Marvellous Aham-adi
Sep 23, 2020 | 8 min read

The aim of the sales team is to sell a business’s products or services to customers. The sales team is dedicated to helping a company meet its growth goals in terms of sales of services, products, subscriptions, and so on. 

Yet, many sales teams fail to reach their sales goals because they don’t keep track of business-critical sales metrics. 

Regular analysis helps to identify which parts of your sales process are working. These metrics would help you monitor your team’s performance and ROI on your efforts.  

Let’s get started.

What are sales metrics?

Sales metrics represent data (or the key performance indicators, if you will) that show company performance in sales during certain time periods. Based on this info, the company can easily tune its activities and monitor the overall progress. Besides, this data can help a business slip into the market changes and achieve target goals much faster.

What are the most important sales metrics to track?  

To ease the burden, we have curated a list of important sales metrics for you to gauge. Remember, though, that you need to set a strategic direction first. Only then, you’re good to go.

1. Average sales cycle length 

The average sales cycle length is the amount of time from your first touch with a prospect to closing the deal, averaged across all won deals. 

It’s a critical metric used within any sales organization. The goal of any business should be to reduce the length of the sales cycle. 

Why?

The shorter the sales cycle, the more sales your team can make, and the faster the company earns money. 

Knowing the length of your average sales cycle can help you forecast the number of sales you can make in a specific period. For example, if you get 20 leads, you would be able to project the number of sales you can make in a month. 

How to calculate average sales cycle length

The most effective way to calculate the length of your sales cycle is at the point of first contact with the lead to the point where the deal closes. If you use a CRM system, you would be able to visually track each stage of the sales cycle. 

With this method, you would be able to view the customer journey from start to finish. Besides, this sales metric allows for improving lead generation.

This is the formula you would use to calculate the average sales cycle length: 

Average Sales Cycle Length = Number of Days to Close Successful Deals / Total Number of Deals 

2. Lead response time

Lead response time refers to how long it takes a sales rep to follow up with a lead that has contacted a business (either by filling out a form, emailing, or calling).

Why is this sales metric important?

According to a study in the Harvard Business Review, sales reps that respond to leads within an hour are more likely to have a more meaningful conversation. 

Why is it a problem to wait a day or two to follow up with leads? 

As it is stated in the Lead Response Management Study published by Dr. James Oldroyd, sales reps have to respond to leads quickly or risk them becoming cold leads. 

The study says that “the odds of making a successful contact with a lead are 100 times greater when a contact attempt occurs within 5 minutes, compared to 30 minutes after the lead was submitted. Similarly, the odds of the lead entering the sales process, or becoming qualified, are 21 times greater when contacted within 5 minutes versus 30 minutes after the lead was submitted.”

In summary, the quality of a lead reduces with time. A hot lead can become cold in just two days.

What you have to keep in mind is that you have competitors. By failing to engage a lead immediately, you risk them moving on to your competition. 

How to calculate the lead response time

Lead Response Time = The total amount of time between lead creation and first response /  Total number of leads responded to

3. Opportunity win rate

The opportunity win rate is the percentage of total sales opportunities that go on to become paying customers. It is the most basic sales metric to measure your success. 

It tracks how many opportunities you won divided by the total number of opportunities created. 

To get accurate values, you need to measure only opportunities that reach the proposal stage – since not all opportunities would enter the sales pipeline. 

How to calculate opportunity win rate

Opportunity Win Rate = Closed Won Deals in a Time Period / Total Number of Opportunities in that Time Period

4. Cost of sales to revenue ratio

The cost of sales to revenue ratio compares the expenses generated by your sales activity to the company’s revenue. 

Calculation of the given metric would show you how much revenue your company receives after selling its products. 

The lower your cost of sales to revenue ratio, the higher your profit.

Note that the cost of sales does not only imply the cost of shipping the product to the customer. It also includes other factors like product development and market distribution. In essence, it consists of every money spent in the process of getting the goods to the customer. 

How to calculate the cost of sales to revenue ratio 

Cost of Sales to Revenue Ratio = (Cost of selling / Total value of sales) x 100

5. Sales funnel leakage

Sales funnel leakage refers to the number of leaks in your sales and marketing funnel that is costing your company revenue somewhere between creation and close. So I would say that of all key sales metrics, this one deals with the human part the most.

When identifying your sales funnel leakage, these are key areas to monitor:

Time initial lead response time: The time it takes for the sales team to respond to leads once they first reach out to a company can be the first source of a sales funnel leakage. 

Track attempts and touches until initial conversion: You need to identify how many touches it takes before you convert a prospect into a customer. A high number of touches before conversion may signify a leakage in your sales funnel. According to sources like Outreach and The Bridge Group, the optimal number of touches is 6 to 13. 

