Sales metrics - a comprehensive guide
Sales metrics are data points that track and assess the sales performance of an individual salesperson, group, or organization over time. In the big picture, sales metrics assist a business in evaluating the accomplishment of its sales initiatives as well as pinpointing potential improvement areas. Along with providing other crucial company insights, they also monitor goals and objectives, track progress, and inform sales strategies.
Are Sales Metrics & KPIs the Same Thing?
Well, although they are synonymous, not the same thing. In a nutshell, KPIs, are quantifiable values that demonstrate how efficiently your organization reaches its goals. Contrarily, sales metrics monitor how well your team is performing in terms of sales procedures. In other words, metrics are used to monitor workflow and procedures, while KPIs are used to monitor higher-level business goals. For example, if a business seeks to boost sales by 15%, sales growth is the KPI, and sales revenue is the metric.
Why Is Tracking Sales Metrics Important?
How do you know whether your favorite cricketer is in form or not? Using all the data from the past recent, you can see his performance, wins, strike rate, not out, and many other things.
In businesses, too, for the company’s success, you need to keep a close tab over the sales metrics to see how your employees and the company as a whole are doing. Here are some of the primary reasons why you should track the sales metric.
Enhances Worker Performance
Many workers find it difficult to assess their level of advancement and growth within the firm. Most of the time, some employees believe they are succeeding and developing as salespeople when in fact they aren't. Sales metrics provide employees with a clear scorecard. They inform them as to whether or not they are moving in the proper way.
Identifies problems and inadequacies
What you cannot measure, you cannot manage. You must be aware of the issues in order to scale as a team and develop the business, whether it be overall sales. Near the end of the month, an organization reviews its results in order to note a fall in sales. They would have seen the decline in new leads three weeks earlier if they had their "war room" and had been monitoring other crucial metrics, such as different leads. By the end of the month, they might have closed significant agreements and fixed the problem earlier. Unfortunately, execution suffered greatly since they didn't adhere to metrics. It is what your business must avoid; after all, prevention is preferable to cure. You need to specify what is not functioning well in the business. The sales metrics enable you to focus on fresh ideas for change that can produce positive results while also assisting you in identifying the company's difficulties.
Stops Additional Losses
You will go through highs and lows when operating a business, so be prepared. You, as the business owner, can close any gaps in your procedures. And you can get support with that from sales metrics. Having sales analytics helps you identify what's causing the loss because there are so many interconnected factors that affect sales. After studying the sales KPIs, you may start working on them and making the necessary adjustments.
What Are the Most Important Sales Metrics?
In order to maximize the revenue of sales, we need to understand which data is important and where. The business models of each organization are unique, and this is also true of their sales figures. If a particular corporation values one sales metric over another, it might not be the same for both. For all businesses, even those in the same industry, there is no single sales metric that is critical.
“Only use the data that matters.”
For instance, metrics that measure the percentage of deals each sales agent closes might be helpful if a company's objective is to have every sales rep reach their quotas. If the company wishes to close bigger transactions, it may monitor the average deal size to determine whether its strategy is effective with bigger clients. Metrics can be added or removed when firms expand or enter new markets.
While companies and sales teams will want to choose the metrics that best match their sales goals, some sales metrics are useful to most organizations. They include:
1. Annual Recurring Revenue
Annual recurring revenue (ARR) measures the revenue per client for each year of a multi-year contract and is frequently used by subscription-based businesses or software-as-a-service (SaaS) models. Leaders in sales and finance can monitor ARR year over year to anticipate sales and assess expansion opportunities. To evaluate specific performance, businesses can additionally examine ARR for certain segments, such as product line, area, or client type (new, existing, etc.).
The whole contract cost, plus upgrades, less losses from downgrades and cancellations, is taken into consideration by ARR. One-time costs, variable fees, and subscription consumption fees are not included.
Annual recurring revenue (ARR) = Total value of contract / Number of contract years
2. Average Revenue Per User/Average Revenue Per Account
The amount of income a company makes per user or account over the course of a certain period is known as average revenue per user (ARPU) or average revenue per account (ARPA). Similar to ARR, ARPU can be segmented to provide information about which client segments or geographic areas, for instance, produce more revenue and which ones require improvement.
Customer willingness to pay more for a company's services or goods is frequently indicated by an increase in ARPU over time. A sales staff may think about promoting a more expensive premium service or add-on that enhances the current service if ARPU falls.
ARPU/ARPA = Total revenue / Average number of users or accounts
3. Quota Attainment
The percentage of sales that salespeople close in a certain time period as compared to their predetermined objectives, or quotas, is known as quota achievement. In other words, it assesses how near sales representatives came to achieving their objective. This indicator can be used by sales leaders and representatives to revise their sales projections, assess top or underperformers, and alter their sales strategies in order to meet goals. Quota attainment can also be used to assess the effectiveness of particular teams or the sales organisation as a whole.
