Small business owners must establish several key performance indicators (KPI) with respect to measuring the success or failure of their sales team's approaches. While sales totals are an important factor of success, they aren't the only indicator of how well the sales team is approaching the market. Instead, the focus should be on identifying those key performance indicators that are such a vital aspect of long-term growth and of properly managing customer relationships. The value of the order should be measured against its gross profit, as well as the sales team's ability to retain and grow business.
Match Performance Indicators to Your Business Model
When looking to establish your company's performance indicators, focus on those measurements most important to your company's market and customers. For instance, the first performance indicator listed is sales forecast accuracy, but while some companies measure their sales forecast accuracy by days, weeks or months, other companies may need to measure this KPI by quarter.
The kind of company that might measure this performance indicator over a quarter might involve customers who have cyclical and seasonal ordering patterns. The company knows it will secure orders within a given quarter, but can't guarantee what month that sale will fall under. Each of the five KPI listed below has a link to an article on that provides some input on improving these indicators.
1. Sales Forecast Accuracy
Regardless of the size of your company, improving upon sales forecast accuracy has to be a pivotal KPI. Accurate sales forecasts mean the inventory your company purchases is more likely to be sold. Reducing the cost of inventory means your company is purchasing exactly the right amount needed to fulfill customer orders.
The above tips on improving forecast accuracy are from the post: How Do I Improve Our Sales Forecast Accuracy?
2. Customer Retention
Closing that first sale is one thing. Making sure that customer returns to place additional orders is something else entirely. Your small business must have this as one of your sales KPIs. Improving customer retention improves the accuracy of those aforementioned sales forecasts because they represent more consistent business over time. Make it a point to measure how many of your customers return month after month, quarter after quarter and year after year.
One tool you can use to increase retention is to use the back-end rebate program. The table below and video explain how the reward program works.
To read more about how to improve your company’s customer retention as outlined in the above video and table, please go here.
3. Maintaining Gross Profit Objectives
When I wrote “it’s not enough to have high sales totals” I was referring to the importance of this third sales key performance indicator. Your small business must protect your gross profit margins and objectives. The value of a sale should always be measured by the amount of gross profit it brings in. If there’s no gross profit, or that profit is razor thin, then there’s little value to the sale itself.
To read about gross profit and the cost of capital, please go here.
4. Quotation to Closing Ratio
This sales KPI is often misunderstood. The purpose is not to ensure that every quotation leads to a sale. The intention is to ensure that every written quotation means the sales representative is that much closer to a sale. Verbal discussions about pricing are one thing, but putting that price down on paper is entirely different. Sales professionals in small businesses must negotiate pricing first. Written quotations should only proceed after the salesperson has qualified the sales lead. This performance indicator measures the ratio of written quotations to closed sales.
To improve your small business sales team’s negotiation strengths, read: Improve Sales Training & Negotiation Skills with Role Playing
5. Sales Budgets
When measuring the sales budget key performance indicator, be sure to measure the salesperson’s performance over time. For instance, if one salesperson attained 100% of their sales budget in one quarter and then missed the remaining quarters and ended with 80% overall, how would this compare to a salesperson who finished the year at 90% but never attained 100% in any given quarter? Obviously, the second salesperson was the more successful one. In this case, measure this particular sales indicator over time. To properly manage your sales team’s commission structure, read: Should Your Company Pay Commission on Sales Totals or Gross Profit?
When it comes to setting up your sales key performance indicators for your small business, keep it simple. No customer order ever has any value if there’s no gross profit and if the customer is not likely to return. The best sales teams make it a point to maximize gross profit per sale and approach their craft with the mindset of building that gross profit over time.
This requires an emphasis on improving customer retention and loyalty and using these key performance indicators to measure the true success or failure of a company’s sales team. Don't complicate things. Remember, make sure your performance indicators match your market and your business model. Don't go with something you've seen or heard has worked for another company in another industry.
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