Sales management – important for a business’ success in any
The backbone of any high performing sales organization is having the right data. But, how do you truly utilize this data to better your sales team?
Quite simply, you can do this easily with well-defined sales KPIs.
KPIs act as a highly useful way of measuring the success of your team. Moreover, they measure the effectiveness of specific selling activities towards your overarching goals.
In this article, you will get a crash course on sales KPI along with the formulas on how to calculate them.
What are Sales KPIs?
Key Performance Indicators for sales, or sales KPIs, refer to metrics used to track the effectiveness of specific selling activities against goals.
Moreover, they enable sales managers to track progress to targets alongside managing team and individual performance. Not only this, but they also help you recognize high-level themes and trends.
Determining which metrics to track requires selecting the right KPIs. In order to achieve your sales goals, you should evaluate the sales KPIs that are most important.
Why are Sales KPIs Important?
Failing to track sales KPIs would place sales reps and leaders in a blind spot. They wouldn’t be able to check if their actions and efforts are helping improve results or achieve their goals.
Furthermore, without a clear overview of their business, you’d be unable to predict future sales. Additionally, you wouldn’t be able to guide team members or your organization in the right direction either.
In fact, things will always be changing. As such, it is important that you monitor sales KPIs so that you can adapt when necessary. As your business’ goals change, so will your key performance indicators.
Thus, monitoring them regularly is the only way to ensure your organization is making the right decisions.
By measuring the right sales KPIs, your sales leaders and their teams can optimize your sales process. This makes sure your organization is going in the right direction and prioritizing activities that yield optimal results.
Afterall, results are the very foundation of all budgeting and therefore, meeting the sales budget is of the most importance.
Also Checkout – Sales report guide
8 Important Sales KPIs and Formulas
Here are some of the most important sales KPIs alongside their sales KPI formulas:
1. Gross/Net Profit Margins
This is perhaps the most important sales KPI since your entire business growth depends on your revenue.
What profit margin should you ideally aim for? In all truth, it depends.
In general, 5% should be considered a low profit margin, 10% healthy and 20% high according to research.
But, in all honesty,
Gross Profit/Net Profit Margin = Net Sales – Cost of Goods and Services
2. Sales Cycle Length
Sales cycle length is the average duration of time between the first contact with a customer and the closing of the deal. A short sales cycle length is usually preferable.
To obtain the average length within a specific time frame, use the following formula:
Sales Cycle Length = Length of all deals by the day/ Total number of deals carried out
3. Sales Conversion Rate
Marketing and sales are departments that should work in sync to qualify new leads. This enables them to easily transform these leads into paying customers for your business.
Implementing a sales conversion rate is an effective way of integrating both departments alongside increasing sales success.
In brief, this sales KPI analyzes the ability of your sales team to convert leads into customers.
There are two formulas commonly used to calculate Sales conversion rate:
- Conversion Rate = (Total Number of Sales/ Number of Qualified Leads) x 100
- Conversion Rate = (Total Number of Sales/ Unique Clicks) x 100
4. Marketing ROI
Return on investment (ROI) enables you to track how much revenue is generated by a specific marketing campaign, compared to costs of running a campaign.
ROI may be considered amongst one of the most important KPIs to monitor and assess. It can be calculated using the below formula:
Marketing ROI = Number of leads generated by your campaign/ Opportunity value
5. Customer Retention Rate
The customer retention rate of your business shows how many repeat customers you have over time.
For calculating customer retention rate, you will need to know:
- The number of customer present at the start of a period (S)
- The number of customer present at the end of a period (E)
- Total customer acquisitions during that period (N)
Once you have that information, you can easily calculate customer retention rate with the following formula:
Customer Retention Rate = [ (E – N) / S ] x 100
6. Customer Churn Rate
This KPI represents the number of customers that stopped using your company’s products within a specific time period.
Furthermore, it provides you with a realistic overview of customer retention strategies and what trends to cope with. Ideally, customer churn rate should be kept as low as possible.
You can easily calculate it using the formula given below:
Customer Churn Rate = (Number of customers lost during the time period/ Total customers at the start of the time period) x 100
7. Customer Lifetime Value (CLV)
A CLV represents the expected total revenue over the course of the transactional relationship with a single customer.
Rather than requiring sales reps to meet sales quotas, CLV encourages them to establish mutually beneficial and strong relationships with their customers.
To calculate CLV, you use the following formula:
Customer Lifetime Value = (Average Customer Retention Rate) x (Average number of purchases they’ve carried out) x (Average Deal Total)
8. Sales Revenue
A rather straightforward KPI that allows you to measure the progress of your business in generating sales revenue.
Moreover, it is valuable on a top-level view, as you are tracking the overall success of your business. It is also valuable on an individual basis and can be applied to team members to develop personalized goals.
You can easily calculate sales revenue using the below formula:
Sales Revenue = Price per unit sold x Number of sold units
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It is important to note that there is no one-size-fits-all solution when it comes to sales KPIs.
There are various options to choose from based on your business goals. It is up to you to pick which ones suit your business and what it plans to achieve.
In addition, during these times of ever-changing work styles, they can provide a great way to measure the productivity and success of your sales team.
Overall, using and evaluating these metrics against goals can help improve workflow and ramp up your sales productivity.