There’s no doubt that science is inundating sales, driving managers and reps alike to pay closer attention to KPIs than ever before. But while being metric-driven may be top of mind, there are so many different measures that knowing which sales metrics to use and when can be nothing short of confusing.
Here are ten of our favorite sales metrics, what they mean and when exactly you should bust them out and put them to work for your business.
If you’re curious whether your business development team is reaching its full potential, or are worried that they might be overwhelmed with leads, it’s time to determine their capacity. Understanding BDR capacity also helps inform headcount planning and whether to invest in certain sales tools or training.
Monthly BDR Capacity Formula: Max. Leads Worked per Day x Working Days per Month x # of BDRs
Once you have this number, compare it to the number of leads provided by marketing each month. If it exceeds monthly lead volume, your team is not reaching its full potential, and you should work with marketing to generate more leads.
In contrast, if monthly marketing leads exceed your Sales BDR Capacity, you might want to invest in tools like auto dialers or email templates to improve efficiencies and increase the maximum number of leads per day your team can handle. Or, it might be time to hire more BDRs.
A similar calculation should be done to determine the maximum number of deals that your account executives can manage and optimize their workload accordingly.
Monthly AE Capacity Formula: Max. Deals Worked per Day x Working Days per Month x # of AEs
If your AE capacity is higher than the number of deals flowing through your funnel each month, you’ll want to think of ways to fill the pipe, like increasing outbound prospecting efforts or loosening BDR qualification criteria. If capacity is lower than the actual volume of deals, you might want to consider hiring additional AE’s or having the BDR team conduct additional qualification before passing leads to AEs.
Customer Acquisition Cost (CAC)
CAC is invaluable to getting a clear picture of how your spend stacks up against your sales. Calculating and comparing CAC across different marketing channels helps determine whether certain marketing sources are performing better than others. It can also be used to inform how much should be invested in reducing customer churn or servicing different cohorts of customers.
Customer Acquisition Cost: Total Sales & Marketing Expenses / # of New Customers
Filtering this sales metric by another variable such as sales team and/or customer type can help further inform customer acquisition and segmentation strategy.
Lifetime Value (LTV)
Determining your customer lifetime value is tricky, so we recommend partnering with your finance team to fully understand how budget is allocated at your organization before diving in. Having said that, LTV is one of the most valuable and impactful sales metrics you can use.
If you’re wondering which customer segments to focus on to provide the greatest long term value for your business, look no further than LTV. Segment customers by sales dimensions such as industry and company size and measure them by the following formula:
Lifetime Value: Average Total Revenue Generated Over Customer Lifetime – Average Associated Costs per Customer
Understanding your LTV helps you answer important strategic questions like:
– Which customer segments should we focus on?
– How should we allocate sales headcount?
– What channels should customers purchase through?
– What is my sales territory strategy?
If you are a SaaS, subscription-based business, wherein total spend occurs upfront yet total revenue is spread out over future months, determining spending efficiencies can be a bit tricky. That’s where the Magic Number comes into play.
Magic Number: (Difference in Total Recurring Revenue between 2 Quarters) x 4 / Total Sales & Marketing Expenses for the Earlier of the Two Quarters
Magic Number should be used in annual business planning and quarterly reviews to provide guidance around:
– Whether your go-to-market approach is targeted enough
– How much investment should be made in sales and marketing
– Whether you need to explore lower cost growth strategies
You should aim for a Magic Number of .75 or higher. This means that your current sales and marketing mix is working. If your Magic Number is below .75, give some more thought to what can be done to minimize your customer acquisition costs. If your magic number is above 1, you may want to consider investing more in sales and marketing.
Keep in mind that, similar to LTV, Magic Number can be difficult to calculate accurately and may require assistance from your finance team – but it’s worth it!
In addition to helping generate more accurate sales forecasts, knowing your win rate is a fast and easy way to decide whether your reps need additional training, guage deal quality, compare the effectiveness of coaching between teams and determine whether you’re focusing on the right types of customers and deals.
Win Rate: # of Deals Won / # of Deals Created
Bucketing deals by industry, channel, size, region and other key deal dimensions and measuring and comparing the win rates of these various segments provides deeper and more granular insight. The same goes for examining the win rates of individual reps, teams and the company as a whole.
Stage Conversion Rates
These sales metrics are intended to explore your sales pipeline on a stage-by-stage basis to help you quickly spot and correct issues like process roadblocks, ineffective BDR/AE handoffs and poor lead quality.
For example, if the percentage of Leads that turn into Opportunities is low, then it’s time to realign sales and marketing efforts. One way to do this is to develop a lead scoring strategy that prioritizes leads that have certain qualities in common with deals that have closed, like contact title, company size, etc.
Stage Conversion Rate: # of Opportunities That Ever Existed in the Later Stage / # of Opportunities That Ever Existed in the Earlier Stage
While acceptable conversion rates vary by company, spend some time researching what the average conversion rate is for companies of your size and vertical. Stack your stage conversion rates against these averages, and make adjustments to your sales strategy and process as needed.
In addition, stage conversion rates should be measured at the rep, team and company level, as well as segmented by key customer, rep and sales process dimensions, such as lead source, price, industry and so much more. For instance, knowing that leads from particular industries convert at a much lower rate than others tells you which segments to focus on and which your segments your reps may require additional training in to convert.
Average Deal Size
While average deal size may seem like an extremely basic measurement, when spliced by dimensions like contact title or sales team, it can help shed light on important issues like product market fit, what types of deals to focus on and more. Be sure to leverage this metric regularly in weekly meetings and analysis, as well as for quarterly business planning and review.
Average Deal Size: Sum of the Value of Won Deals / # of Won Deals
Average Sales Cycle
Your average sales cycle length refers to the amount of time a deal must spend going through all the stages of your sales pipeline before being won. This sales metric should be used if you have questions around the effectiveness of varying sales processes, or whether certain segments are a better product market fit than others.
Average Sales Cycle: Average of Close Date – Created Date for All Deals
When spliced by dimension and rep, this metric can also provide valuable insight into which salespeople may need additional training and which market segments to focus on for the fastest time to value for your business.
If you’re curious how to calculate the value of a lead in your pipe, or want to understand how to compare a lead from one source to another, for example, lead yield is for you. The same formula can be used to determine the value of opportunities by simply replacing “Leads” in the below formula with “Opportunities.”
Lead Yield: Sales Revenue for Deals Generated from Leads / Total # of Leads Generated
Understanding your yield measures enables you to more accurately score, prioritize and manage leads and opportunities based on those that ultimately generate the most value for your business. When segmented by dimension, it also gives you deeper insight into the qualities you should be looking for when it comes to prospecting – i.e. contact title, company size, industry, other technologies in use, etc.
For a more detailed breakdown of when and how to use Lead Yield, check out this blog post.
How Do You Measure Up?
The desire to be a metric-driven sales leader simply isn’t enough. To become one, you must have a firm understanding of which sales metrics to use and when. To learn more about how to make this happen, download this free guide: Understanding the New Metrics of Sales.