would be customer satisfaction, user engagement and changes in customer needs.
6. Developing - scaling people and process
In our experience developing falls into two main categories as follows, firstly the startups.
Many company founders and sales leaders rush to scale their business before they have the fundamentals in place. They want to hire an entire sales force before they have in some cases proven their value proposition, let alone put in place scalable systems and sales processes for profitable growth. One sales rep who can’t win deals quickly becomes 10 sales reps who can’t win deals which compounds the problems and adds to the existing workload of already time poor sales leaders. Step 1, focus on the value proposition and making it as attractive as possible. Step 2, focus on building repetition and sales effectiveness at scale not just on individual salespeople.
In Developing the second group we deal with are established businesses who need to either reduce costs (no necessarily the cost of people, but the cost of customer acquisition) or simply want to drive performance and an effective sales team.
For these companies the status quo and change is the biggest challenge. Tenured salespeople can be resistant to changes which needs to be taken into account when you are planning for improvements in sales effectiveness.
In many cases delivering sales training is the easy part, creating meaningful behavioural change across an entire team is the bigger problem. So big that many sales leaders simply put up with subpar performance and average output from their sales force.
These are actually the most rewarding projects as they always deliver the biggest impact.
7. How to boost sales effectiveness - key questions
Sales Enablement is one of the most common approaches to drive sales effectiveness across sales teams. Sales Enablement is a way of providing the right tools, content, sales training and resources that the sales teams needs to be win more deals.
In addition a modern Sales Enablement department would be responsible for supporting the implementation of the company’s sales strategy, their sales processes, and measuring sales effectiveness across the organisation.
If your sales organization does not have it’s own sales enablement team our recommendation would be to first get a baseline understanding of the overall sales performance of your sales team’s effectiveness.
Its important that any evaluation is from the top down and includes the sales leaders, the sales managers and every sales rep. This would include things like sales opportunities generated, best practices, win rates, quota attainment and effective selling skills and behaviours.
1. What data do I have?
Sometimes we let perfection get in the way of progress. What data do you have that you can take actions from?
2. What data should I have?
What data are you going to need to make the right decisions and how can I start recoding it?
3. What data is easy to collect?
Data itself and can end up overwhelming. Where possible make data collection easy, avoid adding workload to salespeople.
4. No data?
If you don’t have data score each section on a 1 through 10 with 10 being perfect.
5. Where are the easy wins?
Find some easy wins to give your project some momentum.
6. Which are the biggest leavers?
Which improvements are going to have the biggest impact?
Taking time out to take a complete measurement of the sales organizations overall effectiveness will provide you with a better understanding help you to identify realistic goals in terms of improvements that you can achieve.
“A fantastic learning experience”
Amanda – Account Manager