Sales performance metrics

Why it matters

Metrics turn selling from an art practised by one talented person into a system the business owns. They tell you whether a slow month is a lead problem, a qualification problem or a closing problem, which are fixed in completely different ways. They make a sales hire manageable, because you can see activity and conversion long before the first deal lands. And they give you a defensible basis for decisions about marketing spend, pricing and hiring.

Leading and lagging indicators

Lagging indicators are results: revenue, deals won, average deal value. They are accurate and too late. Leading indicators are the activities and conversions that produce those results: leads generated, prospects contacted, discovery calls held, proposals presented, pipeline coverage. They are noisier but early, and they are the numbers you can actually change this week.

A useful dashboard has both, with the lagging indicators as the scoreboard and the leading indicators as the controls. If revenue is down, the leading indicators tell you where: fewer leads means a marketing or prospecting fix; the same leads but fewer proposals means a qualification or discovery problem; the same proposals but fewer wins means a pricing, proposal or negotiation problem.

Sales velocity: the one formula that ties it together

Sales velocity measures how much revenue your pipeline produces per day. It multiplies the number of qualified opportunities, the average deal value and the win rate, and divides by the length of the sales cycle in days. The result is a single number, and more usefully, four levers. Improve any one of them and velocity rises; improve two at once and the effect compounds.

The formula is a diagnostic tool as much as a measure. If you want 20 per cent more revenue, you can get it from 20 per cent more qualified opportunities, a 20 per cent higher average deal, a win rate that moves from 25 to 30 per cent, or a sales cycle that shortens from 60 days to 50. Usually one of those is far easier than the others for your business, and the formula shows you which.

Choosing your core set

For most small businesses, eight to ten metrics is plenty, arranged down the funnel. At the top: leads per month by source and cost per lead. In the middle: qualification rate, proposals presented, pipeline coverage and average days in stage. At the bottom: win rate, average deal value, sales cycle length and, as the summary, sales velocity. For businesses with repeat customers, add customer retention and net revenue retention.

Define each one precisely and write the definition down. "Win rate" can mean won divided by all deals created, or won divided by deals that reached proposal, and the two numbers will be very different. Pick one definition, apply it consistently, and compare against your own history rather than against industry figures, which are rarely measured the same way.

• Top of funnel: leads per month by source, cost per lead, response time.
• Middle: qualification rate, proposals per month, pipeline coverage, days in stage.
• Bottom: win rate, average deal value, sales cycle length, sales velocity.
• After the sale: customer retention, net revenue retention, expansion revenue.

Using metrics to coach, not just to judge

When there is a team, metrics are most valuable as a coaching tool. Two people with the same revenue can have completely different profiles: one books lots of meetings and closes few, the other books few and closes most. The first needs help with qualification and proposals; the second needs help with prospecting. Ranking them by revenue tells you nothing about that; the funnel metrics tell you everything.

Review the numbers with each person weekly or fortnightly, focusing on one lever at a time. Set activity targets for the leading indicators they control, and conversion targets they can improve with coaching. Celebrate improvements in the leading indicators before they show up in revenue, because they will, and because it keeps people doing the work during the lag.

How to set up sales metrics

1. Confirm your pipeline stages and CRM hygiene Metrics are only as good as the data. Every deal needs a stage, value, date and source.
2. Choose eight to ten metrics down the funnel Leading indicators you control, lagging indicators that keep score, velocity as the summary.
3. Write a one-line definition for each Numerator, denominator, period. Apply the same definition every time.
4. Establish your baseline Calculate each metric for the last two to four quarters from the CRM. This is what "normal" looks like.
5. Set targets from the baseline Improve one or two levers at a time by realistic amounts; let velocity show the compound effect.
6. Build one dashboard Current value, trend and target for each metric, pulled from the CRM, fitting on one screen.
7. Review weekly and coach on one lever Individually with each salesperson, and for the business as a whole in the pipeline review.

Real-world example

A Canberra marketing agency finds its real bottleneck

Monaro Creative is a nine-person agency serving associations and government suppliers in Canberra. The founder, Dev, believes the agency needs more leads and is about to double the advertising budget. Before he does, he pulls six months of data from the CRM into a simple set of funnel metrics.

The numbers tell a different story. The agency generates about 40 leads a month and qualifies 15. It presents only six proposals a month, and wins two, at an average of $18,000 and a cycle of about 75 days. Lead flow is not the problem; the gap between qualification and proposal is. Discovery calls are being booked but proposals take two to three weeks to write, and half the qualified prospects go cold in the gap. Dev builds a proposal template with three standard options, sets a five-business-day proposal turnaround, and tracks days from discovery to proposal as a new leading indicator. Within a quarter the agency presents ten proposals a month and wins three, and the cycle shortens to around 55 days. Sales velocity roughly doubles with no extra advertising spend at all.

Common mistakes

• Measuring only revenue Revenue is the result, not the cause. By the time it drops, the problem is months old. Track the leading indicators that produce it.
• Tracking too many metrics Fifty reports get glanced at; ten numbers get acted on. Narrow to the funnel and the levers you can move.
• Inconsistent definitions If win rate means different things in different months, the trend is meaningless. Write definitions down and stick to them.
• Comparing against industry benchmarks Published figures are measured differently and describe different businesses. Compare against your own history.
• Using metrics only to rank people Ranking tells you who; funnel metrics tell you what to coach. Use them to diagnose and improve, and the ranking takes care of itself.

KPIs to track

• Win rate Won deals divided by all closed deals from qualification. Track monthly, by source and deal size; improvement here is pure profit.
• Sales cycle length Average days from qualified to won. Shorter cycles mean faster cash and less pipeline needed for the same revenue.
• Average deal value Revenue per won deal. Rising value with steady win rate usually means better qualification or better options in proposals.
• Pipeline coverage Qualified pipeline for the period divided by target. The leading indicator for next quarter’s revenue.
• Sales velocity Opportunities × value × win rate ÷ cycle days. The one number that summarises the health of the whole engine.
• Activity per week Prospects contacted, discovery calls held, proposals presented. The inputs each salesperson directly controls.

Frequently asked questions

How many metrics should a small business track?

Eight to ten, arranged down the funnel, is enough for almost any small or growing business. Add more only when a specific question needs answering.

Where does the data come from?

The CRM, provided deals carry stage, value, date and source and the team logs activity. If the CRM data is not trustworthy, fix that first; metrics on bad data are worse than no metrics.

How often should I review sales metrics?

Leading indicators weekly, in the pipeline review. Lagging indicators and velocity monthly. Baselines and targets quarterly.

Should metrics be tied to commission?

Pay plans usually reward lagging results such as revenue or margin. Use leading indicators for coaching and activity targets rather than pay, so that people do not game the inputs. Take advice on any commission structure, including its Fair Work and tax implications.

Key takeaways

• Revenue tells you what happened; funnel metrics tell you why and what to change.
• Separate leading indicators you control from lagging indicators that keep score.
• Sales velocity ties opportunities, value, win rate and cycle length into one number with four levers.
• Track eight to ten precisely defined metrics on one dashboard, reviewed weekly.
• Use the numbers to diagnose and coach, not just to rank.