To be successful as a sales team, you need well-defined goals that you know will make an impact on your company’s overall objectives—and a way to measure your progress toward those goals.
That’s exactly what key performance indicators, or KPIs, provide.
Keep reading to learn what KPIs are, why they’re helpful, how to choose the right ones, and how to track them.
In sales, key performance indicators, or KPIs, are metrics used to track the progress of sales teams toward their goals and measure their performance’s impact on overall business objectives. Examples of sales KPIs include customer lifetime value, conversion rate, and number of new leads.
KPIs and metrics are similar, but they’re not exactly the same thing. Essentially, KPIs can be metrics, but not all metrics are KPIs.
Like KPIs, metrics are quantifiable measures of business functions. What sets KPIs apart from other metrics is the fact that KPIs are designated as the most important measures of progress toward the most significant goals.
Tracking KPIs gives sales managers and their teams a clearer view into how the sales department is performing and how that performance impacts the company. Here are some of the key benefits.
Since KPIs make progress toward your most important goals measurable and easily visible, they make it much easier to ensure you’re on track toward meeting them. KPIs ensure you’re using meaningful metrics to track your success.
With so much data now available to businesses, it’s easy to get overwhelmed. KPIs help your team focus on the metrics that truly matter and avoid information overload so you can actually make use of your data.
Even if your team knows its goals, unless you break them down into measurable targets, it’s hard to know whether you’re on the right track. KPIs enable you to turn abstract goals into something you can measure.
Since KPIs help improve focus, they often enable you to get quicker results. With well-defined KPIs in place, you’ll spend less time on tasks that don’t make as much meaningful impact and stay better focused on the most important tasks.
Keeping an eye on sales KPIs can also reveal trends and shine a light on what’s working well and what needs improvement. Sales managers can use this information to improve sales performance by shifting focus, offering guidance to their team, and adjusting strategies.
For tracking KPIs to be useful to your business, you need to make sure you choose the right ones. These tips will help you pick the KPIs that matter most for your team.
Before you can choose KPIs, you need to understand what your most important objectives are. Work with company leadership and others in your organization to determine what the most meaningful goals and top priorities are for your company and choose KPIs that will make the most impact on achieving those goals.
When it comes time to define your KPIs in more detail, use the SMART framework to make your goals as useful as possible for your team. The SMART framework advises you to create goals that are:
You probably have a long list of metrics you’d like to track, but for KPIs, it’s better to focus on just a few key ones that will have the most impact on your top-priority objectives. This will help keep your team focused and help you get the most meaningful results.
Once you’ve chosen your KPIs, you’ll need to create a solid system for tracking and reporting on them. These tips will help you keep track of your KPIs.
To make sure your team tracks all the necessary KPIs, you’ll need to determine who is responsible for each one. This person will manage tracking, report on progress, and help identify any issues or roadblocks related to the KPI.
For each KPI, decide which reports you’ll use to track it, how often you’ll create these reports, and who you’ll share those reports with. Creating this plan will help keep you on track and ensure you don’t lose sight of your progress.
Another key to success when it comes to KPIs is ensuring you have the right tools for tracking and reporting.
So, which KPIs should you measure as a sales manager? You’ll want to choose ones that are tied to your unique objectives, but here are some of the common and essential sales KPIs.
Customer lifetime value (CLV) is the total income a company brings in from a typical customer over the entirety of their time as a customer. It includes the value of initial purchases, renewals, upsells, cross-sells, and any other income.
CLV is important because it shows how much revenue a company can expect to earn over the long term and how much each customer is worth to the business. It can also shine a light on customer fit, customer retention efforts, and more.
CLV = (average transaction size) x (average number of transactions) x (retention period)
Customer retention rate measures the likelihood your business will keep customers over a given period.
A low retention rate might indicate poor customer fit or that customers aren’t satisfied with your product or customer support. When you track retention rate, you can catch these issues and make changes to retain more customers.
Customer retention rate formula:
Customer retention rate = (Customers at the end of a period) – (new customers gained) / customers at the beginning of a period
Churn rate is essentially the flipside of retention rate and measures the rate at which a business loses customers.
