Companies are trying to maximise every competitive edge. One such edge is the potential for higher achievement by the sales function, as it often represents one of the biggest opportunities to grow profitability, revenue and market share.
In the constant drive for efficiency improvement, every other aspect of business has been rigorously examined for financial performance improvement. For some reason, ‘sales’ is usually excluded from such examination, often being seen as some sort of ‘black box’ function that cannot be effectively evaluated in normal ways.
Today it’s not enough to just achieve the same. Companies are expected to grow, and the sales function is expected to be a primary driver of this. Success demands a capable sales function that can repeat its success over time. Sales Performance Management is the mechanism through which growth is achieved consistently.
Business Results, Sales Objectives and Sales Activities
There is a direct linkage between three types of performance metric that impact on sales and should be used by sales management.
- Business Results: Objectives such as revenue, profitability or market share. They are high level objectives that apply across the business.
- Sales Objectives: Objectives measuring a sales function’s key performance drivers such as numbers of customers, revenue per customer, customer lifecycle, product or product group sales.
- Sales Activities: The activities the sales function needs to carry out to achieve the Sales Objectives, and in turn, the Business Results. For example, numbers of calls, numbers of proposals, numbers of presentations. Note that it is only at this level that sales management can truly manage the sales function. At the levels above, sales management can only influence the metrics, because customers are the final decision makers.
Recent research by the Aberdeen Group (December 2011) into Sales Performance Management highlights the following statistics:
- In Best-in-Class companies, 83% of sales reps achieved annual quota, compared with 51% in Industry-Average companies and 22% in Laggard companies.
- Best-in-Class companies achieved a 23.1% growth in revenue, compared with 7.2% for Industry-Average companies and 5.9% decline in Laggard companies.
- Best-in-Class companies achieved a 9.1% growth in average deal size, compared with 1.9% for Industry-Average companies and 0.4% decline for Laggard companies.
- Best-in-Class companies shortened sales cycles by 1.4%, compared with a lengthening of 0.9% for Industry-Average companies and lengthening of 7.1% for Laggard companies.
Some of the common characteristics of Best-in-Class companies include:
- 85% of their sales reps are measured on both quantitative and qualitative objectives
- 82% use a Sales Performance Management system that has buy-in from senior corporate leadership
- 78% use customised sales performance reporting detailing individual and team sales metrics that link Business Results to Sales Objectives and Sales Activities
The business case
The Business Results objectives most commonly measured are profitability and revenue. There is a growing need to demonstrate return-on-investment of the sales function. This leads to a focus by Sales Leaders on four areas:
- Sustain revenue growth
- Reduce sales cycle length (to improve margins)
- Improve lead conversion rates
- Improve sales forecast accuracy
These areas are achieved by implementing:
- Quantitative and qualitative measurement of salespeople against objectives – published regularly and frequently. In some cases, salespeople have access to a personal dashboard showing their actual sales performance against their objectives – both for Sales Objectives and Sales Activities.
- A structured process through which sales managers communicate with their salespeople to provide regular feedback and coaching on their sales performance
- Training in both skills and offers – both as formalised training programmes and as on-demand training modules (Often delivered though online means).
- A Sales Performance Management system with the visible buy-in from corporate senior leadership
- A process for salespeople to share experiences and other best practices with their colleagues
- Segmenting the sales function into skill-based groups such as hunters vs. farmers, inside vs. outside sales, named accounts vs. territories
- Sales managers collaborate with Human Resources to ensure best practices are adopted for sales hiring, on-boarding and learning and development
As an indication of how important these factors are, adoption by Best-in-Class companies runs at:
- 86% review performance analytics against objectives regularly
- 67% review sales compensation strategies regularly to ensure alignment with the changing needs of the business
- 67% have sales coaching and training content available to salespeople
- 62% monitor volumes of Sales Activities to ensure quantity of activity
Many companies still view their sales function as an area of the business that will not respond to normal management and development activities. That leads to very poor sales practices that lead to inefficiency, under performance and very high cost of sale.
The days of “There’s a desk, there’s a phone, make sales” should have passed because they are horribly inefficient. But they haven’t. And the results are always a disaster. (And usually an expensive one).
Sales Performance Management does not have to be hard to implement. Nor does it need to be expensive. But it will have a marked effect on the effectiveness of every sales function.
- Find out about Sales Performance Management training
- Read more articles about Sales Performance Management
- Find out about Sales Coaching for Sales Managers
Here’s what to do next
If you’re interested in how this could help you, or feel I may be able to help you with some of the challenges you’re facing, please get in touch for an informal discussion.
There’s no commitment, we’ll just discuss your situation to see if working together might be a good fit. Contact me now.