Why are sales KPIs mission-critical?
Why are KPIs an important part of the planning process? The truth is, plain and simple. Sales KPIs are mission-critical for a business to be and remain successful in any industry.
Let me give you an example
I’m a big fan of the P90x series of home workouts from Beachbody.
The whole program is created in such a way that if you follow it, you will be successful:
The biggest success factors are:
- Their plan
- The activities
- And the measurements
The workout lasts 90 days and is 6 days a week. I know exactly what I need to do for a workout every day. For each workout I do, I have to log my reps and the weight that I used for each activity into a worksheet.
How to improve sales KPIs
The only way to improve is to see where I am from week to week!
The workout sheets help me to stay focused on the activity I need to do. The result is that I always have a target to work towards in order to be better.
Some time ago I realized this is a good example of explaining to business owners and salespeople how to create Sales KPIs.
What are sales KPIs?
Most successful companies use sales KPIs (Key Performance Indicators) to help the organization measure how well they are doing, which is again why Sales KPIs are Mission Critical For a Business.
A typical sales KPI in most organizations is the sales budget. This also specifies what revenue each sales representative is expected to bring in during a given period.
Questions arising after setting Sales KPIs
Of course, this is a very central and important goal to focus on, but what happens if that goal is not met?
Organizations and business owners then start asking:
- Why were the goals not reached?
- Lack of interest?
- What type of action is needed?
All of the above questions can be very hard to determine if the Sales KPIs are not designed the right way.
Three typical sales KPI situations
The status meeting
The sales manager and the sales representative conduct their monthly status meeting. The sales rep is behind budget but explains how close he is to signing a deal with a customer.
Closing this deal would mean that he would reach his sales goal for the quarter.
The sales budget
The sales department is preparing next year’s sales forecast.
Then the forecast is created by looking at the current sales activity, combined with previous years’ activities and the performance of individual sales representatives.
And there should be a general feeling that the budget seems realistic but more than likely there may be a strong sense that too much guesswork has gone into it.
More sales KPI meeting problems
And lastly, this is usually the biggest problem, and hot touchy subject arising in these sales KPI follow-up meetings.
The marketing/sales blame game
The sales manager and marketing manager discuss the reasons for the lack of sales, see a summary below of this discussion:
- The sales department claims that marketing has not done enough to bring in sales-ready leads
- Marketing claims there are enough qualified leads if only sales had followed up
- All in all, there is a general frustration that it is too hard to define what action needs to be taken
All of these three examples are common in many organizations.
And they all often have one thing in common. The sales KPIs are defined only as results, not as activities, which is why proper task breakdowns of the necessary activities of sales KPIs are an important part of the entire operational planning process!
Define sales KPIs as activities
Results are the cornerstone of all budgeting, and meeting the sales budget is what matters.
However, from what we have learned over the years, the best-performing sales organisations are the ones that are able to break their sales process into individual, measurable activities.
The point is that…
Most B2B sales happen as a result of certain predictable activities and…
A decline in sales is most often due to the negligence of these activities.
Here are some examples of what activity-based sales KPIs could look like:
- Completing x numbers of sales meetings with new prospects/existing customers
- Calling x amount of potential customers
- Conducting x amount of product/service presentations
- Sending e-mails to x amount of existing customers
- Sending out x number of written offers or proposals
- Conducting x number of follow-up calls
Not all activities lead to a sale
Not all KPI sales activities will necessarily lead to an actual business deal, but a certain percentage will.
- Improved sales management. Knowing the relationship between your activities and your results will give you much stronger tools for managing your sales organization, conducting sales reviews, prioritizing future activities, and forecasting sales. In two words: Better sales.
- Practical sales tools. As a sales representative, you get many more practical tools to carry out your work. Due to your work being broken into activities, getting started and performing your work becomes much easier.
- More efficient dialogue. The follow-up of the dialogue between sales managers and sales representatives is improved significantly when it is possible to use the amount of conducted activities as an element in the review. The same is also true for the dialogue between sales and marketing-oriented functions within an organization
All of these things together will result in higher and better sales.
As an added benefit, efficiency and employee satisfaction will most likely increase – as well as the general quality of cooperation between the sales and marketing functions.
Do you have a sales plan with KPIs?
Many businesses do not have a proper sales plan with KPIs and operate from the back of their cigarette boxes, which is a very chilling situation for businesses.
I want to ask you a few questions and if you can answer them, then you are at least on the right track and you can skip this email and move on to the next. My questions to you are:
- Do you have business goals for the next 3 years in terms of growth?
- If so, do you have at least an annual sales plan with KPIs broken down into monthly KPIs?
- Regarding targets, do your sales reps have daily and weekly targets that you manage diligently against your monthly and annual sales plans?
- So, based on this how many leads should your marketing plan deliver, and what will this combined marketing and sales plan cost you?
Lacking sales KPIs
For Sales Managers, the pressure to bring in revenue is much harder than it was in the past.
In this situation, being able to react to market dynamics is crucial!
Without a clear sales plan with KPIs, it becomes even tougher to predict your future sales. A clear sales plan will give guidance to your organization and your employees. That is why KPIs are an important part of your planning process.
According to a survey of Sales Directors by Silent Edge, 49% of sales directors felt that, although deals are closing, it takes a very long time to do so.
22% reported a loss of sales in the pipeline or funnel as their biggest challenge.
For Sales Representatives, there is a strong sense of ever-increasing demands to bring in numbers.
Sales reps are often left to themselves to figure out exactly how to reach their targets and what tools to use.
The result is inconsistent in targets and measurement of their targets and a struggle to maintain a solid pipeline.
In conclusion
You might have an income statement where your sales are reflected, however, if it’s not connected to a sales plan with KPIs, you will not know how well you are performing in terms of actual revenue against budget.
In my professional opinion a business without KPIs and a budget, is like a ship without a rudder, with no direction.
Given this type of situation, how can sales managers and sales directors turn the tide?
The answer is simple…
By getting KPIs in place and managing these within a budget.
If you need any assistance in getting sales KPIs in place click on this link and make contact with us.
