A recent question from a reader raised the issue of the relationship between these three ideas.
In summary, I suggest that one powerful KPI for the sales function is Sales Contribution per Sale. This is defined as Gross Profit per sale minus total cost of sales and marketing activity per sale. It is a summary measure of the efficiency and effectiveness of the whole sales and marketing function, and it is a KPI because it directly influences the business’ return on funds.
I have some difficulty with the idea that the progress of Sales Engineers is viewed as a matter of conformance to a standard process. The influence of the sales prospect on the sales process makes it difficult to conceive of a standardised process to be followed at all times; the prospect may choose not to conform.
Failure to achieve the company objective is not necessarily due to non conformance to a defined sales process, and can be attributed to many factors that lie outside the control of the sales engineers. External factors influencing success may include competition, economic conditions, pricing of products and number of prospects generated by marketing activity in addition to the quality of the sales engineer’s activity.. If the objective is set as number or $ value of sales made, as it usually is for budgeting purposes, conformance to process may be only one of the reasons.
I suggest we should think of the sales process as being a set of milestones that each prospective sale has to pass before the sale is completed. As each milestone is achieved the probability that the sale will be completed increases.
The key performance indicator for a sales engineer is the sum of the probability adjusted value of all the prospects in the engineer’s sales pipeline; the Expected Value. If this number increases the sales engineer is performing well. Bear in mind that as a sale is completed it drops out of consideration for the future, so that value needs to be replaced by new prospects.
Selling is a highly dynamic process, and the key to success is to manage sales activity well and ensure that all prospects are progressed through each essential stage in the sales process. Sales people need to manage their own activity with guidance from sales managers.
I believe that the KPIs to track through the sales process are success rates at each critical milestone in the sales process. The tracking and management system should provide these numbers, and the numbers can be fed into a model that calculates the $ contribution of sales activity.
Once the critical milestones are defined it is easy to set up a dashboard to track performance and answer that most difficult and most important question; “Will we make budget next month?”
You can explore this topic in depth at bizlearn>themes>sales management.