Setting Up Sales Metrics and KPIs to Scale Your Sales Org
Looking at your sales output can seem deceptively simple: “Money comes in from sales, money goes out to company expenses, and we want more coming in than going out.”
However, solely depending on one or two streams of one-sided data can lull your entire sales organization into a false sense of calm, and many startups only start to feel the repercussions of inadequate sales performance analysis when it’s too late.
Proper startup sales metrics and KPIs can give you a stronger grip on the pulse of your sales organization, which means more accurate sales forecasting, fewer missed goals, and ultimately, more sales.
By using a handful of simple formulas, you can get a granular understanding of the actual mechanics of your sales operations and take simple steps to make drastic improvements to your bottom line.
Let’s explore the methods and several key metrics and KPIs for startups below.
What is Sales Forecasting?
Sales forecasting predicts future sales revenue, utilizing sources such as historical data, industry trends, and the current status of your sales pipeline.
By forecasting weekly, monthly, quarterly, and annual sales totals, businesses can get a better idea of anticipated revenue and allocate resources accordingly.
A sales forecast isn’t set in stone; it’s more of a tentative plan that will change as a greater quantity and quality of data appears.
Sales forecasting is different from goal-setting – the latter is more aspirational, whereas the former tries to pinpoint the reality.
Step #1: Set SMART Goals
You can have all the KPIs in the world, but you won’t get very far if you don’t know where you’re going.
Start by setting S.M.A.R.T. goals:
“I want my sales team to make as much money as possible by closing a lot of deals,” for example, is not a SMART goal.
This is: “I want my outbound sales team of 5 people to generate $2m* in revenue.
- hey make 40 outbound sales calls to qualified sourced leads per week (Specific)
- I will track this in Salesforce (Measurable)
- This will be about roughly 40 hours per week in phone time. (Achievable)
- Outbound sales calls move prospects down the funnel to our closers (Relevant)
- This will be done by the end of Q4 2021 (Time-Bound)”
*Work backward to set your revenue target using any applicable historical or available market data.
Sales metrics and KPIs give leaders the confidence to take a quick and objective look at the health of their sales organization, while giving their team a visible criteria to shoot for.
Step #2: Identify Your Business KPIs
When establishing sales metrics and KPIs for startups, keep this important tenet in mind: the problem with accurate sales forecasting isn’t too little data, it’s too much data.
Sales metrics should be a handful of numbers you can look at quickly and gain an accurate insight into your sales organization's current health. By focusing on the most important things, you’ll be able to correlate the significance of various trends and strategies.
Here are a few of the most pertinent business metrics that can be used to guide your sales efforts:
Customer Acquisition Cost (CAC): CAC informs you how much your organization spends on acquiring new customers, usually calculated by dividing your marketing spend by the number of customers.
Average Order Value (AOV): How much does a customer spend on a single order?
If you have multiple offerings or tiers, you can get a good idea of who your most valuable customers are when correlating AOV with CAC.
For example, if your higher-order customers are at $1000, but their CAC is $900, it might be better to focus on middle-tier customers with an AOV of $500 if they have a CAC of $100.
Customer Lifetime Value (CLV): Your CLV is a great way to visualize how valuable a customer is to your business throughout your professional relationship.
This information is a huge asset for informing your pricing strategy and sales methodology. For example, if we find that Customer Type A has a lifetime value of $10,000 over four years, we may be willing to spend $3,000 to acquire them for the first year (which would technically put us at a loss of $500 for the sale.)
Churn rate: How quickly are customers leaving your business?
Sometimes, closing the wrong customers can be more expensive than not closing them at all. If your churn rate is really high, avoid high-CAC customers until you figure out how to lower it.
Further, if you find out that Customer Type B tends to churn at a much higher rate than Customer Type A, you may want to gear your marketing and sales efforts towards the customer type that stays for the long haul.
Step #3: Get a Pulse for Your Team’s Efficiency with Sales Metrics
While your business KPIs help inform your sales strategy from a broader perspective, your team-focused KPIs will help you optimize your sales team's actual efficacy.
SalesHacker notes three general tiers of team sales metrics:
- Activity sales metrics: a quantity-oriented metric for sales output (i.e., how many calls is an individual making per week?)
- Objective sales metrics: longer-term metrics more closely tied to your business KPIs (i.e., new leads, leads converted, % closed deals, revenue, profit, etc.)
- Moneyball sales metrics: figures used to assess and optimize sales teams for maximum efficiency and effectiveness (ie. % of calls turn into conversations, % of conversations that turn into closed deals, etc.,)
Further, here are a few more dynamic efficiency-oriented metrics:
% to Quota: If there was one KPI to rule them all, it’s your % to Quota. Basically, is a sales rep, team, or entire organization meeting its sales goal, or not?
This serves as a litmus test for how effective your sales efforts are (or how attainable your goals are).
Sales Velocity: Your Sales Velocity is a formula of how quickly and how much money your sales team can make in a specific time period.
Sales Velocity = ((The # of Deals Closed) x (Average Deal size in $) x (Win Rate %)) / Sales Cycle Length (Days)
Step #4: Establish Proper Benchmarks
Part of establishing S.M.A.R.T goals is being realistic – and there’s no better way to do that than to use real-world data to set benchmarks.
To provide high-quality sales forecasting, you need to establish a handful of your most important guiding benchmarks:
- How many leads does it take contact to set a meeting? We set 1 meeting for every 20 leads on our list. (5%)
- How long does it take to fully close a deal? The average deal takes about four weeks from the first point of contact.
- What’s the conversion rate at each stage of the funnel? We convert 80% of leads that enter the closing phase of our funnel.
From here, we can see whether certain strategies yield positive results – kind of like doing miniature science experiments.
- By running Facebook Ads to our lead magnet, we built a list of leads, 80% of which set meetings with our sales team. This beats our benchmark by 75%, so we should double-down on this strategy.
- By combining our two demo meetings in one, we reduced our average time to close a deal down to 3 weeks. This beats our benchmark of 4 weeks; however, we should be mindful of the % of closed deals to ensure we’re not losing any potential deals.
- We hired a new deal closer who only closes at a 20% rate. This is lower than our 80% benchmark, so we need to train them better or fire them.
Make your goals, sales metrics, and KPIs visible to your entire team and tether the proper incentives to beat your benchmarks.
Sales metrics and KPIs for startups give founders the confidence to take a quick and objective look at the health of their sales organization, while giving their team a visible criteria to shoot for.
The beauty of sales metrics and KPIs is that they minimize and future organizational debt– work or confusion on the back-end that can be avoided with proper planning on the front end.
All great sales organizations commit to building KPIs and metrics that fit their business early on to leverage the maximum benefits of structure.