Most of your revenue likely comes from existing customers, and it’s much more cost-effective to keep a current customer than gain a new one. So, while every business has some churn, it’s important to track your retention or churn rate.
Customer churn rate formula:
Customer churn rate = (customers at beginning of period – customers at end of period) / customers at beginning of period
Tracking revenue as a KPI may seem obvious, but it’s an extremely useful and flexible metric.
Revenue is a great way to track the overall success of your sales team and your business. You can also break it down by sales rep to get insights into individual sales performance.
If your business is subscription-based, you may want to measure monthly recurring revenue (MRR) and annual recurring revenue (ARR). These metrics include income from subscriptions, upsells, and cross-sells and consider discounts and cancellations. They provide a measure of the revenue that a business can reliably expect to generate each month or year.
Tracking total sales over time provides insight into sales growth and trends and enables you to keep your team on track toward hitting sales targets.
Tracking sales per rep can help managers to improve individual sales performance, and sharing these sales statistics can help motivate team members to hit their goals.
Customer acquisition cost (CAC) is the total cost of gaining one new customer. These costs typically include costs for sales, marketing, and overhead and can be looked at on an overall or campaign basis.
By working to reduce CAC in addition to increasing revenue, sales teams can have an even bigger impact on a company’s profitability.
Customer acquisition cost formula:
CAC = Total sales and marketing costs / number of new customers
Conversion rate, also called customer acquisition rate or win rate, is a measure of how many leads become customers.
Looking at this metric for your sales team as a whole gives you insight into the effectiveness of your sales strategies and tactics.
For example, you could look at the win rate for customers who participated in a demo compared to those who just had a sales call. If demos led to higher conversion rates, you could then focus more on getting demo signups.
You can also look at conversion rates on an individual basis. If you notice some sales reps have higher win rates, you can look into the tactics they use and then encourage the rest of the team to use those techniques as well.
Another relatively simple but important KPI for sales managers is the number of new leads gained during a given period.
Based on your typical conversion rates, you can calculate how many new leads you’ll need to reach your sales goals. If the number of newer leads is lower than expected, you can shift focus to spend more time on prospecting.
Average purchase value is the average amount that customers spend on a transaction with your business. This metric is closely tied to revenue and CLV.
Increasing average purchase value enables you to earn more revenue from your existing leads and customers. When sales managers track average purchase value, they can use the data they collect to develop strategies that encourage customers to spend more.
Tracking the number of sales activities each rep completes in a given period can help sales managers understand their team’s productivity. These activities can include calls, emails, meetings, demos, and other tasks that may contribute to winning a sale.
To really understand sales performance, you’ll need to also look at win rate, sales cycle length, and other metrics, but sales activities are a useful part of the whole picture.
If you want to increase revenue from your existing customers, it’s a good idea to track upsell and cross-sell rates.
Putting more focus on upselling and cross-selling is an excellent way to give your revenue a boost. Tracking these metrics helps you determine what techniques are working for winning upsells and cross-sells.
Another useful KPI for sales managers is sales cycle length.
By looking at which cycle lengths resulted in the most wins, highest values, and best customer retention rates, you can determine the ideal sales cycle length.
If certain sales reps are closing quality deals faster than others, other reps may be able to adopt their tactics to shorten their sales cycles.
Quickly responding to leads can have a significant impact on whether they’ll convert.
Tracking lead response time enables you to set response time goals and speed up your processes, which can help improve your win rate.
Another key KPI for sales managers is employee satisfaction. When your team is happy and motivated, they’ll perform better and enjoy being part of the team.
Sales managers can use surveys, meetings, and other feedback opportunities to gauge employee satisfaction and gather ideas for improving team culture and work environment.
Once you’ve selected the right sales KPIs and set up a system to track them, you’re on your way to helping your team achieve its sales goals and making a significant impact on your organization.
Having the right tools is essential for tracking and reporting on KPIs, and Nutshell is here to help. When you choose Nutshell as your CRM, you’ll get automatic sales data tracking, customizable dashboards, and flexible, easy-to-use reports. Give it a try today with a free 14-day trial.
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