This is the first of three short articles on finding and defining the specific sales KPIs for your business that will create competitive advantage.
Today: The problem with sales KPIs, and a way to find the solution.
Next week: Defining Sales KPIs and setting an acceptable range or target.
Final article: Managing the sales process using KPIs.
Why are sales KPIs a problem for so many businesses?
One answer to the question is that there is no problem. There are only two KPIs; the number and the value of confirmed sales orders.
That answer works just fine until the number or the value of sales declines. So often the reaction to that situation from top management is to put pressure on the sales manager or team to “work harder, make more sales.” This instruction generally leaves the sales manager scratching to answer the question “How?”
The only way to answer the “How?” question is to dig into the sales process to find out why sales have declined, because, as every sales manager knows there are many possible reasons. The simple response “Customer demand is down.” just doesn’t cut the mustard when the business is at risk.
Why the sales process is so important.
The way a business finds sales prospects and nurtures them into customers by closing a sale is different for every business. Copying someone else’s sales process will never lead to a competitive advantage.
There are many steps in a sales process, and each step requires work to be done and paid for by someone else. A fairly typical sales process looks roughly like this:
Find a suspect > qualify as a prospect > make contact with the prospect > find out what they want > make them an offer > get the order > do the work or deliver the goods > get paid > ???
When you examine the way each step works for your company by asking ….
• What is done?
• How is it done?
• Who does it?
• How long does it take?
• What does it cost?
• How well does it work?
… in our terms as KPI specialists, we find many measures, but only a few KPIs. For the simple process defined here there are 6 × 8 = 48 possible process measures. Clearly we have to simplify this down to the essentials to define the KPIs.
The answer ….
The KPIs are the ones that tell you how well it works.
Your success rate at the end of each stage of the sales process is a KPI. It is a milestone; it has happened or it has not happened. It is a black or white measurable fact. The number and value of the prospects at each milestone in your sales process are KPIs for the people doing that part of the work.
If your KPI system collects the data needed to assess that at each milestone, you will quickly find out what has changed and this is very likely the reason for the sales decline. Where has the success rate changed? This tells you where the process is bent or broken and you can quickly work out how to fix it.
How to get the data
From a behavioural perspective this is tricky. Too many sales reports are loaded with rumour, speculation, guesswork, excuses, justification for a dodgy expense report, and only occasionally the odd fact. “I have XYZ customer’s order number No 1234 for $5678 in my hand.” is a verifiable fact.
It also dramatically increases the probability that you will receive a payment at some time in the future. For the KPI modeler that is the bit that really counts.
A sales report that deals only with milestones in the sales process and the values attaching to each prospect is good hard data that every sales manager can work with, interpret, and organize work to solve any problem that may exist.
Putting this into a simple KPI model that almost every business can use has been done and next week’s article is about how to set up and use such a model in your sales process. I suggest you look closely into your process by answering the 6 questions in this article. Then you will be ready for the next step.