Tracking and measuring your sales performance is a key to success as a business owner. But not all metrics are created equal. You must select the right key performance indicators (KPIs) that fit both your marketing and sales models and business goals.
It’s crucial to have the right KPIs to optimize your sales process and ensure that your team is going in the right direction to achieve its sales targets. KPIs ensure that you and your sales team focus on the most important sales activities.
Your KPIs must reflect your organizational goals and provide context on all levels of the business. It must be easy to understand and lead your sales team to action.
When deciding on which metrics to use, it’s essential to evaluate the top KPIs for sales that most align with what you want to achieve.
Here are the five most powerful Sales KPIs you can utilize to measure success.
1. Tactical Sales
Tactical sales metrics allow you to have a holistic view of the daily individual performance on the ground. Measuring sales activities is one of the best ways to drive sales and optimize your team’s sales efforts. The idea is to track each sales activity and measure its success rate.
Tactical sales metrics include the number of calls made, number of leads created, number of emails sent, number of follow-ups, number of meetings scheduled, and the list goes on.
Part of these metrics is measuring the contact rate or the reach rate. Reach rate measures the percentage of outbound activities such as calls or emails that result in a significant conversation with a decision maker.
This metric allows you to see those who are hitting sales targets and those who are not. You can set more realistic quotas per sales rep and per sales territory.
Another aspect of the tactical sales metric is the follow-up rate. The follow-up rate lets you measure the frequency and intervals each team member performs check-ins with sales leads. Perseverance is a critical ingredient in closing a deal. How persistent are your salespeople in qualifying leads and converting them into clients?
2. Sales Cycle Length
This metric indicates the average time between the first touchpoint with a potential customer to closing the sale.
Measuring the length of your sales cycle can tell you how efficient your sales process is and help you forecast sales more accurately.
Knowing your average sales cycle length helps you estimate the number of closed deals you'll have in a specific period based on the number of leads currently in your pipeline.
Here’s a simple formula to get your average sales cycle length:
Sales Cycle Length = Length of all transactions by the Day /Total Number of Deals
3. Sales Conversion Rate
This KPI measures your sales team's effectiveness in turning a lead into a win. It identifies their strong and weak points with networking and closing a deal. With knowledge of their areas for improvement, you can strategically allocate training resources with the ultimate goal of increasing conversion rates.
Understanding your leads’ conversion rates lets you see which stages and activities have the highest investment return in your sales funnel. It also lets you discover the holes in your funnel where your prospect drops out of the sales funnel without buying.
To manage your sales funnel performance, you should track the following conversion metrics:
This metric outlines the number of prospects, website visitors, and contact recipients that become leads. Leads are those who take the desired action and move onto the next stage of your buyer journey—for example, filling out a contact form, subscribing to your email list, etc.
The calculation depicts this metric as a percentage. A simple formula would be:
Conversion Rate = (Total Number of Closed Sales / Number of Qualified Leads) X 100
Once you’ve acquired a list of leads, your marketing team evaluates each piece of information to determine the most likely to become customers. Your marketing team passes the most qualified leads to the care of your sales team.
This metric shows how many prospects or leads are converted into customers and indicates how well your business website attracts the right audience. If this metric is below average, you need to reevaluate your target buyer personas and update your website design and content.
4. Customer Acquisition Rate
Your main objective to grow your customer base is by bringing in new customers. But do you know the actual cost of acquiring those customers and their actual value to your business?
Tracking CAC and CLTV enables you to understand if the cost of attracting new customers is ultimately a good investment. These two metrics can provide insights into critical aspects of your business, specifically your finances. They allow you to forecast and budget appropriately for future spending.
Customer Acquisition Cost (CAC)
Your CAC is the total cost of your sales and marketing activities divided by the number of customers you acquire during a specified period. Your sales and marketing costs include commissions of your sales team, online ads, travel expenses incurred during sales calls, conducting customer surveys, and more.
Customer Lifetime Value (CLTV)
CLTV captures how much recurring revenue you expect from new customers throughout their association with your company. The CLTV calculation requires only simple multiplication:
CLTV = Average sale x Number of repeat sales x Average lifespan of a client relationship, or
CLTV = Gross Margin % X ( 1 / Monthly Churn ) X Avg. Monthly Subscription Revenue per Customer.
Your CLTV should be larger than your CAC by at least a ratio of 3:1 to justify the cost of bringing in those new customers. Otherwise, you may need to rethink your pricing, sales and marketing expenses, and related items.
5. Retention/Churn Rate
This metric helps understand the impact of CAC and CLTV on your business goals. The customer retention rate indicates recurring customers over a specific time in sales. Finding ways to retain your customers is more cost effective than continually seeking out new leads.
To calculate your customer retention rate, you'll need to know the number of customers at the start of a period, the number of customers at the end of a period, and the number of new customers acquired in a specific time frame.
Once you’ve compiled that information, you can use this formula to calculate the churn rate:
Customer Churn Rate = number of customers lost that month /Number of customers at the start of the month
It would help to calculate using at least one month to spot trends and fix problems before they become more prominent. It’s a good idea to analyze lost customer profiles and their reasons for leaving.
“What gets measured gets done!” You can create sales and marketing strategies, measure your sales team’s performance, and set goals effectively with the right sales KPIs. The five most powerful sales KPIs provided in this post can give you a framework for analysis to bring you and your sales team in your desired direction.