How to Measure and Improve Sales Performance

Overview:

• What is Sales Performance?
• What are Sales Metrics?
• What is a Good Sales Conversion Rate?
• How to Measure Sales Performance Effectively
• How to Improve Sales Performance
• Final Words

A successful business generates revenue, has clear processes, and demonstrates a clear understanding of how to measure and improve their sales performance. Businesses that do this typically see success from aligning their sales performance expectations to that of their business needs. In this Firestarter insights article, we will cover the importance of tracking your sales metrics, how to measure them so you can set realistic goals as well as ways you can identify areas to improve sales performance.

What is Sales Performance?

Sales performance refers to the effectiveness and efficiency of a sales team or individual in achieving their sales goals and targets. It encompasses various factors such as sales revenue, conversion rates, customer satisfaction, and overall productivity. Sales performance is usually assessed on a monthly, quarterly, or annual basis, as this helps to gauge the effectiveness of your sales team within a defined period with the frequency varying based on the specific industry or business.

What are Sales Metrics?

Sales metrics are measurements used to track and evaluate your sales performance. These metrics provide insights into the effectiveness of sales strategies, the performance of your sales people, and the overall health of your sales pipeline. Common sales metrics include revenue, sales forecast accuracy, average deal size, size of sales pipeline and sales conversion rate.

Revenue

This is the total amount of money generated from sales during a specific period. This is commonly measured monthly, quarterly and annually in most businesses – however depending on the nature of your business, measuring revenue even more frequently can be useful. Measuring your revenue accurately gives your business actionable insights that allow you to make informed decisions about your tactics and strategy.

Sales Forecast Accuracy

Sales forecasting accuracy is an important metric to a business as it enables them to make informed decisions and plan for future operations, whether that be marketing activity, resource allocation or business expansion planning. Accurate sales forecasts rely on three key factors: an up-to-date and accurate sales pipeline, a strong sales process and forecasting methodology, and precise customer relationship (CRM) tracking. Integrating these elements creates a dynamic, data-driven forecasting approach that is vital for making strategic decisions.

Average Deal Size

Average deal size is a metric used to determine the average value of a business’s deals or sales transactions. This metric allows businesses to measure the how their products or services are performing with regards to sales volume, cost, and revenue growth. Your year-on-year sales performance accuracy is significantly enhanced by understanding the average deal size. This metric facilitates opens the door for accurate budgeting and effective growth planning.

Conversion Rates

The percentage of leads or prospects that successfully complete a desired action, such as making a purchase. This is calculated by dividing the number of your businesses leads that have converted to a sale versus the marketing qualified leads (MQLs) or sales qualified leads (SQLs) your team has received. In the next section we will discuss what a good sales conversion rate is and the importance it has to your business.

What is a Good Sales Conversion Rate?

Determining what constitutes to a good sales conversion rate is a process that relies heavily on various factors within your sales journey. Traditional sales conversion rates are based on activities such as, initial call connections, sales visits, proposals, and closed deals. A comprehensive sales strategy first and foremost involves understanding and the optimisation of each of these stages. For example, a high conversion rate during initial call connections might indicate strong lead qualification methods and strong communication skills. However, a low conversion rate between proposals and deals might suggest unengaging content or overpricing. Effective forecasting and pipeline management are closely linked to these conversion metrics.

In sales management, analysing conversion rates at different stages of the sales funnel provides valuable insights into the efficiency of the sales process. For instance:

Initial Call Connections: The percentage of initial calls that result in meaningful conversations. A high conversion rate at this stage indicates effective lead qualification and communication skills.

Sales Visits/Appointments: The ratio of successful appointments to the total number of scheduled meetings. This metric reflects the sales team’s ability to engage prospects and present products or services effectively.

Proposals/Submissions: The proportion of proposals or quotes sent to potential clients that result in positive responses. A higher conversion rate here indicates persuasive proposal content and competitive pricing strategies.

