Harvard Business Review (site)
by Frank V. Cespedes and Bob Marsh
“What gets measured gets managed” is a longstanding business aphorism. But today’s sales technologies enable companies to measure almost anything, which leads many managers to try to measure everything. As a consequence, managers don’t have a clear sense of what is really driving sales in their business, while salespeople, who are inundated with dozens of metrics, get lost in the day-to-day noise. The result is poor management of what matters.
The challenge, of course, is to decide on the right metrics. Consider the results of a survey of key performance indicators (KPIs) being used by more than 800 sales teams across industries. Wins are the most common metric used across sales roles and industries. On average, firms measure closed deals and rep production against quota monthly, which isn’t surprising. Selling is a performance art, and “making the number” should be the goal of any sales organization, but a closed deal is an outcome and a lagging indicator; it can’t be used by the salesperson or sales manager to improve future outcomes.
This is why leading indicators such as demos, web registrations, calls, or C-suite-level meetings are often more instructive. Instead of reviewing historical results, which are beyond a rep’s control, they offer real-time feedback on whether salespeople are spending their time and efforts in the best way. Leading indicators are within a rep’s control. If salespeople are behind on a key indicator, for example, they and their managers can change behavior to increase the probability of success.
Deconstruct Your Sales Funnel
In order to improve sales outcomes and clarify the relevant sales KPIs in your business, you need to deconstruct your sales funnel.
Here’s a typical flow of activities:
Prospecting: cold calls, email, phone, LinkedIn, etc.
Qualifying: initial conversations aimed at separating the merely interested from the actual prospects and determining who is a qualified opportunity
Advancing opportunities: discussions with qualified opportunities to communicate the value of your product to the right contacts
Closing: final steps in negotiating and winning the business
Post-sale: service, order fulfillment, possible customization, and onboarding activities to ensure the client is successful
Every company is different, but every business has a sales conversion funnel. Some funnels are relatively short and simple, while others are long and complex. Knowing what type of funnel applies in your business is essential to clarifying key metrics and performance management practices, including sales incentives.
Consider one SaaS company that sells a menu display and advertising platform to restaurants, which is a big but fragmented market. The challenge for reps is that, because restaurants all have different budgeting processes, they must be there at the right time to close that sale. Once a sale is closed, the firm incurs low marginal costs in setting up and maintaining a customer on its platform. In this situation, it makes sense to “feed the funnel” and provide reps with incentives, through proper metrics, to make frequent and repeated calls.
By contrast, consider another SaaS firm that sells a subscription software product that provides big productivity and environmental benefits if the customer is willing to alter some traditional workflow processes and use the software at sufficient scale. This is a more protracted buying and selling process, where ongoing customer education and onboarding is crucial. Awareness and initial enthusiasm from a prospect on the capacity to adopt new software can be deceptive and expensive for this firm. Here, simply “feeding the funnel” is a mistake: Lead generation is less important than pursuing the right leads. Moreover, this SaaS firm’s profit margins are mainly in contract renewals and ancillary services it can provide if it gets the right scale and usage in the initial sale. Here, management must ensure that sales reps vet the top part of the funnel carefully so that they don’t spend months chasing the wrong prospects, while providing reps with the means and an incentive to manage that long selling cycle and renewal process.
The experience of Paycor, a payroll processing company, is a useful example. Like many firms, its frontline sales managers were typically former top-producing salespeople, many of whom were managing other salespeople for the first time. In making that transition, they tended to focus on what they knew best: helping to close a deal. But after closely examining the selling cycle, it became apparent that the best time to work with their reps to influence the sale was earlier in the funnel. Sales managers used the leading indicators to drive a 55% increase in relevant new-business meetings and a corresponding 50% reduction in onboarding time.
Make Performance Reviews Count
Finding the right metrics isn’t the end of the story. Selling is about behaviors, not just analyses, and making sure that salespeople align their behaviors with those metrics is an ongoing process. Performance reviews can help, if they’re done right.
Unfortunately, reviews are typically underutilized levers for influencing behavior in most organizations. Busy sales managers tend to treat them as cursory, after-the-fact discussions about quota attainment and compensation, not coaching about going-forward behaviors. The result is that, too often, “feedback” from managers is really a sermon whose message is “get better and sell more.” Like most sermons, this may work when you’re preaching to the already converted, but it’s too abstract if you’re not. Clarifying leading indicators can make a difference, because the salesperson then knows the behaviors they need to change in order to improve performance.
Many sales managers begin conversations with reps by asking well-intentioned but generalized questions like, “What’s closing this month and how can we make those deals happen faster?” In response, reps focus on the next 30 days and the required onboarding of new customers, and then neglect important activities that happen in between. This is one reason why sales output is so variable — strong sales months followed by catch-up prospecting during the lean times — in so many organizations.
After deconstructing the funnel, however, managers can use different talking points that allocate attention and resources toward those activities. For example: “Sofia, you are making lots of calls and scheduling many meetings, but you’re calling on too many small firms and your qualification criteria have you chasing many prospects that are highly unlikely to close. Let’s fix your account prioritization.”
Or: “Arjun, you are behind peers in setting meetings with VP-level prospects, and we know those contacts increase our win rate substantially. Let’s talk about the organization of your prospects and what we can do to get the right access.”
Among other things, conversations like these — especially when reflected in accessible reports and personalized scorecards — empower reps to know where they stand and where to focus. They allow sales managers to provide feedback about behaviors, not just intentions. Beyond individual coaching, moreover, relevant leading indicators can also spur more systemic means for generating proactive selling behaviors: incentives to schedule new-business meetings with the right contacts or to pitch bolt-on products that amortize onboarding time and increase renewal rates.
These steps are within a company’s internal circle of influence, not in the less controllable external market environment. But exercising that influence requires managers who know what metrics count and who can then translate data into relevant selling behaviors. Those managers are not just discussing quotas and after-the-fact outcomes; they are truly managing sales performance.