Let me start with an example of… “Why are KPI’s Important Part of the Operational Planning Process?”
I’m a big fan of the P90x series home workouts from Beachbody.
The whole program is created in such a way that if you follow it, the chances are very high that you will succeed.
The biggest success factors for me 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. And for each workout I do, I have to log my reps and the weight that I used for each activity into a worksheet.
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, and I always have a target to work towards in order to be better.
Some time ago I realized this is a good example of how to explain to business owners and salespeople how to create Sales KPI’s.
What are KPI’s? Why are KPI’s an Important Part of the Operational Planning Process?
Most organizations work with Key Performance Indicators (KPI’s) that help the organization measure how well they are doing.
A typical KPI in most organizations is the sales budget that specifies what revenue each sales representative is expected to bring in during a given period.
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 KPI’s are not designed the right way.
Imagine These Three Typical 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.
Most of the meeting becomes focused on the prospect, but few other activities are agreed upon.
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.
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 KPI’s are defined only as results, not as activities, that is why KPI’s are Important Part of the Operational Planning Process!
Define KPI’s as Activities – Not Only as Financial Goals
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 organizations 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 KPI’s 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
- Conducting x number of follow up calls
Not all activities lead to a Sale
Not all of these activities will necessarily lead to an actual business deal, but a certain percentage will.
Setting goals for your individual sales activities and keeping track of them will give you a range of positive effects:
- 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 much more practical tools to carry out your work. Due to your work broken into activities, it becomes much easier to get started and perform in your work.
- More efficient dialogue. The follow – up of the dialogue between sales managers and sales representatives are 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.
And 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 KPI’s?
Many businesses do not have a proper sales plan with KPI’s in place and operate from the back of their cigarette boxes, which is a very chilling situation for business.
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 KPI’s and broken down to monthly KPI’s?
- 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 combine marketing and sales plan cost you?
Lacking Sales KPI’s
For Sales Managers, the pressure to bring in the 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 KPI’s, 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 KPI’s are an important part of your operational 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 the 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 to Wondering Why KPI’s Are So Important to Business
You might have an income statement where your sales are reflected, however, if it’s not connected to a sales plan with KPI’s, you will not know how well you are performing in terms of actual revenue against budget.
In my professional opinion a business without KPI’s and a budget, is like a ship without a rudder, with no direction.
And how can you know where to go without direction?
Given this type of situation, how can sales managers and sales directors turn the tide?
The answer is simple…
By getting KPI’s in place and managing these within a budget.