The way that sales effectiveness is measured can vary by company or sales organization depending on which sales metrics are the most important to them.
Some other ways to measure sales effectiveness include:
- Individual quota attainment
- Percent of the sales organization achieving quota
- Average annual on-target earnings
- Sale cycle length
- Average new deal size
Before diving into conversion rates, we need to understand the process a contact takes to convert.
Lifecycle stages help you organize your contacts based on the stage of your sales process they're in.
The definition of a "lead" depends on how you acquire customers. If you're connecting with prospects on LinkedIn and then following up over email, a lead might be any LinkedIn user you've identified as a potential good fit. If you're meeting buyers at trade shows, a lead could be anyone who left their email address at your booth.
An "opportunity" is a contact in your CRM confirmed their interest in your product or service. That could mean they've confirmed their interest over email, booked a demo, requested to speak with a salesperson, etc.
Lead to Opportunity Conversion Rate
Which percentage of your leads are turning into opportunities?
This metric tells you several things.
First, are your salespeople getting enough leads to hit their goal? Maybe they're converting a high number of leads into opportunities, but they're still missing quota. That could suggest your marketers need to generate more leads.
Second, are your salespeople effectively following up with those leads? If your reps have the opposite problem -- they're converting a low percentage of leads into opportunities -- their follow up could be the problem. Review their approach. Are they personalizing their outreach? Using multiple channels (email, calls, voicemail, social media, etc.)? Are they reaching out enough times before giving up?
As a subset of this, you can also monitor how many leads your salespeople are trying to contact at all. Let's say marketing usually sends sales 1,000 leads per month. If your reps only email 200 of those on average, the leads may be extremely low-quality. Ask your sales team why they didn't work specific leads; their answers will reveal whether it's a matter of fit ("This company is way too small to need our product") or inefficiency and laziness ("Carla called them in February and they weren't interested.")
Opportunity to Close Rate
How many of your legitimate sales opportunities become paying customers?
This percentage varies by industry. According to HubSpot's analysis of 8,900 companies across 28 industries, the average close rate for hospitality is 11%, while the average close rate for arts and entertainment is 28%.
That's why it's important to compare your opportunity to close rate to other businesses in your space, if you can. However, there are a few universal takeaways you can draw.
If your opportunity to close rate is really high (think 60% or higher), your salespeople are probably being too selective with the accounts they choose to work. They're cherry-picking the prospects who are determined to buy -- or at least, require very little convincing -- and the ones who are nearly perfect fits.
The problem with this? You're leaving money on the table. It's likely you could be selling far more if your reps were less discriminating.
You may also need to hire more reps. Demand for your product is clearly there, so expand your team to meet it.
If your opportunity to close rate is extremely low, your salespeople might require more training. Try to figure out where prospects are dropping out of your funnel. Do most of them say they're not interested after the connect call? Teach your reps to offer immediate value so buyers view them as a resource and see the benefits of continuing the relationship. Do the majority of prospects go dark after the demo? Coach your team on giving tailored, benefits-driven presentations, uncovering urgency, and setting firm next steps.
Measuring your opportunity to close rate over time gives you a good sense of your salespeople's collective performance. It should either be flat or increasing.
Finally, compare an individual rep's opportunity to close rate to the team average. If theirs is far lower, they need training or a performance plan (and if you don't see any improvement, you should part ways). If theirs is right in line with the average, they're a solid performer; make sure you're consistently working with them to help them get better and make sure they don't leave for greener pastures. If theirs is far higher, leverage them as a mentor and inspiration for your other salespeople -- and don't forget to keep them happy so your competitor doesn't poach them.
You can measure almost everything about your sales -- but who has the time? Keeping your eye on these two metrics will help you spot problems, find opportunities, and ultimately, optimize your results.
Looking for more? Learn what a basic sales process looks like next.
Originally published Jul 20, 2017 7:30:00 AM, updated October 30 2019