Meaningful Metrics: Valuable Tools or Impossible Dreams for Sales Teams?

In my experience, both points are accurate. Yes Nik, at the end of the day "revenue/profit generation" seem to be the most reliable indicators and usually trump most others. However, if your measurements are based only on results and fail to collect and consider the means of which you achieved them, you would have very little opportunity to optimize and enhance efficiency where possible. It leaves too much room for temporary success and lack of evolution, especially in today’s economy. There's more fruit at the top and in the middle if you know what I mean.

Considering variables that contribute to the success or failure of your sales initiative is critical. However, the standard data typically collected by companies are more likely to yield similar results as you would obtain using just revenue/profit generation. So, the question… should you collect the data and is it useful? Would serve much more purpose asking… After you collect data, how do you use it to improve your sales? Point being, the value of the data is usually based on the professionals analyzing it.

Umm...I may have a bit to add here. A sales metric could either belong to: past performance, current activities/status, future growth/sales.

I have seen organizations where field sales people update data just because its in their KRA, accuracy is and always will be questionable. Moreover, this would almost always reflect fault metrics and sales pipeline results.

As the field level pending activities, sales pipeline status and leads to follow and of course how much of the target is achieved till date is critical. On the other hand a sales manager looks at targets, conversion ratios and pipeline statuses. A business head further looks at revenue predictions, deal closure and the volumes.

Metrics cannot be blamed for incorrect representations/interpretations...of course the data quality is the real culprit. Remember, a salesperson's month is a mad hunt to complete targets, many times data accuracy and data collection is not on his priority.

As a final note...as organizations grow and play with different business units or geographics or realign...the metrics have to be reassessed for validity and usefulness.

So far no one has qualified the metrics by the type of product and sales cycle being measured. Consider a machine tool manufacturer that also sells parts, consumables and service for its machines. The gross profit on the sale of one machine may far exceed the revenue of the parts and consumable sales, but the latter are frequent, high volume, require far fewer sales hours (more likely months for a big machine), and less costly sales people.

If our customers' productivity today is half of what it was in 2007, I'll go out on a limb and predict my parts sales will also be half of what it was in 2007, but I have no idea if the board is going to approve the purchase of a new machine. Perhaps they're telling management to just sit on the cash until things turn around. Perhaps they think they can negotiate a better price if they buy now, or installing the machine and training workers now will be a competitive advantage when demand increases.

In the parts case a predictive model based on an historical time series of quantitative data may provide an acceptable number. In the latter case we need to evaluate the sales rep's performance on qualitative metrics.

How about a real estate agent? The selling agent's revenue is 6% of the sale price, which may have to be split with the buyer's agent. So a house selling for $500,000 generates the brokerage $15,000. Should the agent hold out for a higher price and bring in more revenue? Say the house sells for $505,000. Net additional revenue is $150. Is it worth the selling agent's time to go for the higher revenue? Gross profit may be significantly lower if holding out means a contract doesn't close and it takes several more months to get a buyer.

So is the number of listings brought in a useful metric? Are they comparable? A brokerage handles commercial and residential properties. One agent spends full time servicing a large fast food chain while another is trying to land a large office building or shopping center. Similarly, a bank or stock brokerage services institutional and individual clients.

So, Michael, my answer to your question is "I still don't know."

For direct sales organizations, I like Chris Selland's point. Based on my experience, metrics in sales organizations are mostly about management. So let's say you have all of these metrics around size of funnel and pipeline analysis - e.g. # of activities in different parts of the funnel, avg deal size, % of deals that close, etc., I think these metrics are mostly designed to help sales management interact and manage sales reps - especially those that are average or under performers. Not sure how much, they actually help the rep.s Do they?.

Nik, I am sorry to disagree with you about revenue and profit generation. As it turns out, these are poor indicators of the effectiveness or efficiency of the sales force. They show up after the process is complete, when it's too late to know if you could have done it better. We like to set up a sequence of leading indicators, stuff that tells you where the buyer is in his/her buying process. Breaking down the buying process, then establishing monthly targets for number of occurrences, turns out to be highly diagnostic of sales success. Plus, "buying" metrics dovetail neatly with lead-nurturing metrics and flow directly into customer-service & retention metrics. It's all about high lifetime customer value.

