For many sales organizations, winning is everything. It’s an easy philosophy to develop when so much is focused on the outcome of sales efforts, including how sales reps and management are paid. Even so, there is more to the sales process than just the outcome.
At Janek, we frequently see sales teams focusing on only one type of metric or Key Performance Indicator. In reality, there are actually two primary groupings of metrics on which a sales organization should focus on in order to promote maximum effectiveness. Those are leading indicators, also referred to as forward metrics, and lagging indicators. In other words, it is important to focus on not only the outcomes of your organization’s sales performance but also how those outcomes were achieved.
Lagging indicators are used to measure the outcome of your sales efforts, such as cost per sale, margin, top line revenue, revenue per rep, etc. The strongest focus is often applied to lagging indicators, because it is this performance metric on which sales reps and sales management are often paid.
By comparison, leading indicators are utilized to measure processes within the sales cycle for predicting successful outcomes. Examples might include the ratio of sales calls to quotes, the ratio of leads to sales calls, the percent certainty of closure, opportunity forecasting, etc. In a way, leading indicators are the steps that are used to achieve a goal, while a lagging indicator is the goal itself.
No professional athlete ever sets out to win a game or a match without first thinking about strategy and the steps he or she will use to win. Sure, the final score is important, but that score cannot be achieved without the thought that first went into the strategy used to bring home the trophy.
Unfortunately, many sales organizations spend so much time focusing on lagging indicators, or the final score, that they lose an opportunity to improve the processes that are used for maximizing sales performance. The various pieces of the sales process, such as sales call effectiveness, lead management, sales forecasting, and opportunity management, are all crucial to helping sales teams improve their overall effectiveness. When a sales team consistently utilizes all possible resources to gain improved understanding of potential capabilities, it becomes possible to more significantly impact both the development and conversion of sales opportunities.
Creating a Well-Rounded Approach
What can you do to ensure that your organization is focused on all of the pieces of the puzzle and not just the end result? Begin by ensuring that you are focusing on innovation and remaining competitive. Today, organizations can take full advantage of massive amounts of data to make sound decisions in real time. Customer satisfaction is now used as a leading indicator among many companies for learning from current customers. Such customer data can be used for not only growing current customer relationships, but also supporting the acquisition of new customers.
Leading indicators can also be developed to help your sales organization interact with front-line sales reps earlier in the process. A common mistake made by many companies is to utilize industrywide standard ratios rather than tracking ratios for the organization’s own highest-performing sales reps. Instituting this type of benchmarking can prove to be far more effective in terms of establishing a balanced scorecard that can later be used for helping sales reps develop their selling skills.
Finally, focus on ensuring that sales reps know enough about their territory to make informed decisions for moving the sales process forward. Such data might include why accounts in that territory are won or lost as well as the competitors in that territory and what it is that competitors do differently there.
Taking the time to discover such vital pieces of information can assist you in leveraging the leading indicators necessary to identify and eliminate ineffective opportunities earlier in the sales process. As a result, you will be able to be more effective in terms of sales forecasting.
Winning is always important, but simply winning is not enough. You must also know how to win. Leading indicators can provide your entire sales team with the necessary ingredients to ensure future success.