As a sales manager or leader, your problem probably isn’t too little data. It’s too much data.
After all, with the latest tools, we can measure everything -- and we do. From the percentage of reps using your CRM and cohort retention rate to the average time to hire and sales velocity, there’s a nearly endless list of metrics, reports, and data points.
Let’s be honest: It’s overwhelming. And when you’re overwhelmed, you can’t analyze the data, interpret it, and make a smart decision.
So what’s the solution? Narrowing your focus. Rather than tracking everything, track the most important things. Not only will it be easier to understand the trends and their significance, but you can also execute your analysis more quickly.
What are performance metrics?
Performance metrics are a measure of a business' or employees' tasks and activities. They are often quantifiable and can be measured over days, weeks, months, or years. These metrics are tracked and ranges are selected to identify ideal performance.
A business uses performance metrics to determine if their outcomes align with the goals that were set. If a performance metric falls below the range that was set, this indicates underperformance. And if an outcome falls within the range or above it, the business is meeting its goals or exceeding them.
Why are metrics important?
Metrics are important because they help businesses evaluate performance and inform their decision making based on their analysis of the metrics. For example, if a business is seeing revenue drop from month to month, they'd want to investigate their activities to determine the source of the issue and resolve it.
The “right” metrics depend on your sales organization, industry, and company. However, these five metrics tend to be important for sales leaders across the board.
Here are the most important sales performance metrics your sales team should be measuring.
Sales Performance Metrics
Percentage of sales team hitting quota
Average deal size
Sales funnel leakage
1. Percentage of sales team hitting quota
Quota attainment, or the percentage of salespeople meeting or exceeding quota, tells you whether your quotas are too high or low. As a rule of thumb, your quotas are likely unrealistic if less than 60% are hitting. It’s also possible that you need to hire better salespeople and/or fire the underperformers. The last potential culprit? Your sales compensation plan. Take a look at your pay structure to see if you’re pulling the right levers to get reps to sell.
On the flip side, if 90% to 100% of your salespeople are hitting quota, they’re probably coasting. Review your quota-setting methods; you may want to increase your targets.
2. Average deal size
Your average deal size is calculated by dividing your total number of deals by the total dollar amount of those deals.
Looking at this metric on a monthly or quarterly basis tells you whether your contracts are getting larger, smaller, or staying the same. If you’re trying to move upmarket, you want the average deal size to increase. If you’re trying to land more SMB customers, you want this number to go down (and your overall revenue and number of customers to go up).
Average deal size can also help you spot potentially risky deals. Let’s say one of your salespeople adds an opportunity that’s four times larger than normal to the CRM. Not only is the probability of closing lower, but the sales process will likely take longer. You should make sure the other deals in this rep’s pipeline are near-sure bets and that they’re not putting all of their quota eggs in one basket.
In addition, look out for any salespeople whose average deal size is significantly lower than the team average. This may mean they’re going after low-hanging fruit and need to push themselves to target more competitive or larger customers. Alternatively, they might be discounting too aggressively.
3. Conversion rate or win rate
Your conversion rate or win rate measures how the percentage of leads that ultimately become customers. If you get approximately 500 leads per month, and on average 50 buy your product, your conversion rate is 10%.
This metric can help you calculate how many leads you need to make your revenue targets. For example, if your monthly team quota is $800,000, and your average deal size is $1,000, your salespeople need to close 800 deals. And if 10% of your leads become customers, you need 8,000 leads per month.
Historical conversion rates also show whether your reps are becoming more effective. If average win rate is climbing -- and you’re closing the same or greater quantity of deals -- then sales performance is improving.
If win rate is dropping -- and your quantity of deals is flat or decreasing -- something is probably wrong with your process, team, and/or lead generation efforts.
Keep in mind your win rate will probably go down when you move upmarket. The shift from SMB to mid-market, or from mid-market to enterprise, always leads to a temporary drop in close rates.
At the end of the day, revenue is your most important KPI. But while gross income might seem like a relatively simple metrics -- it’s simply how much money you received during a specific window of time, including discounts and returned merchandise/products -- there's some nuance.
If you’re a subscription business, you probably track revenue by monthly recurring revenue (MRR), or the total amount of predictable revenue you receive each month, and annual recurring revenue (ARR), the total amount of predictable revenue you receive each year.
If you have 30 customers, and the average amount paid per month is $50, your MRR is $150 and ARR is $1,800 (or $150 x 12.)
Break down your revenue to see:
Percentage of new business (customers who have never bought anything from your company before)
Percentage of upsell/cross-sell/expansion (existing customers who are buying another product or upgrading to a higher tier or package)
Percentage of renewal (customers who are extending their contract for another month, six months, year, etc.)
Depending on your business goals, growing a specific percentage will be important. Maybe most of your customers are churning after the half-year mark; as you worked to improve customer retention, you’d want your renewal percentage to climb.
Or maybe you’re trying to improve your cross-sell rates. The second percentage is the one you’d want to increase.
It’s also crucial to review your hard numbers. If one percentage grows, the others will naturally lessen, but that doesn’t mean your new business revenue, for example, is dropping.
5. Sales funnel leakage
Measuring sales funnel leakage tells you where prospects drop out of your funnel at the greatest rates.
To determine your leaky points, track stage-by-stage conversion rates. For instance, say 40% of new prospects agree to a discovery call. Half of those make it to the demo stage. Just 5% end up buying. That steep drop-off indicates your salespeople are likely A) not qualifying enough, B) giving bad demos, and/or C) negotiating poorly. Knowing these potential issues, you can observe them more closely to determine the true culprit.