Track the handoff of leads between BDR and AE: One of the easiest ways to have leaks in your sales funnel is during the transfer of leads from the business development representative to an account executive. Without proper handoff documentation, prospects can get lost in the sales funnel.

6. Cannibalization rate

Unlike other sales metrics, the cannibalization rate (CR) measures the percentage of new product sales that would replace existing product sales. It gauges the impact of new products on sales revenue for existing products.

When a business releases something new, the existing products begin to lose attention and demand from customers. These can become a problem for the sales team as they would find it difficult to sell the existing products to customers. 

You also run the risk of losing current customers if you have a new product that overshadows the old one. You can reduce the risk of cannibalization by offering old stuff at a discounted price. 

How to calculate the cannibalization rate

Cannibalization Rate = Sales Loss of Existing Product / Sales of the New Product

For instance, if your business sells liquid soaps (LS) for $10, and you launch a new line of soaps that come with a new fragrance (NLS). So, you sell 70 NLS and the cannibalization rate is 60%. That is, 60% of the sales of the new soaps would be taken from the sales of the old soaps. The cannibalization rate will be:

60% of 70 NLS = 42

So, this shows that the sales of the old liquid soap will decrease in sales by 42 from its current sales. 

7. Revenue from SMBs versus large enterprises 

In sales performance metrics, it is important you track how your sales efforts connect with small to medium businesses versus large enterprises. Depending on the product or service you offer, you would need to track where your revenue is coming from. 

The ways customers buy vary based on size and budget, and you would need to use a different strategy when selling to SMBs and large enterprises. A successful sales strategy would require you to match the sales approach with the size of the customer. 

In contrast to other sales metrics we mention here, you would be able to identify the percentage of your sales that are coming from SMBs and large enterprises by tracking this one. This knowledge would help you to subsequently adjust your sales process. If the percentage of your sales revenue is coming more from SMBs, then you might have to adjust your sales strategy to match enterprise businesses. 

8. Product performance

Product performance ranks product sales based on revenue performance to inform your sales team which products are selling well.

While you measure which products are performing well, it is important that you also measure which products are underperforming. This would help you identify the products that are not resonating with your customers. 

As opposed to other sales productivity metrics, you should take into consideration the context surrounding a product’s performance when monitoring this one. 

For example, a product might be performing well because of a recent viral marketing campaign. The marketing mix you used in distributing a product might also play a role in the product’s popularity among customers. 

Similarly, a product might be underperforming because you just introduced a new product that has caught the attention of the customers or because your competition is offering a similar product at a lower price.

With this metric, you would be able to gauge the customer’s overall satisfaction with your company’s product or service. So to calculate product performance, rank the products by sales revenue.

9. Average lifetime value of a customer 

Sure thing, almost all sales metrics closely depend on relationships with customers. So does this one. The average lifetime value of a customer is the profit margin a company expects to earn over the entirety of its business relationship with the customer. 

The average lifetime value would account for other costs like customer acquisition costs (CAC), marketing expenses, operating expenses, and of course, manufacturing costs. 

To ensure a company’s growth, it is important that you optimize the lifetime value of an existing customer instead of optimizing for a single sale in the near term. In fact, research has shown that it is 25 times more costly to gain a new customer than to retain an existing one. 

How to calculate the average lifetime value of a customer: one of the key sales productivity metrics 

First, you find the lifetime value:

Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period

Then, 

Customer Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period × Profit Margin

Or, 

Customer Lifetime Value = Lifetime Value × Profit Margin

10. Net Promoter Score (NPS)

The Net Promoter Score is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others. 

It helps companies evaluate and improve customer loyalty. Moreover, NPS measures a customer’s overall sentiment toward a brand. 

How to calculate net promoter score

Step 1: Survey your customers and ask them to choose on a scale of 0 – 10 how likely they are to recommend your business to a friend. 

Step 2: Categorize respondents based on their scores:

  • Detractors – anyone that gives a score lower than 6. They would most likely not purchase from your company again. 
  • Passives – anyone that gives a score of 7 – 8. They are somewhat satisfied with your products but are not enthusiastic enough about your products to promote them.
  • Promoters – they give a score of 9 – 10. They love your products and would readily recommend your products and services to others.

Step 3: To determine your Net Promoter Score (NPS), subtract the percentage of customers who are detractors from the percentage of customers who are promoters.

What would be generated is a score between – 100 and 100. 

Final thoughts

Most sales teams do not track these sales metrics. To ensure that you consistently monitor your progress, reach your sales goals, and positively impact your bottom line, you should constantly evaluate these most important sales metrics. 

In the end, you should automate when and where you can. Automating the entire process with marketing tools can reduce a large part of the burden of analysis.

Read Also

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.