Negotiations/Closing: The percentage of successful deals closed in relation to the number of negotiations. This stage involves finalizing terms, addressing concerns, and reaching an agreement, highlighting the sales team’s negotiation skills.

It’s important to note that sales conversion rates are not just about the final sale, you need to consider conversions at different stages in the sales process. Therefore, a good sales person will know their numbers and know that if they are converting from initial meeting to proposal, then proposal to order at specific rates, they will know the number of opportunities they need to start with. This then dictates the activity levels that the sales person needs to focus on in order to achieve those opportunities.

An effective sales person will concentrate on working their entire pipeline to move them through different stages of the sales process as efficiently as possible. By tracking and analysing conversion rates at each of these stages, sales people can identify issues, refine their strategies, and forecast future sales targets more accurately.

How to Measure Sales Performance Effectively?

Thus far we’ve explored the fundamentals of sales performance, sales metrics and what constitutes a good conversion rate, with this foundational understanding in place, it’s now time to shift our focus towards the practical aspect: how to measure sales performance effectively.

Despite there being many forms of measurement in sales performance, it is crucial to understand which ones work best for your business and industry, for example, retail may rely on average transactional value whereas the SaaS industry may see Monthly Recurring Revenue (MRR) as a more important measurement. Here at Firestarter, we focus on the B2B side of sales; with that in mind, below are 4 sales performance metrics that aim to help your sales organisation grow and function efficiently.

Client Acquisition Cost (CAC)

Client acquisition cost (CAC) refers to the total cost incurred by a company to acquire a new client. It includes various expenses related to marketing, advertising, sales efforts, and any other activities aimed at attracting and converting potential customers into paying clients.

To measure the costs of client acquisition effectively you must first identify the relevant expenses of acquiring new clients, expenses such as marketing campaign costs, advertising, sales team salaries, commissions and any other direct or indirect costs related to customer acquisition. By identifying the costs associated within a specific period you can then determine the number of clients acquired during the same period. Once you have both sets of figures it’s then a matter of dividing total expenses by the number of acquired clients.

Divide the total expenses by the number of new clients to calculate the client acquisition cost. The formula is: CAC = Total Expenses / Number of Acquired Clients.

Let’s assume a company spent a total of £10,000 on marketing, advertising, and sales efforts to acquire new clients during a specific period. And let’s say they acquired 20 new clients during that same period. CAC = £10,000 / 20

In this example, the client acquisition cost would be £500 per client.

Tip: It is important to note that client acquisition cost should be analysed in conjunction with other metrics such as customer lifetime value (CLV) to assess the profitability and sustainability of acquiring new clients. By comparing CAC with CLV, companies can determine if their customer acquisition efforts are generating a positive return on investment.

Client Retention Rate

Retaining existing clients is much more cost-effective than acquiring new ones, and also supports the longer-term growth and sustainability of a business. Monitoring the percentage of customers retained over a specific period provides insights into the effectiveness of client relationships, support, and overall client satisfaction. In the context of measuring sales performance, client retention rate is an important metric from the perspective of identifying areas for improvement regarding client satisfaction. As a rule of thumb, a high client retention rate, usually correlates to high profitability within a business. A higher client retention rate suggests that clients are satisfied with the company’s products or services, leading to increased loyalty, more opportunities for referrals and recommendations, and potentially higher future sales.

Revenue Growth

Measuring revenue growth allows businesses to assess their sales performance and track their progress towards achieving their financial goals. It provides insights into the company’s ability to generate more sales and increase its market share. To measure revenue growth effectively, companies typically compare their current revenue to previous periods, such as comparing quarterly or annual revenue figures. By analysing the percentage increase or decrease in revenue, businesses can evaluate the success of their sales strategies and identify areas for improvement.

It is important to remember that different industries generate revenue through various channels, and the importance of these revenue streams can vary based on the nature of the industry. Determining which revenue streams you should measure can be crucial to how well you measure sales performance.

