May 2, 2022

Why Are KPIs Important?

People.ai
Why Are KPIs Important?

Modern sales leaders know that the best way to track team performance is to use real-time, accurate data. Through these metrics, you can hyper-focus your sales activities and prioritize what provides the most significant success.

However, not all key performance indicators are necessary to track. Some metrics can tell you more about your sales efforts than others, depending on your business goals. If you’re new to developing essential sales KPIs, this comprehensive guide will tell you everything you need to know, including why KPIs are important, the characteristics of a good KPI, and the most useful KPIs for different positions.

What Does KPI Stand For In Sales?

KPI is a sales acronym that stands for key performance indicators. These metrics come in various forms and benefit sales managers, field reps, and marketing employees.

What Are Sales KPIs?

Sales KPIs measure a business’ activities against its specific goals. You should always choose essential sales KPIs relevant to your industry – doing so will provide you with more useful and accurate results.

Why Are Sales KPIs Important?

Tracking KPIs is necessary for putting your business efforts into perspective. It provides a clear overview of your strategy and can help you predict future trends and sales.

A few other ways sales KPIs can benefit your sales efforts include the following:

  • Make the appropriate adjustments: Like trends, your KPIs will change along with your business goals. Because KPIs help you predict business outcomes, they can tell you whether you’re on track to achieve your desired results.
  • Tackle new opportunities: Businesses typically track more than one KPI at a time. For instance, if you want to increase profits over time, you might zero in on metrics like monthly sales and conversions. While these metrics can tell you what you’re doing right, they can also tell you what you’re missing out on (and how to leverage these opportunities).
  • Analyze patterns: When you do something right, you want to make sure you can do it again for future success. One of the best ways to keep track of your most successful initiatives is KPI monitoring. Tracking KPIs can also help you identify whether certain people on your team are underperforming or overworked.

What Makes A KPI Effective?

To be effective, KPIs have to have the following characteristics:

  • Simple: You want your KPIs to be easy to measure without too steep of a learning curve. When you track a KPI, you want more answers than questions – it should help you make practical decisions without any confusion.
  • Measurable: While some KPIs are qualitative, keeping them quantifiable can make them easier to track. Make sure your KPIs are focused, specific, and data-centric. For instance, if you want to improve your marketing efforts, you might track social media engagement rates.
  • Actionable: Beyond measurable, you want your KPIs to indicate how you can achieve your goals. Keep your KPIs realistic and short-term.
  • Relevant: There are many KPIs you can track, but it doesn’t mean you should follow all of them. Keep your KPIs pertinent to your goal – otherwise, you could be wasting your time.

Sales Metrics vs Sales KPIs

While they might seem similar, performance metrics and KPIs are not the same things. Sales metrics also pertain to data points that reflect your sales performance, but KPIs are specific to certain goals. What makes a metric a KPI is how your team uses it to indicate progress and achieve an objective.

For example, your conversion rate is, in itself, a metric. Using your conversion rate to improve sales and profits turns this data point into a KPI.

How To Choose The Right KPIs For Your Sales Team

When choosing KPIs, pick key metrics that help you achieve specific sales goals. You can narrow down your key performance indicators using these tips.

Align Your KPIs With Your Strategic Goals

If you want to know what you need to do to improve your sales process, pick out quantifiable measurements and data points that help put your progress into perspective. For example, if your goal is to increase brand awareness, metrics like website views or social media follows can tell you whether you’re getting closer to achieving it.

Set A Time Period

Keep your business goals achievable and bind them to a time frame. If you aren’t getting your desired results within a period of time, you might need to rethink your KPIs.

Be Aware Of Your Business Growth

Whether your company is a startup or already on its way toward becoming a household name will determine what KPIs you should keep an eye on. If you run a more established organization, monitoring data points like customer lifetime value or acquisition costs might make more sense than tracking brand awareness.

Narrow Your Selection

Even the most advanced data analysis software can’t help you track every metric out there. By focusing on a few metrics, you avoid biting off more than you can chew.

What KPIs You Should Be Measuring If You Want Sales Growth

You can identify sales opportunities within your pipeline and drive better results with the right metrics. Here are the top KPIs you should measure to enhance your sales strategy:

Cost Per Lead (CPL)

CPLs put into perspective the cost-effectiveness of your marketing efforts. Each lead is assigned a dollar amount – the lower your CPL, the better your efforts are paying off.

Marketing ROI

Naturally, a high return on investment indicates that a specific marketing campaign is a good investment from a marketing perspective good value for money. Track your ROI by dividing the number of leads in your campaign by the opportunity value.

