The following is an excerpt from the recently published book From Impossible to Inevitable: How Hyper-Growth Companies Create Predictable Revenue by Aaron Ross and Jason Lemkin.
Are you overanalyzing, or so microfocused on email open rates, webinar attendance levels, or getting your apps configured that you’ve missed an uber-issue?
When you get so caught up in the day-to-day busy-ness of marketing, lead generation and app configuration, it can be easy to miss the forest for the trees.
One great thing about all the new ways to measure marketing and sales is being able to better See the Future (especially in SaaS business).
Use these five classic metrics, but use them more insightfully than you have before:
1. Number of open opportunities in total and per rep.
Measure the total number of open opportunities each rep is working at any given time, and understand how many total new opportunities they should be getting per month – not too few, and not too many.
What to do with it: Your reps should get a sufficient inflow of new opportunities to have a steady number to work in their pipeline, (a) giving them enough opportunities to hit their number, but (b) without overwhelming them so balls start dropping.
A common number for a SaaS rep doing low-five-figure deals to juggle is 25-30 opportunities. Yours may or may not be different. For yours, look to your own history. How many have your best reps juggled? Does it vary much by segment, type of customer, or average deal size? When was it too many?
This metric also gives you a sanity check if you need to grow your open opportunities a lot (by cranking up lead generation), or if your team is overwhelmed (and you need to hire more salespeople).
2. Number of closed opportunities in total and per rep.
Measure total opportunities closed including both closed-won and closed-lost opportunities.
What to do with it: Your reps should be closing a certain number of sales deals each month (whether won or lost). It’s a form of “throughput.” If they’re not closing enough total opportunities, drill down: Are they light on deals? Not closing effectively? Is their pipeline full of “hope” that never goes anywhere? Are they not updating the sales system?
3. Deal size.
Measure the average value of your closed-won deals.
What to do with it: Knowing this metric will make it easy for your to spot opportunities that fall outside the normal deal size (say three times greater than average) and flag them for special attention. Also, if the trend shows an increase in smaller deals won, perhaps some reps are focusing on small fish. Or perhaps your reps are increasing discounts.
If you see a new trend in average deal size, then you need to dig into your pipeline mix or discounting practices to understand why.
4. Win rate.
Measure the number of closed opportunities, in a specific closing period, that you won (Closed Won Opportunities)/(Total Opportunities: both Closed-Won and Closed-Lost). This won’t mean much unless you can watch it trend, or use it to A/B test reps with similar segments, or compare against companies similar to yours.
What to do with it: “High” win rates aren’t good; “low” win rates aren’t bad – either one gives you a chance to get smart about your sales system, to spot areas of success or problems. For example, if your win rate is high, maybe your pricing is too low!
The simplest way to start increasing your team’s win rate is to find the one or two most problematic steps in your process, and then look both “inside” (e.g., a better demo process) and “outside” the team (e.g., an easier free trial, or simpler pricing)…
It’s common for sales teams beginning to scale up to see win rates drop. Is it because of the new people? Has lead quality or management quality changed? Or because of packaging, pricing, or website changes? You need to drill down and see exactly where opportunities are falling off, in order to get to the root cause.
Look at your sales funnel and understand conversions through every stage through closed-won. If most reps are struggling in the same area, then don’t blame them; it might be something outside their control. Nominate an investigator to find the truth of what’s going on.
If specific individuals consistently have much higher or lower win rates, don’t be too quick to jump to conclusions and criticize or compliment them. First look at their data to find out “why” and learn from it. A sales rep with highest consistent win rate may be talented at sales, or talented at sandbagging/cherry picking.
Don’t “assume” – investigate. Look at win rates with other data to get the whole story. For example, win rates for word-of-mouth leads (Seeds) should be much higher than leads generated by marketing (Nets) or outbound (Spears).
5. Sales cycle.
Measure the average duration or time (typically in days) it takes your team to win a deal and, ideally, how long opportunities spend in each sales stage.
What to do with it: The best use of this metric isn’t to see how fast you are; it’s to get smart about whether your current deals are on track or in trouble. An opportunity has lingered in the same stage three times longer than the average? Uh-oh, flag it!
Faster isn’t always better; focus on learning what the “right” time frames are that create successful deals and customers. For example, sometimes customers move too fast for their own good and rush into a deal that later blows up because they didn’t to their own diligence.
Our uber-point: Rather than judging these metrics as high/low or good/bad, use them to drill into your sales systems to get smart about what affects them the most.
Want to Read More?
From Impossible to Inevitable: How Hyper-Growth Companies Create Predictable Revenue is available for purchase here on Amazon. To continue learning more about sales metrics right now, download the free white paper, Understanding the New Metrics of Sales.