How do you create a standard for measuring performance metrics?

Ben, it sounds as though your issue is not that of determining what to measure, but how to get some level of accuracy/integrity in the way they are measured. What you describe is a problem we have seen with many clients.

The answer is relatively simple, the implementation is where the challenge is. Here's the answer: 1. Define the metric and the standard against how you will measure it. 2. Define how it will be reported (e.g. We will use our CRM system, you will provide it in a weekly report, etc.). 3. Enforce it, no exceptions!

Part 3 is the challenge, somehow in the press of every day business, we are constantly making exceptions. Then the integrity of the measurement goes out the window. Here are some simple examples: 1. An opportunity is not real, unless it is reported and updated in the CRM system. We will not talk about, invest in or support any opportunity that is not in the system. 2. To be included in the forecast, an opportunity must meet these criteria.....

Having a strong tool like a CRM system that people use, simplifies reporting and measuring. There are so many metrics you can have that are passive (ie they don't require the salesperson to do any special reporting). This is ideal.

Addressing the second part of the question, how do you explain it to the people? Steve offers some good ideas. Ideally, if you can talk about "what's in it for them, how do they benefit from it." Every sales person needs to have a set of personal metrics by which they measure and improve their own performance. Often, management metrics can simply be roll ups of those. Train/coach people in the value of measuring and improving their own performance. Show, rather than tell, how you use the metrics to coach and help the sales person. Too many times, there is the justified concern that these are being used by management to hammer the sales person. In some cases, you just have to explain that management needs certain information to effectively manage the business, so like it or not, it is a part of the job. This sounds crass, but it is reality and we need to do these things. If we let people understand, while the reporting may be a hassle, at least they have the context and know why its important.

Finally, by all means, if you are asking for this reporting, if you are measuring things, use it! I can't tell you how many times where I have seen things being measured, but the metrics are ignored. In this case, management is wasting an opportunity and wasting their people's time.

Feel free to contact me if you need more info. Good luck in getting your metrics working for you. It's the only way to drive the highest levels of performance in the sales organization.

One of the key matters to avoid is getting involved in traditional cost accounting metrics, as there an increasing volume of literature available showing how expense allocations to "costs" (falsely so-called) can be so misleading as to actually take management in precisely the WRONG direction.

Classify according the following definitions and you'll be better off:

OPERATING REVENUE - Use the classical definition here.

TRULY VARIABLE COSTS (TVCs) - These are costs that vary directly with incremental changes in revenue. For example, raw materials are a TVC because they are consumed in direct proportion to the production necessary to produce a unit of revenue. Commissions paid by percent or unit are also TVCs. On the other hand, so-called "direct labor" is NOT a TVC unless payment is measured on a piece-rate. (Chances are your payroll does NOT vary from week to week as your production count goes up or down. Therefore, it is NOT TVC.)

THROUGHPUT = REVENUE less TVC

OPERATING EXPENSES - All the money paid out to keep the business producing revenues that are NOT TVCs.

OPERATING PROFIT = THROUGHPUT less OPERATING EXPENSES

If you can identify the CONSTRAINT (or "bottleneck") in your business -- that is, the one operation or function that limits your ability to make more money tomorrow than you are making today, then the CRITICAL METRIC is T/C-Hr (that is, THROUGHPUT per CONSTRAINT-HOUR.

There's lots more about this to be found at http://www.GeeWhiz2ROI.com.

Check it out.

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Hi Ben

When I started my career I was developing systems for industrial process control. In this environment the problem of collecting and analyzing data is simple because you can connect a wire to the machine and it dutifully provides the information you need (and gives an alarm when something goes wrong).

I collecting and analyzing business data the problem is usually centered around the source of the data being humans. If you are analyzing financial data the problem is lesser because accuracy of data is very high, you just need to understand the practices used to code all of those unusual transactions that occur and account for them appropriately.

If the data is coming from CRM then the human element is really a challenge. If you can tie a critical sales action to data collection then its ideal. Examples would be producing quotations, or booking orders (when integrated with your ERP). Introducing a new process is always hard so the next approach is to measure what people already do rather than asking them to do something new. Make it easy for them to do and capture as much automatically as possible.

Explaining why is very important, people will naturally think you are analyzing them personally for the benefit of the company which leads them to do the things they think you want them to do or at least create data that shows they are doing it. If they can see the upside and why it's important then it is much easier for them to support. Publish the results and let them know what actions the business will be taking because of it, once people can see that things get better because of the measurement then it get a lot easier but it's going to take time.