Sales Qualified Leads (SQL)

Remember, not all leads will become customers. As such, tracking your SQL can help pinpoint areas of improvement in your lead generation process by indicating how many leads, on average, become converts.

Sales Revenue

This simple KPI helps you determine growth trends and projections. It tracks your campaign’s overall success, which you can then use to develop customized goals for sales teams.

What Are The Types Of Sales KPIs?

Some marketing KPIs are more appropriate for specific sales teams than others. Below is a list of KPIs we’ve compiled for different types of sales reps.

KPIs For Sales Managers

Sales Volume By Location

This KPI is beneficial for businesses with brick-and-mortar locations. You can determine where your product is most in-demand and where it could use some work. Tracking your sales volume by location can also help you determine whether you need to further customize your services according to a specific region.

Employee Satisfaction

As a sales manager, you need to satisfy your sales reps. The more content your sales team is, the more motivated they will be to work. This KPI doesn’t just indicate how well your team is performing – it also tells you how you’re doing as a manager and identifies what you need to improve.

Sales Cycle Length

A short sales cycle length doesn’t necessarily guarantee a low churn rate. You don’t want to close deals as quickly as possible if it means your customers are dissatisfied with the process. Instead, use this KPI to determine a workable average sales cycle length and figure out what you can do to keep customers from churning.

Close Ratio

The close ratio tells you how effective your outreach strategy is. It measures how many deals a sales rep closes in relation to how many leads they have.

KPIs For Business Development Reps

Activities

Activities indicate the number of calls, emails, and meetings scheduled that your sales teams achieve within a certain period. At a glance, it can indicate their productivity levels.

Opportunities Created

Activities only matter if they push leads into your sales pipeline. To ensure your efforts aren’t wasted, compare your sales activities to the number of opportunities created. With this metric, you get a better idea of what sales activities produce the highest number of quality leads.

Deals Won

Are your sales teams winning a significant number of deals? If so, track which sales plays are most effective.

Client Acquisition Rates

When you reach out to new prospects, your goal is to turn them into paying customers. If your client acquisition rates are low, you need to pinpoint why your sales funnel isn’t growing. For example, it’s possible your reps aren’t reaching out to qualified leads or are missing out on better sales opportunities.

KPIs For Sales Development Reps

Average Response Time

When you get qualified leads, you don’t want to keep them waiting. Benchmark response times to encourage leads to move quickly along the sales funnel.

Positive And Negative Response Rate

At face value, sales leads will either be interested or not interested. You can accurately identify flaws and strengths in your sales process by tagging positive and negative replies.

Meeting Acceptance Rate

A high meeting acceptance rate is the mark of a hardworking sales rep. These reps do an excellent job of creating a sense of urgency with prospects, encouraging them to prioritize your offer. You can determine your meeting acceptance rate by dividing the number of intended meetings by the total number of acceptances.

SQL-To-Customer Conversion Rate

While your reps only have so much control over how many leads they generate, successful sales teams know how to turn them into paying customers. If you notice low conversion rates with specific reps, consider providing them with additional training.

Deal Win-Loss Ratio

Sales development reps may not directly influence this KPI, but knowing your deal win-loss ratio can put consumer journeys into perspective.

KPIs For Sales And Marketing To Track

Leads By Lifecycle Stage

Breaking down leads according to the cycle can help you identify sales opportunities you might be missing out on. Observing the handoff from MQL to SQL allows you to diagnose any issues within your sales pipeline processes and decide whether you’re focusing on suitable sales leads.

MQL-To-Customer Conversion Rate

Contrary to popular belief, this KPI is just as relevant to sales teams as marketing teams. After all, your sales team is responsible for turning MQLs into paying customers.

Average Length Of Customer Lifecycle

As much as possible, keep the average time a lead spends between their first impression to their first purchase as short as you can. Keeping customer lifecycles short can reduce acquisition costs and make your lead generation process more efficient.

Cost Per Lead

Ultimately, as a sales leader, your goal is to help leads make their way from marketing to sales. The less money you spend on these sales efforts, the more efficient your campaign is. You can calculate your cost per lead by dividing your campaign budget by the number of successful leads you obtain.

Cost Per Acquisition

How you measure this KPI will depend on what you consider an acquisition. For instance, an acquisition might pertain to a filled-up form or closed deal. By tracking how much it takes to acquire a customer, you can focus on more value-adding activities and eliminate sales pipeline processes that aren’t as effective.

Customer Retention Rate

When a customer signs a contract or closes a sale, it doesn’t necessarily mean they’ll return for business. Tracking your customer retention rate encourages your team to meet consumer needs regularly.