Interesting Ellen, can you provide a guide as to the accuracy of your predictions in your cycle of leading indicators? What's the correlation between your assessment and the accuracy of the actual closing situation?

Do good people with high predictions ever have bad months?

Because if the answer is yes, and it almost always is, then your metrics are not metrics but data you like to collect.

I'm prepared to be convinced on this, but I've seen more selling in more organisations than I care to think of, and I've seen many metrics employed, all of which seem to fail at some point, which is then written off as "the exception that proves the rule".

Plus, if you had someone with consistently high metric scores, but no profit/revenue at the end of the , I'm pretty certain you'd chuck the metrics out the window and fire them anyway.

end of the "insert qualifying period here"* (last paragraph) - the site removed this previously as I inserted in diagonal brackets rather than quote marks last time...

Great question Michael!

I would say that sales metrics are neither impossible dreams or mere valuable tools. Sales metrics are imperative management equipment for steering an organization to profitability and growth.

If you're in a business where you can hire a few sales reps and send them out on the street to do what they do and sit back and count the money, good for you. Enjoy it while you can because it won't last. The times they are a changin'!

For most of us, our businesses have already been altered by the information age and continue to change daily. A business must build and nurture its brand and generate leads via multiple channels online and offline. In this fractured environment, with money being spent across multiple media, to fail to measure what's happening in the sales team leaves you throwing money blindly at marketing and getting taken to the cleaners by ad firms, marketing consultants and web developers.

By measuring what happens in sales and tying that measurement to the source of each lead you can identify the most profitable marketing and focus dollars there and develop separate optimized sales processes for each marketing channel.

Ellen,

The tiny url for your study throws an error. Would you please check it?

Folks, sorry about the error in the tinyurl. Check this one instead to see our study on sales force productivity: http://tinyurl.com/y9y9pwl.

If you want to complete an assessment to evaluate your own sales force productivity visit our website at www.bristolstrategygroup.com.

Josh is the first person to provide a cogent analysis of the missing components of the question - and the best answer ("I still don't know").

Prior to ANY 'metrics', you'll need to know at least the last five years of sales figures (assuming you aren't a startup), and the numbers from your manufacturing association and/or any other data from economic sources regarding the overall value of your market.

You'll know with that step whether you can grow your 'share'. If the answer to that is 'yes', and the answer would merit significant changes, then you can begin to apply some of the following.

I've been a sales rep, business owner, sales trainer and sales manager for 25 years. In that length of time, I've learned that:

1. Every business is different. Trying a 'one size fits all' approach to management and analysis is like applying the old adage: When all you have is a hammer, everything looks like a nail.

2. People are different (now, THERE's a big surprise!) One size doesn't fit all when you're considering management approaches, either.

3. All of this boils up into a nice 'stew' when you're considering measuring things. I'd posit that you can't begin to put 'metric' (no matter HOW you define them) in place until you have the first two figured out and nailed down.

4. Measuring sales requires both types of data - sales figures (the 'end' of the process), as well as leading figures (the 'beginning' of the process). Both of these are as different as night and day, as well.

In general -- I'd further posit that you'll need to know the success rate of outbound calls (which requires demand-generation, not sales, skills); the ratio of successful outbound calls to appointments; appointments to defined projects; projects to proposals, and finally proposals to sales. This requires a matrix of definable objectives, each of which when taken together comprise the sales cycle for your product (some of these steps may not apply at all).

The metric that matters most to salesPEOPLE is crystal clear - the size of their commission check. The metrics that matter to sales management are more varied. Generally speaking they include revenue, profitability, pipeline status, call volume, etc...

The key to success is for sales management to align metrics & incentives - first and very much foremost commissions - in line with the business performance they are trying to achieve. There's no 'one size fits all' answer here - and in some cases the metrics may conflict - for instance if a company decides to maximize revenue, they might need to DE-emphasize profitability (note that I said de-emphasize - not eliminate). Compensation management systems can and should play a key role here.

So yes, metrics are absolutely valuable - but it's up to the sales management team to choose, measure and most importantly incent the team to achieve the ones that are best aligned with the goals of the business.

