Sales Cycle Time - a critical metric for measuring performance
February 17, 2007 – 12:18 pmIn the previous post on sales performance analysis, we talked about how certain key performance indicators can be used to measure sales performance.
Now armed with some of the feedback from users of On2Biz and further validated by a great post by Lori Grant on Smart Lemming, there is a new sales metric on the On2Biz block - Sales Cycle Time.
A recent article by Lori Grant titled “Sales Performance Analysis - The Vital Signs of Your Sales Cycle” on Smart Lemming which builds on an article by Kimberly L. McCall in Entrepreneur Magazine, lists out the following Key Performance Indicators for measuring sales effectiveness:
1. Know your close rate: knowing your close rate and the time it takes to move across the sales cycle is critical to forecasting and to understanding issues in the sales cycle. Track confirmed interest to demo, demo to proposal, onsite demo to contract, contract to signing, and signing to implementation.
2. Improve your qualified leads: whether it’s inside sales, website leads, or tradeshow leads, marketing should do all it can to improve qualified leads handed off to the sales team. Keep track of these leads as they move across the sales cycle, looking for need improvements in marketing tactics.
3. Keep your sales cycle short as possible: See item #1. Once you identify each step in the sales cycle, you’ll be able to problem-solve on why there’s a drag in one step versus another. This will allow you to determine if there’s a process problem, channel problem, or other issues that may lengthen your sales cycle.
4. Review sales rep performance: Set monthly, quarterly, and annual goals aligned with company goals. Each rep should have a clear understanding of their quota. They should have ample opportunities in their individual pipeline so they can achieve their close rate and sales quota. Sales managers or VPs of Sales should meet regularly with sale rep and sales team to review actual performance to goals. Discussions should ensue about problems and how sales management can help.
5. Understand your profit margin per sale: while you may know your profit margin, don’t forget about the cost of sending out your CEO or CTO to close the sale. Often, these key players are sent to prospective client to close the deal, but at an opportunity cost to the company. If the CEO’s on sales trips, then that’s one or many things that CEO can’t work on that’s vital for the company or running the business. Try to understand why the CEO or CTO is need.
6. Perform a regular sales audit: deep dives are invaluable; especially when budgets are set and you sales is budgeted into the budget as cash flow to cover company expenses. Monitoring key sales metric monthly and quarterly allows an executive team to prepare for any shortfalls and manage accordingly.
For reference, let us bring back a snap shot of the sales performance report from On2Biz
Let us see whether, and how On2Biz measures the above metrics:
| 1. Know your close rate |  |
Covered by the Funnel conversion ratio. On2Biz tracks the conversion ratio from each milestone to the next, and the funnel shows a graphical view of the rate. |
| 2. Improve your qualified leads | |
Covered by the Pipeline, Weighted Pipeline which track number of leads and also give an idea of weighted value of the leads |
| 3. Keep your sales cycle short as possible |  |
Aha! This has somehow slipped our attention so far - but not too long. On2Biz knows the time it takes to go from any milestone to the next. Hence, we can track the average time to progress from any milestone to the next. And of course, the total cycle time for successful conversion. But not stopping by merely calculating the time taken, On2Biz will go further and alert the sales person if any project is stuck at a milestone for more than the average time taken to proceed ahead from that milestone. This was pointed out by Kalpit of Netcore during a recent review meeting. Thanks Kalpit, and Lori. |
| 4. Review sales rep performance | |
This refers to reviewing sales performance based on quotas or targets. In On2Biz, order values are tracked, and these can be compared to targets for the specific period. However, assigning targets to merely the order value is not enough. Each of the KPIs need to be assigned a target healthy range. If any metric is beyond this healthy range, managers can drill down and see exactly why the KPI is not up to expectations. |
| 5. Understand your profit margin per sale | |
Though On2Biz tracks the bottom line value for each project (see this post), the performance report does not explicitly display the profit margins, though they are known. This has been on our development pipeline, but since very few current users are using this feature, we’ve kept it on a slow burner. |
| 6. Perform a regular sales audit | |
This is not really a KPI, but an operational guide. In On2Biz, our first target users in a sales team are in fact managers and not sales persons. Whenever we setup a new On2Biz account for any business, we capture their sales pipeline data from a spreadsheet, and generate performance reports. The first users who are trained to use On2Biz are the managers, who start performance evaluations and control incentives by using the performance report. This automatically brings sales teams into the loop without requiring much coercion. |
The ideas of using cycle time to measure the health of the process can and will be extended to all other processes that On2Biz covers, such as customer support, order tracking, collections etc. More on this coming son…