It’s easy to set strategic targets. But can you count on the realization of them? Can you be sure when the question comes; “do we reach our goals?” Often the question comes too late. So why don’t we ask the questions all the time, by ourselves? Providing confidence to you as well as to your organization.
That’s what you do when you are using metrics in Sales.
But what should and can you measure? Let us argue our way to where in the process it is especially important to measure and how metrics might look like. The idea is that not all indicators should be implemented. Instead, the recommendation is to pick out a couple of them that meet the purpose you want to – and that is clear enough for those who use them.
First; when we talk about indicators, we mean:
- KPI’s: Key Performance Indicators – connected to the strategic objectives
- OPI’s: Operational Performance Indicators – are used to control the operational level (mostly from sales manager to sales reps with frequent intervals) to ensure the achievement of the strategic objectives.
KPI’s are often measured on a monthly or quarterly basis, while we suggest that OPI’s are monitored weekly or even more frequently depending on for example industry, products, organization demands etc.
As we shall see later on in this article, the proportion of quotes that will eventually be converted to orders is important to get more track of because the ratio largely affects steps before quotation phase and thus the requirements that are reasonable to ask a sales representative to accomplish to achieve his individual goals, as well as the strategic objectives of your company as a whole.
Securing the accomplishment of the strategic goals may be done by using the whip. That’s the case when you only measure the results – the order backlog – and not the way those results have been made. It’s easy to measure results in the order backlog, but it has one huge disadvantage; it has already happened. There’s not so much to do about it, now.
To really have any possibility act pro-actively and reflect upon an agile business environment, you should connect your company’s strategic objectives with your sales process. In order to do so, start with the results you have (the “whip mode”) and then go backwards in the sales process. The two first steps in the process – often the Order and Quote step – gives the following possibilities for targeting and measurement:
- The ratio of “Total order sum divided by the number of orders” gives the average order value
- The “Hitrate”, which indicates the amount (in percentage) of the quotes that are converted to an order
Average order value is a KPI, while Hitrate is a typical OPI; this is definitely not rocket science.
However, now it’s becoming more cumbersome. Still going backwards, the following steps in the process allows insight earlier in the process and can provide early signals about where it is going as planned and warnings where you should put in extra support. The advantage of measuring earlier in the process is to create the room for maneuver and reduces the risk of not achieving the targets, simply.
These “earlier” steps may be “sales meeting” and “phone call” and invites to several OPI’s.
The following KPIs we see as appropriate to measure from a sales perspective:
- Total order value per sales rep – control of strategic sales target
- Average order value – control to assure complete orders, with all accessories, more expensive product ranges etc
- Number of orders per sales rep – steer towards a fast pace
- Margin – steering towards profitability
Total order value per sales rep
Total order value is easy to determine and can be obtained from either the CRM or ERP system. The indicator “Total order value per sales rep” is a strategic goal that also connects directly to one of the main operational indicators (OPI) for early control sales behavior – “Order value per visit” – which is a way of steering sales reps to take home more value on each customer visit, but also to use more of their available time for sales work and less time for administration or other tasks. More about OPI’s in a coming blog post.
Average order value
The average order value is also easy to determine and can be obtained from either the CRM or ERP system. It’s an important indicator, because a larger value would, among other things, mean that you do not need to land quite as many orders and counting backwards in the sales process, not as many quotes need to be created, not as many customer visits have to be created and therefore do not need as many phone calls to be created. And conversely, a lower average order (typical for a recession) must be compensated in one way or another, either by selling more orders or increasing the efficiency of the process.
It sounds simple to increase the average order value, but is often difficult to do much about, at least in the short term. Therefore, increasing the average order value is often seen as a long-term project, but none the less important for that.
One part of efforts to increase average order value is to look at attitudes; daring to quote the new product models even though you do not feel so comfortable with them, daring to show the optional accessories for the customer, trying to get a more complete order (don’t you need a coffee machine in your conference room as well?”, or likewise) and so on. Another element that may affect the average order value is campaigns of various kinds – these can of course mean lower margins, which, in turn, should be balanced.
In the end, it is often a competitive offer along with a knowledgeable and passionate sales rep that in long term can increase the average order value.
Number of orders per sales rep
Steering towards the “number of orders per sales rep” provides pace of processing opportunities. With a given (short-term) average order value, it’s the number of orders that give the total order value for each sales rep. The indicator “Number of orders per salesperson” is a sales strategic goal that also connects directly to one of the main operational indicators (OPI) for early control of the sales behavior – “Visits per order” (see a coming blog post) – which is a way of steering sales reps to use their time available to customer visits that are sales meetings.
Today, the margin may be specified in the calculations. It may be applicable to mix the margin figures in conjunction with other indicators such as margin per customer visit or sales rep, product margin compared to services margin, etc.
It’s strongly recommended to describe the sales process from a strategic perspective within your company and map the key performance indicators (KPI’s) that have to be provided to guarantee achievement of the strategic objectives.
If you don’t go for the whip instead?
Hope you don’t… 😉
BR / Stefan