One of the statements in Ellen's study reminded me of an article in the Dec. 2003 issue of Harvard Business Review, "The One Number You Need to Grow" by Frederick F. Reichheld (reprint R0312C). The summary above the title is:

"If growth is what you're after, you won't learn much from complex measurements of customer satisfaction or retention. You simply need to know what your customers tell their friends about you."

Michael:
I'll reinforce the point about its different in different circumstances. First, drop the word "manager" and replace it with "leader". The leader's job is to diagnose the problem, create a solution and define the metrics that indicate success. If the problem is an activity based issue, than the metrics are likely to be activity based; number of calls per day, pipeline, etc. If the problem is more about overall revenue growth, than breaking down the revenue metrics can provide insight, examples might be ASP, product/services mix, and so on. There are other categories, but the point is, it depends on the problem set.

I can provide you a problem dianosis tool set that will lead you to the metrics that fit your circumstances. Let me know if you want a copy.

I measure size of customer. The larger the customer, the better profit margin.

If we're focused on managing a sales rep's performance & output, you start at the top and work your way down until you've found something to optimize. The cascade could look something like this:

1) Closed business (vs. quota or goal)
2) Pipeline (closeable business within current month/quarter/year)
3) Pipeline make-up (big deals, small deals, the right deals?)
4) Pipeline activity (next steps, demos, proposals)
5) Leads (how many, quality, which are next to become an Opportunity
5) Activities (cold calling, new meetings, lead follow-up)

Individual sales rep review sessions can follow an agenda like this, with a focus on enabling/helping the rep to overcome obstacles and solve problems to exceed their goal.

The focus is ALWAYS on the top of this list. At the end of the day, it's all about closed business. But the elements below are what get you there, and is usually where the roadblocks occur that lead to missing milestones.

I completely agree with Ellen Bristol's remarks about "trailing indicators". I believe you must work backward from the contract signature to the initial contact. The steps between these two should serve as the benchmarks from which to track productivity.

Ellen,

I see your point, kind of. The most useful metric to me is still performance, there's no other impact on the bottom line.

In some types of sale, particularly long sales cycle, you may well need to invest some additional effort in metrics. But the "i don't know what" metric, for particularly long sales is also there.

I remember some time ago, a report of a salesman who earned nearly $100 million US in commission. He had made one sale, in... ten years. At the end of ten years in the business he closed a deal for, I think, submarine parts to Japan.

Whatever he was doing, he did right. But I suspect measuring that would have been close to impossible. The sales cycle is just too long.

On short order sales, one call to close. Again most metrics are not terribly helpful here, there's not enough data generated. This one is very close to my heart, because I've tried to do so many times, with good telephony equipment you can get pretty much every number going to check performance with. There's just not much correlation.

And for longer-cycle sales, the same becomes true. Yes, you can have a defined sales process, but I've found with salespeople that it is often the guy with his own approach that is more succesful, than the guy following the company approach.

A compromise situation might be more useful, primary metric - do you bring in your target?

Secondary metrics for working towards a "why not?" understanding.

Though I note that your company needs people to follow specific process driven sales cycles, in order for your analysis tools to work...

I'm a bit late to this party, and there has been some excellent thoughts shared so far, but it seems to me the question is about what metrics matters to salespeople, not to their companies. Unfortunately, my experience is that more often than not, those are in dicotomy.

So, assuming a B2B business that has a separate lead gen group, what matters to the sales rep is the quantity and quality of leads they are given. The first is easy to measure, the second has more variance, but time to close and deal size are good places to start. A salesperson is driven (or should be!) to meet or exceed quota, and thus to maximize personal income.

@ Nik, you make some good points, but use a very narrow focus. What if a sales rep achieves their quota, but the process costs the company 1.5x quota for him/her to do so. Should the company hire 10 more reps using that same model because it will drive up revenue 10x?

Bob

"What metrics matter most to salespeople"

Not to be flip (seriously), but:
1) Commissions
2) Commissions
3) Commissions

Which is why Compensation Management is so very critical.

Surely the "meaningful metric" for sales people is revenue/profit generation?