Meaningful sales metrics will deliver an accurate assessment of how Sales is performing at any point in time and will identify what needs to be done to stay on track (or reverse course). They also provide a high-level perspective for the executive team, a mid-level perspective for the sales managers and a tactical perspective for the reps.
Poorly developed metrics deliver an inaccurate reflection of sales that results in misinformation, misdirection, and ill advised sales tactics.
This post will cover the lessons I’ve learned using both.
How Sales Metrics Can Miss the Mark
Often when metrics are proposed, it is to answer several questions:
- What activities and results should we measure to ensure we hit our revenue goals?
- How can we be assured that sales is working hard enough?
- Are reps working all the leads?
With these questions in mind, Execs from Marketing, Sales, Operations, Support, Finance and the Board will meet to create sales metrics. There will be a series of discussions, negotiations, and compromises until a consensus is reached. Most of the time, the people involved in this process have never done Inside Sales and are far removed from the sales process.
Unfortunately, the end result are metrics that:
- Do not always correlate directly to hitting quota.
- Measure activity not relevant to your business.
- May require sales reps to perform extraneous activity simply to hit metrics.
- Consume sales reps’ time and resources to meet other department’s KPIs.
You’ll also have morale issues for the sales reps and managers who are now working toward metrics that may not be helping them hit quota.
What Should We Measure
The only question to ask when developing sales metrics is “What activities and results should we measure to ensure we hit our revenue goals?”
The answers will be found in the questions asked during a Pipeline Deep DIve:
- Quota – What is Booked? What is the GAP to Quota?
- Pipeline – Is there sufficient pipeline this quarter to fill the GAP? Are opportunities progressing on schedule? Is there sufficient pipeline being built for next quarter?
- Activity– Are reps engaging in the right activities? Is the volume of activity and leads sufficient?
Now we just need to turn this information into metrics.
How Should We Measure It?
- Quota – Revenue attained at this time in the quarter (or month depending on your sales cycle).
- Pipeline GAP – GAP coverage multiplied by a factor to ensure it’s sufficient to hit quota.
- Pipeline Next QTR – Pipeline Coverage for the current GAP and the quota for the next QTR or Month.
- Activity – Calls made, demos booked, emails sent, etc.
If you have solid historical data, you will be able to use it for determining your multiples, loading %s, and activity required for each step. In most cases, I’ve begun with incomplete data and needed to make my best guesses to start. Then these can be fine tuned over time as good data is obtained.
A Real Life Example
I was hired to manage an Inside Team selling software to midsize businesses. Having had some experience in this industry and some historical data, I decided to use the following metrics:
- Bookings load 33% in Month 1, 33% in Month 2, and 34% in Month 3.
- GAP coverage = 3X in total pipeline to cover the GAP at any time in the QTR.
- Total Pipeline Coverage = 3X the GAP for this QTR and 3X quota for next QTR.
- Activity Metrics – 60 Prospecting calls per day, 3 new prospecting conversations a day, 1 Opportunities created per day
After 2 quarters, I refined the metrics based on our actual results. I’ve highlihted the changes below.
- Bookings load 25% in Month 1, 25% in Month 2, and 50% in Month 3.
- GAP coverage of Best Case + Commit Deals = 1.5X the GAP at any time in the QTR.
- Total Pipeline Coverage = 3X the GAP for this QTR and 3X quota for next QTR.
- Activity Metrics – 40 Prospecting calls per day, 3 new prospecting conversations a day, 4 Opportunities created per week.
We used the metrics for the next 6 quarters and I believe my successor continued to use them after I left.
Although executive management still tracked metrics like total calls, lead response times, and lead touches, the metrics I used with my team helped us exceed quota consistently.
Some Common Metric Traps
- # Dials made & talk time. Dials made can be a helpful metric for specific roles such as SDR or “appointment setter”. However, it can quickly devolve into a metric used to answer the question “Are the reps working hard enough?” When that happens, you start focusing on the wrong objective (call volume) vs. the right objectives (meetings, demos or sales). In my experience, the top dialers are NEVER the top performers. Also, call volume metrics are gamed by reps easily. If you use this metric, check your calls logs. You’ll likely see a spike in call volume the last hour of every day as reps blast through dials simply to hit a metric. (Talk time isn’t even worth discussing. My kid can talk on the phone for 8 hours a day without selling anything.)
- # of Meetings Booked. This is another metric that is regularly gamed by sales reps. If you are paying commissions for meetings, you’ll get lots of meetings – with unqualified prospects, with non-buyers, with friends and family. A meeting should only count if an Opportunity has been created that meets the 10% BANT requirements. See Perfect Forecasting for guidelines on Opportunity creation.
- All leads “touched” and/or “attempts made time defined SLA”. Usually this comes from marketing or finance. The concern is “we’re spending all this money for leads and the reps aren’t even calling them.” Newsflash — reps love good leads! If leads are not being worked, there is a reason. Don’t make your reps waste a lot of time doing administrative clicking and calling to satisfy this metric. A future post on Leads will dig into this in depth.
- Lead response time. It is often touted that responding within minutes of receiving a lead increases its conversion rate. This might be true, but I’ve never seen conclusive evidence of this from a source that didn’t have a vested a financial interest in it being true (ie. Hubspot or other marketing automation software). I’ve tested this hypothesis with my sales teams across several companies and we could never prove it. In fact, our testing demonstrated that it was better to contact certain leads after a waiting period. (Eg. Downloaders of virtualization software responded best to calls made 30 days later vs. immediately.)
- # Opportunities Created. Unless every opportunity has the exact same $ value, I prefer to look at the $ value of Opportunities created and their forecast stages in the pipeline. Be careful if you are just counting the number of Opps. Unless you have a consistent forecasting, pipeline management and deep dive process, reps will create bogus Opps to meet this metric.
A list of Metrics that I’ve used that have worked:
For a transactional SAAS Business:
- Total Dials
- Dials per demo
- Close Rate within 30 days
- Average Sales Price (MRR)
For an Enterprise Software Business
- GAP Coverage of 1.5X in Best Case and Commit
- Total Pipeline Coverage of 3-5X at the beginning of the QTR
- 3 Calls/Presentations/Meetings per day with new prospects
- 4 New Opps created per week
I like to keep these simple, easily measurable, and visible in a dashboard for the rep, the managers, and the executives.
Is There More?
Of course, there’s a lot more data we can track to improve sales such as website tracking, inbound lead volumes, click conversions, using different sales tools, etc. But most of these shouldn’t be used as a metric to manage the Inside Sales team. I’ll cover those in a future post on Statistics and A/B testing.
In the meantime, I encourage you to try the Inside Sales Dude method to see if it works for you.
If you want some help building your sales team or improving sales, contact me here. I’d love to hear from you.
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