- Defining sales metrics
- Which metrics should you measure?
- Improving profitability
- Customer Acquisition Cost (CAC)
- Identification of training gaps
7.5 min read
You need to understand your sales pipeline to truly know how healthy your business is and how to optimise your sales and marketing activities.
Defining which sales metrics are relevant for your business, and measuring and tracking these, will highlight your return on investment for sales and marketing and show you which areas of your business need extra resources.
Sales pipeline management covers all stages of sales activity – from prospecting to interaction, qualification and closing of a sale.
Your CRM and ERP software can take the confusion out of gathering the data. But the real question is: which metrics should you measure?
Here are the most important sales metrics you should be tracking:
The best place to start is with the metrics you use to monitor your overall business performance. These will frame your sales pipeline KPIs.
Some of the data you may want to track includes:
- Total revenue
- Revenue by product, geographical area, market
- Market share
- Annual growth
- Percentage of revenue from new business versus existing customers
- Cost of selling as a percentage of total revenue.
Once you have these in place, consider what data you want to gather to improve your sales performance and profit.
Understanding the customer lies at the heart of every successful business. If you know who your most valuable customer are, you’ll know where to focus your sales, acquisition and retention efforts to find them, win them over and keep them loyal.
Without knowing the true value of your customers, you could end up spending lots of time and money acquiring customers who don’t provide a strong ROI.
That’s where the Customer Lifetime Value (CLV) comes in.
The Customer Lifetime Value is the total revenue you can expect from a single customer from initial purchase to when they leave you.
CLV takes into account two factors:
- Customer’s revenue value
- Customer’s predicted lifetime with the business
Here’s how to calculate CLV:
CLV = Average Purchase Value x Average Purchase Frequency Rate x Average Customer Lifespan
Could your sales team improve their prospecting? There’s a number of lead generation metrics that can help you find out:
- Number of new opportunities added to the pipeline over a chosen period
- Estimated value of lead
- Average lead response time
- Percentage of leads followed up within target time range
- Percentage of leads dropped
- Percentage of leads that qualify.
How well do your sales team convert prospects into new customers?
Your marketing activities might generate 50 leads for sales. And your sales then win 10 new customers. That’s a 20% conversion rate.
But how do you know if this is good or bad?
Look to your past performance and industry benchmarks.
You should also consider the value of leads won.
When you have a good idea of your conversion rates, you’ll know how many leads you need in the pipeline to meet your overarching business KPIs.
How long does it take to find a lead, follow up and convert? How much time goes into leads that don’t convert?
The time taken for your sales cycle reveals how much resources you’re putting into business development.
This metric can reveal which individuals need extra training and which areas of your business generate the most revenue.
Did you know the cost of acquiring new customers has increased by over 50% in the last five years?
The same marketing tactics are becoming more expensive, yet aren’t always bringing the results your business needs to justify the costs.
That’s why it’s important to track your Customer Acquisition Cost (CAC).
CAC tells you the cost associated with acquiring a new customer. It includes any of the activities you’ve invested in to grow your customer base, such as marketing, advertising and events.
There are two ways you can measure the customer acquisition cost:
The most basic way is:
Customer Acquisition Cost (CAC) = Marketing Costs (MC) / Customers Acquired (CA)
Simply divide the marketing costs associated with a campaign or period by the number of customers acquired during that campaign/period.
This helps you compare different campaigns, as other costs, like wages, will typically remain consistent.
The second, more detailed, method is to use all the costs associated with sales and marketing, from advertising to salaries, agency fees and administration.
This helps you compare your CAC across different marketing channels, periods and customer segments to determine which are the most profitable.
You might be surprised to find the CAC of different marketing and sales channels, which is why it’s important to track the metric.
A comprehensive understanding of the strengths and weaknesses of the individuals within your sales team will help you set genuine targets, identify training gaps and resource more effectively.
Everything we’ve covered so far feeds into this, however more things to measure include:
- Time spent on administration and content creation
- Amount of marketing or sales tools used
- Sales/cost ratio – deal value/employee’s salary and expenses
Measuring your overall sales is integral to every business and ties in with overarching KPIs.
Measure the following:
- Total value of sales by month, quarter and year
- Average contract value (ACV)
These numbers will show you how you’re tracking as a business and whether your sales forecasts are accurate. It also enables you to compare month-on-month or year-on-year.
How to get started
Tracking the right sales metrics is faster and easier using MYOB Advanced. You can automate your sales pipeline management and track the sales metrics you need to make better decisions. See how lead management and sales automation can help your business succeed.