Average Revenue Per Account

While it’s important to close deals with as many potential customers as possible, not all of them will significantly impact your sales revenues. Tracking this KPI can direct you towards more relevant audiences and increase your average revenue.

Net Promoter Score (NPS)

Your net promoter score determines how likely a specific consumer group will recommend your product to others. Most businesses typically segregate these groups into three:

  • Promoters are customers who are most likely to renew and recommend.
  • Passives are satisfied customers who may or may not do repeat business with your company.
  • Detractors are customers who will probably churn and recommend against your brand.

To get your NPS, subtract your detractor percentage from your promoter percentage.

Customer Lifetime Value (CLV)

Your CLV refers to the total revenue a lifelong customer is likely to drive towards your business. To get this number, you’ll have to determine the account’s revenue value and compare it to its predicted lifespan. As a sales manager, this figure can measure your ability to engage existing clients and consider new methods of increasing consumer loyalty.

How Do You Create Better Sales KPIs?

As your business grows, your KPIs are likely to change over time. So, how do you choose the right ones? Here are a few tips for setting realistic KPIs for your sales department.

Set Clear Business Goals

Before picking your KPIs, you first have to know what your future goals are and how quickly you plan to achieve them. When determining your business objective, keep it straightforward and measurable. For instance, if your goal is to increase business profitability, determine by how much you want to bump revenue and by when.

Choose An Analytics Tool

Manually measuring KPIs can waste precious business hours. To save time and money, consider investing in a comprehensive CRM and communications tool.

In particular, CRM software can organize contact information, assign tasks to reps and teams, and identify sales opportunities. It can also automate repetitive or administrative tasks like data entry, lead generation, and more.

Adhere To The Two Rs

When tracking KPIs, adhere to the “two R” principles: relatable and reliable. Everyone on your team should have the same understanding of a specific metric to achieve overarching goals. With a strong grasp of your KPIs, all team members can input data accurately and consistently.

Key Takeaways

Overall, key performance indicators (KPIs) can help you monitor progress and identify opportunities for improvement. When creating KPIs for your business strategies, keep these takeaways in mind:

  • Use KPIs that are relevant to your business goals. Come up with a primary goal and one or two secondary objectives that are straightforward and measurable.
  • Identify specific actions that can help you achieve these goals. Use these to identify the most relevant KPIs.
  • You don’t have to use every single KPI on the market. Pick and choose what is most appropriate to your team and your objectives.
  • Use CRM and analysis to keep better track of your KPIs and reduce human error. Using an organizational tool can also save time and money in the long run.

Sales KPI FAQs

How do you achieve successful KPIs?

To achieve successful marketing KPIs, narrow them down to what is most relevant to your goals and capabilities. Define company-wide objectives that you can measure and achieve within a realistic period.

Then, develop individual objectives for each team, specifying actions to prioritize. Then, determine the best way to measure these goals. For example, if you’re looking to increase revenue, KPIs to keep an eye on include budget-related metrics and profits.

If you aren’t achieving your KPIs, you’ll always have room to go back to the drawing board. If you’re far behind on your goals, consider tracking a new KPI or adjusting your course of action.

How do you measure KPI for sales?

Once you’ve identified your goals and primary KPIs, you’ll have to determine a measurement framework. To do this consider diagnostic metrics – instead of focusing on your campaign’s success rate, observe the metrics at face value. What are the numbers telling you? Are you heading in the right direction?

Another way to ensure you hit your KPI numbers is to identify benchmarks. Consider both industry and internal benchmarks and use them to measure your campaign’s success. Over the course of your campaign run, you may need to optimize certain actions or rethink irrelevant KPIs to meet benchmarks.

How can sales KPI be improved?

As your campaigns evolve, so will your KPIs. Here are a few tips for improving them:

  • Limit your focus to a few indicators. You don’t want to track too many metrics and lose focus.
  • Think about who is involved. Do your KPIs align across various teams? Are they relevant to everyone in the business? Make sure everyone involved has a thorough understanding of each KPI and what they can do to fulfill these goals.
  • Set realistic expectations. While being ambitious is, in itself, not a problem, you don’t want to set goals that you can’t reasonably achieve within a specific time frame.
  • Benchmark related KPIs. Some metrics will have nothing to do with each other – don’t force the pieces to fit.

The Bottom Line

Establishing KPIs that matter is an excellent way to get a better understanding of your business performance and what you need to do to achieve your overarching goals. By keeping KPIs relevant, straightforward, actionable, and measurable, you can use them to improve your sales campaigns over time. Do you want to learn more about revenue intelligence and how you can improve your business structure? Explore the rest of our blogs and guides!

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