Sales Conversion Rate

Sales conversion rate is an important measurement for understanding how effective the efforts of sales teams have been when it comes to prospecting, qualifying leads, pitching, closing and other stages along the sales cycle. Common practices for measuring personal sales conversion rates include:

Clearly define your conversion goals – Determine what constitutes as a conversion for your personal sales efforts. This might include closing a deal, gaining a referral, or booking a discovery call. Defining your goals help to provide a clear target in which you can measure your sales activities against.

Effective communication skills – Effective sales communications rely heavily on your ability to talk in a persuasive and compelling manner which can be tailored to different sales settings. Active listening and understanding client needs are vital to effective communications. You can measure your communication skills by submitting surveys to your contacts to solicit feedback.

Network Strategically – By attending industry events, networking activities and award ceremonies you can develop professional relationships. Through nurturing relationships, you can build valuable connections which often translate into increased conversion rates.

Optimise your sales funnel – Optimise your sales funnel, by mapping out the typical sales funnel stages you can identify where potential customers drop off, focus must be applied to those specific stages to improve overall conversions.

Set and Monitor Key Performance Metrics – Establish personal key performance indicators (KPIs) related to your sales activities. Monitor metrics such as the number of discovery calls, client meetings, or successful closures. Regularly assess your progress against these metrics to track your personal performance.

Continuous measurement – You should make a point, whether on a weekly, monthly or quarterly basis to review your data to make analytical based decisions to further optimise things like your website, marketing campaigns and sales processes.

Effectively measuring sales performance is vital for business growth as it provides an understanding of the sales team’s efficiency and effectiveness. Measuring sales performance effectively allows businesses to set goals, establish realistic targets, and allocate resources appropriately.

How to Improve Sales Performance

Having discussed sales performance metrics and the ways that you can measure your company’s sales performance, it is now time to explore the various strategies to improving sales performance.

Aligning roles to goals

Firstly, to improve sales performance, it is crucial to adopt a comprehensive approach, here at Firestarter we like to talk about “aligning roles to goals”. By clearly defining the roles of sales people, setting sales goals and establishing measurable targets that align with overall business objectives, you provide your sales team with a clear direction to focus on. Secondly, investing in comprehensive sales team training is vital. Equipping your team with the necessary skills and knowledge, such as effective communication, negotiation techniques, and objection handling, will empower them to excel in their roles.

Sales culture

For years businesses have been built on a set of behaviours, beliefs or values that form the DNA of the way they do business. For example, Tesla’s core values include “doing the best, taking risks, respect, constant learning, and environmental consciousness.” At Firestarter our goal is to make sure that everything we do as a business lives up to our values. Having a set of values helps to foster a positive sales culture and create an environment that encourages collaboration, recognises achievements, and provides constructive feedback, ultimately leading to improved sales performance.

Customer relationship management

Building strong relationships with customers, understanding their needs, and providing personalised solutions can result in increased customer satisfaction and loyalty. By utilising a CRM platform such as HubSpot or Salesforce you can automate your sales teams’ repetitive tasks, track communications, and monitor deal performance. CRM platforms are also useful as they offer reporting, analytics and provide a holistic view of your customers demographics, purchase history, engagement and more.

Optimising your sales process

Regularly evaluating and refining your sales processes can help to identify areas for improvement and enhance efficiency. Optimising your sales process involves a systematic evaluation of each step in the sales funnel to identify areas of inefficiency or opportunities for improvement. By conducting a thorough analysis, businesses can streamline their processes, enhance customer experience, and ultimately drive higher sales conversions.

Best practice sales process optimisations include:

• Utilise a CRM and implement automation wherever possible
• Managing your pipeline actively and efficiently
• Focusing on consistent activities at every stage of the sales process
• Implementing incentive programs and rewards
• Leveraging analytics