How do you ensure that sales reps are ready for each and every buyer interaction?
I frequently get asked by customers about leading performance indicators for sales reps. The thing they want to know is: "how do I know if I'm on track to hit targets before it's too late?"
Great question, glad you asked.
Here are four KPIs that you can use to track your reps, your team and your company. These early indicators will give you a heads up that something is off the rails before it's too late to course-correct.
Pipeline coverage measures open pipeline as a ratio against quota. Depending on your typical win rate, you generally want to have a 3x - 4x pipeline coverage. For example, if your win rate is 25%, then you want to have 4x pipeline coverage. With 4x pipeline coverage, if your quota is $100k, you would have $400k of pipeline.
Pipeline coverage is also useful to look at for multiple forward periods. Meaning, look at pipeline coverage for the current quarter, next quarter, and following 2 quarters. Most likely you'll see the ratio decreasing over time. You can use the delta between your desired pipeline coverage, and your actual pipeline coverage, to determine how much pipeline you need to generate.
A probability-weighted forecast takes your actual pipeline, and multiplies it by your historical win rate, given the stage. Meaning, if you win 5% of opps in Stage 1, and 20% of opps in Stage 2, you multiply your Stage 1 pipeline by 5% and your Stage 2 pipeline by 20%, and add those 2 numbers together to get your full probability-weighted forecast.
Probability-weighted forecasts work best when used with process-based stages, as opposed to forecast categories. The reason is that you'll see more consistency in your win rates from rep to rep if you're using process-based stages. Opps in the same process stage tend to close with more consistent percentages from rep to rep if you have a tight process. Forecast categories can differ a lot depending how conservative the rep is.
Sales Velocity takes your opportunity production, multiplies it by close rate and ASP, and divides by sales cycle. Generally, sales velocity is measured on a monthly basis, and uses monthly opps created, and sales cycle is expressed monthly. A rep's sales velocity is a good predictor of how much revenue they will bring in per month in the future. Meaning, if a rep created 20 opps this month, and they have an ASP of $20k, a close rate of 25%, and a sales cycle of 2 months, then you'd expect them to produce (20 * $20k * 25%) / 2 = $50k per month.
This calculation works at the rep level, the team level, or a whole business level.
Value per Opportunity
Value per Opportunity is a measure of close rate multiplied by ASP. You want to monitor this over time, to see if the quality of your opportunities is improving or getting worse. Frequently, companies spend a lot of effort on producing a larger number of opps. That's obviously valuable, if the quality of those opps is good. But if that larger number ends up decreasing your ASP and win rate, then it may not be worth it. You can multiply your current value per opp by the number of opps you're producing, to see the overall value you've created by period. That is the number that you want going up.
Bringing it all Together
Sales Rep Scorecards is an app that helps sales managers get easy visibility into their leading indicators. This allows them to make good decisions and coach reps intelligently.
Below is an example breakdown of Sales Velocity for a rep. Sales Velocity is climbing nicely for this rep, even though their bookings are slightly down over the recent couple of quarters. Without a leading metric like Sales Velocity, a manager might think this rep is performing worse, since they've closed less business in Q2 than they did in Q1 and Q4. However, their velocity is going up because they're producing a healthy number of opps, closing them at a solid rate (33%), and their sales cycle has improved to under 2 months.
Rather than getting alarmed that bookings are down $36k quarter over quarter, the manager here should be telling this rep to keep up the good work on maintaining a high ASP and close rate, while cutting their sales cycle significantly. If they can stay that course, their future yield will be high ($181k per month, or $543k per quarter).
If you'd like to track leading performance indicators for your reps or team, let us know.