Quota attainment = (Sales from actual bookings / Sales quota) x 100
4. Win Rate
Win rate is the proportion of all quoted deals that result in actual sales. It gauges how well a sales staff performs when it comes to turning around offers into actual sales. To assess individual performance and determine how many additional sales opportunities are necessary to reach goals, sales managers can also check win rates by the salesperson.
Win rate = (Number of wins / Number of quoted opportunities, lost and won) x 100
If a salesperson closes 10 deals out of 40 that were quoted, that means their win rate is 25%.
5. Conversion Rate
The percentage of qualifying leads, or potential customers, who convert into brand-new, paying customers is known as the conversion rate in sales. This indicator shows how well-qualified leads are generated and aids in gauging the effectiveness of individual salespeople, sales teams, and marketing. Sales organisations can evaluate the success of lead-generation efforts and reduce customer acquisition costs by tracking conversion rates.:
Conversion rate = (Number of new customers / Number of qualified leads) x 100
6. Sales Cycle Length
The sales cycle measures how long it typically takes to close a sale after the first contact a sales representative has with a potential client. For instance, sales leaders and teams might utilise this measure to identify potential delays in the sales cycle that could jeopardise sales and subsequently modify their procedures. Data on sales cycle duration can also enhance sales forecasting.
Average sales cycle length = Total number of days to close all deals / Total number of deals
7. Average Deal Size
The average amount of money made per closed deal is known as the average deal size. For estimating sales income, this statistic is helpful. Teams can calculate the number of deals they need to close in order to meet their monthly quota.
For creating a plan for sales growth, the average deal size is also helpful. Sales managers can discover larger deals that may need close monitoring and additional resources by looking at the average deal size by individual rep. They can also identify which sales representatives would profit from upselling coaching.
Average deal size = Total sales revenue / Total number of sales
8. Average Profit Margin
The percentage of total sales revenue that is turned into profit is known as the average profit margin. A business can analyse its average profit margin by sales territory, salesperson, products, services, and other parameters.
Average profit margin = Net income (overall or for specific areas) / Net sales (overall or for specific areas) x 100
Net income is derived by subtracting a particular segment’s total expenses from its total revenue. Net sales are calculated by subtracting the segment’s total returns or refunds from total sales.
9. Net Revenue Retention Percentage
The percentage of recurrent revenue generated by a company's current client base during a specific time period is known as net revenue retention. Net revenue retention takes into account changes in revenue owing to upgrades, downgrades, and cancellations and is typically monitored by subscription-based organisations. This statistic is used by sales and financial leaders to evaluate how well teams grow and renew their client bases' revenue.
Net revenue retention percentage = Renewal revenue at beginning of period + upsell revenue – churn / Renewal revenue at beginning of period x 100
10. Pipeline Coverage
The value of a sales representative's potential sales possibilities in proportion to their quota for a specific time period is referred to as pipeline coverage. A multiple of the salesperson's quota is used to express it. A salesperson has 3X pipeline coverage if they have $300,000 in pipeline and a $100,000 quota. Sales managers can use this information to modify their methods and strategies in order to reach quotas.
Pipeline coverage = Potential sales in the pipeline, in dollars / Sales quota, in dollars
11. Sales Productivity Metrics
Sales team operations are monitored using productivity measures. The proportion of hot-lead follow-ups, the daily average number of sales tools utilized, and the time spent on selling versus non-selling activities are a few examples. These metrics are used by sales managers to evaluate prospect engagement and team and individual sales performance.
The sales productivity metrics mainly include the following:
- Percentage of time selling
- Percentage of time on data entry
- Percentage of time in content creation
- Percentage of marketing collateral for use by sales representatives
- Number of sales tools used
- Percentage of high-quality lead follow-up
How to Track Sales Metrics
For the most recent analysis, sales figures must be regularly monitored because they change quickly. Following are 6 steps for monitoring sales metrics:
- Choose a few critical sales indicators that are the main forces behind the company's sales.
- Select the measurement interval for these sales indicators. For instance, the quantity of sales calls may be assessed daily, whereas pipeline coverage may be reviewed weekly or monthly.
- Aggregate sales data. The best strategy is to use CRM or sales analytics software with real-time data. To ensure that comparisons are relevant, calculations must be consistent.
- Use tools for data visualization. Data is digested more quickly and effectively when presented visually, which has a greater influence on sales teams. Several potent CRM programs offer customizable, real-time dashboards that are adaptable, based on roles, and track metrics from the opportunity stage to closed sales and customer service.
- Look for trends by analyzing the data. For instance, does the average revenue per account change from month to month?
- Apply findings to boost sales performance. Search for places that need to be improved. What steps can the company take to reverse this trend and boost revenue if the average revenue per account is declining?