Selling is a numbers game, and all sales organizations keep track of certain sets of numbers. It is easy to obsess over the obvious numbers like monthly or quarterly revenue or close rates. Unfortunately, those numbers simply give you the “final score,” without telling you anything about how your team played the game.
If you want to improve the way your team plays the game and boost the score in the future, you need to be paying much closer attention to another set of numbers, namely, the Key Performance Indicators (KPI) that give you insights into how well each member of your team is actually playing.
What are KPIs?
While the term KPI is commonly used, it doesn’t mean it is always well understood. Something can be defined as a Key Performance Indicator when:
- It is KEY to the success of your organization. For example, is the number of sales contacts per week important to the success of your organization?
- It is related to PERFORMANCE when it can be clearly measured, quantified and easily influenced by the members of your team. For example, do you have a benchmark that tells you that when a sales maker makes at least 5 contacts with Executive level decision makers during a sales cycle the value of the final deal will go up by 40%?
- It is used as an INDICATOR; in other words, it is something that provides leading information about future results. For example, one version of the 80/20 rule says that 80% of a sales maker’s production is generated by activity in 20% of their accounts. Given that information, it might be a good idea to track the number of calls and the amount of time each sales maker spends with high value contacts in those accounts, and set some specific expectations there that can be measured.
The Difference Between Lagging Indicators and Leading Indicators
It is important to keep in mind when discussing KPIs that there is a difference between Lagging Indicators and Leading Indicators. Lagging Indicators are outputs and results that are measured “after the fact,” and in most sales organizations these indicators get most of the attention, because they tend to be the metrics that go into reports to executives and even shareholders. Lagging Indicators include metrics like:
- Gross margin dollars growth
- Gross margin % growth
- Product mix
- Share of wallet
- New customers
- How many calls is a sales maker making per week?
- Who is the sales maker calling on?
- How many of these calls turn into opportunities?
- How many of these opportunities turn into wins?
- How is the sales maker performing in these categories compared to your peer group?
KPIs are powerful because:
- They will help you make better decisions. You must have timely and accurate information about all aspects of the performance of your team members in order to plan and coach effectively. As a sales manager, you can’t rely on hope and assumptions; you must be assessing real data in real time that will reveal what is going on so you can take action now, before it is too late.
- This leads to better execution. Identifying, measuring and – most of all - coaching to the right KPIs leads directly to behavior change and skill improvement across the entire team.
- KPIs set expectations and improve communication. Defining KPIs clarifies for sales makers the activities upon which they should be spending their time, and provides a context for sales managers to interact with sales makers regarding their performance.
- A clear focus on KPIs will change sales maker behavior. Once sales makers understand the activities they are supposed to be concentrating on, they will devote more time and energy to these areas, especially if they know their compensation will be tied to their performance in these areas.
- Focusing on a core set of KPIs will keep sales maker activities consistent. There is an old saying; “People don’t do what is expected, the only do what is inspected.” When sales makers understand what you are going to inspect every week, they are much more likely to do them every week.
- Tracking KPIs is the best way to identify and qualify sales maker performance. Sales makers might be staying busy and giving a 100% effort every day, which can be confused with real productivity. However, if they aren’t giving that effort to the right activities, all that effort is wasted. Tracking KPIs helps sales managers make sure sales makers are spending the right amount of time on the right activities.
- Tracking KPIs takes the guess work out of evaluation and coaching. This is related to the previous point. Sales managers who don’t regularly track sales maker performance against a set of standard KPI metrics don’t really have any objective basis for evaluating performance. The sales maker may be a great person and hard worker, or they may be a disagreeable know-it-all, but those aren’t the most important behaviors for a sales manager to evaluate. The only thing that really matters is how they are performing in relation to the KPIs.
- Effective coaching begins with KPIs. Most sales managers understand that coaching is important, but coaching is useless if it is not based on quantifiable, actionable skills and behaviors. The greatest value of tracking KPIs is the information they reveal about where each sales maker is doing well, and where they might need help to do better. Sales managers can quickly access KPI’s from their CRM for every sales maker and use this data to customize coaching conversations that will address gaps and boost performance.