7 Key Metrics for Profitable Sales Growth
Updated: Sep 3, 2021
Here’s a simple truth - more revenue does not always mean more profit. Most business owners recognize this, but their salespeople may not. I recently worked with a company where the salesperson sold a new solution to a customer that the customer requested. The salesperson believed that he was generating additional revenue for the company, which is a good thing, right? However, when Operations and Accounting evaluated the solution, they determined that it would actually cost the company more to produce than the revenue generated, which is not good. This is only one example of how more revenue does not always mean more profit.
Business owners don’t want more revenue - they want more profits!
In order to build a sales organization that drives more profit, businesses must understand and define the “7 Metrics for Profitable Sales.”
The 7 Metrics are divided into 3 different sections: More Revenue, Lower Sales Costs, Better Insight. Let’s look at each of these below.
Increasing revenue is necessary for businesses to grow. Here are 3 metrics to consider when focusing on revenue goals. This section is about defining the activities and providing direction for your sales team.
1. More Deals – depending on your product or service, increasing the total number of closed transactions will result in more revenue. The challenge is to understand how much it costs to close each transaction. How much additional money must be spent on marketing, new sales hires, etc. to generate more deals? Knowing how much it costs to close a transaction is necessary before adopting the strategy of focusing on more deals.
2. Larger Deals – The focus shifts from volume of deals to quality of deals. If your product or service can be packaged into a larger offering that is more profitable, than focusing on larger deals may be a better strategy. This strategy is market focused. Identifying your most profitable customers and focusing on selling more to them may increase profits more quickly than a volume-based approach. Marketing expenses and sales salaries are not increased much when the focus is shifted from a volume-based model to a target market strategy, which will improve your sales profitability.
3. Less Discount – Many companies give their salespeople the ability to discount their product or service to close a deal. In most cases, these discount programs are not managed and the negative impact on the salesperson is minimal. When this occurs, salespeople will eagerly offer the discount to incentivize the customer to purchase the product. Too often, the discount is offered without reason which lowers the Average Selling Price of the product or service. Businesses that monitor their Average Selling Price will generate more profitable sales.
Lower Sales Costs
The next area of focus to drive profitable sales is Lower Sales Costs. This area is the responsibility of sales leadership. It is often ignored because it is not as visible or apparent as the items listed in the More Revenue section. However, the following items can have significant impact on sales profitability.
4. Reduce Sales Costs – Most sales leaders don’t know how much they are spending to generate sales. They know what the sales compensation plan is for their reps, but for the most part, they do not know all of the costs allocated to their sales team. Here’s a short list of some of the common expenses associated with sales organizations.
a. Sales Training programs – Sales Training can be a great investment if you are measuring the ROI from these programs. Are they generating the expected increase in sales? Is it more than the cost of the training?
b. Sales Expense reimbursement – this includes items such as; meal reimbursement, phone expense, auto expense reimbursement, business entertainment, etc. This requires a level of detail and administrative focus that is not always the strong suit of the Sales Leader. However, there is probably someone in accounting that can help you with this.
c. Trade Shows & Networking Events – These activities can be excellent resources to grow sales, but they must be managed. Do you know what your ROI is for these type of activities?
5. Increase productivity – The effectiveness of your sales reps is a key component to sales profitability. One of the key measurements is Closing Ratio – the percentage of deals that are successfully won. Assuming Sales Activities and Average Deal Size are equal, the sales rep with the higher closing ratio is more profitable than a sales rep with a lower closing ratio. Improving a closing ratio requires that the Sales Leader has a defined sales process and can identify where reps are struggling within that process. Providing targeted performance coaching for specific areas of improvement can dramatically improve closing ratios for the sales reps, while lowering your sales costs.
6. Balanced Performance – Sales Leaders that manage larger sales teams can dramatically lower sales costs by driving a balanced sales performance within their team. To accomplish this, Sales Leaders should put their time and energy into the Middle Performers. Top Performers are succeeding and will tend to continue to be successful without your focus. Bottom Performers may never achieve and may have to be replaced. Middle Performers show potential, but they are not achieving the desired results. Sales Leaders that focus on improving the performance of their Middle Producers will accomplish two things. Middle performers will improve and get better, closing the gap on the top performers. Top performing sales reps like to be on top and want to stay on top. As the gap closes, it will challenge top performers to up their game to maintain their position. A sales team that has a more balanced performance will contribute significantly to lowering sales costs.
Sales profitability increases when business decisions are made proactively, not reactively. One of the primary responsibilities of Sales Leaders is to provide reliable insights on sales growth so that the business owner can make proactive business decisions.
7. Predictability – The ability to accurately forecast future sales growth is one of the primary responsibilities of sales leadership. An accurate sales forecast generates momentum for the business. When business owners can rely on and trust their sales forecast, they are free to make proactive business decisions with confidence. Unreliable or unpredictable sales forecasts force business owners to be more cautious and wait for revenues to come in before taking action.
Reliable sales forecast is the result of a defined sales process model supported within a CRM tool. When managed, this combination allows sales leaders to provide the necessary information required by business owners to make the investments required to grow their business.
As you can see, there is a difference between focusing on increasing revenue and focusing on profitable sales growth. These 7 Metrics are the keys to generating profitable sales growth for your company.
AcSELLerate helps business owners build sales organizations that exceed expectations. If you’d like to discuss how we can help you develop a sales organization that generates more profitable sales, reach out to me at email@example.com