To grow your business, you need a view of how each business process is performing.
Sales, in particular, are worth measuring in a variety of dimensions because small changes can get big results—if you know what to tweak.
Below are six metrics that will give you both broad and deep insights into your sales processes.
- Total revenue
- Number of leads
- Touches per lead
- Conversion rate
- New customers vs. returning customers
- Year-over-year (YoY) growth
Total revenue
Revenue is likely the first metric you would think to track because it represents total sales. When revenue goes up, then you know sales have gone up by volume or value—good news either way.
What makes total revenue such a useful metric is in how you analyze it. For example, you can use it to calculate your return on revenue by taking net income, dividing that by total revenue, then multiplying by 100 to turn that number into a percentage.
Imagine your monthly net income is $5,000, and your total revenue is $10,000. Divide the first figure by the second to get 0.5, and multiply by 100 to get a return on revenue of 50 percent. From there, you can compare the return on revenue on a month-by-month basis. If the percentage begins to shrink, that’s an indicator that costs are eating into your profit margin.
Further, you can break total revenue down on a per-product basis, a per-contract basis, and even a per-employee basis. This will show you how much a given product, contract, or employee contributes to your business’s total revenue. From there, you can begin to prioritize inventory or staffing numbers accordingly.
Number of leads
Leads are people who are interested in your products or services. By creating a systematic way to manage and nurture leads, you create a pathway for leads to become sales.
The path from lead to sale varies depending on your business and who your customers are. If you sell to other businesses, your sales motion might involve a product demonstration, the creation of a proposal, and negotiations before you make that sale.
If you sell directly to consumers, however, the path could be much shorter—often just a matter of sending a promotional email to everyone who has opted into your newsletter.
You can segment your leads into various groups, too, based on where they fall in your sales funnel. After all, some leads will be warmer than others, depending on the person’s initial level of interest in your products or services.
Aaron Mandelbaum at SMB Advisors outlines the distinctions nicely. For now, let’s concentrate on two segments: marketing qualified leads (MQLs) and sales qualified leads (SQLs).
- Marketing qualified leads Marketing qualified leads are people who have received your marketing message and indicated some kind of interest in your product or services. If someone has opted into your email newsletter, for example, that person could be considered an MQL. These are people who need a little light nurturing and relationship-building, but not a sales pitch. If you have a low number of MQLs, Mandelbaum notes, this indicates that your broader marketing activities could use some fine-tuning. Consider repositioning your message, or reaching out to a different audience if that’s the case.
- Sales qualified leads Sales qualified leads are a little further along your sales funnel. These could be people who have come into your office for a consultation or people who have sat through a product demonstration. Mandelbaum cautions that SQLs are likely not yet ready to buy, but they’re likely ready to talk to one of your salespeople about potential next steps. If you have a low number of SQLs, this indicates you should be investing a little more into nurturing and relationship-building with your marketing qualified leads.
Touches per lead
A touch is any kind of interaction you have with a lead. Touchpoints—where those interactions take place—are numerous, and can include everything from billboards and subway posters to social media channels and email campaigns.
Some touches are lighter than others. If you are advertising your products on Instagram, for example, that ad would represent a lighter touch than an inbound phone call from a curious consumer.
In general, a person needs at least a handful of touches before they graduate from prospect to lead to customer. How many touches depends on what you’re selling and whom you’re selling to. Someone buying new accounting software for their employer likely needs more touches than someone buying fruit in a grocery store.
Remember two things about touches:
- They reveal how people move through your sales funnel. Once you’ve made enough sales that you can see patterns developing, you can optimize your sales funnels so people go through the ideal number of touches in the ideal sequences.
- Touches tend to have diminishing returns after a certain point. Your salesperson’s first followup phone call will get a warmer reception than their seventh. That’s why diversifying touchpoints can be so effective. An email or a physical mailer might resonate with a lead in a way that a follow-up phone call doesn’t.
Conversion rate
Conversion rate indicates how well your sales funnel is working.
To calculate this number, divide your number of sales by your number of leads, then multiply by 100 to get a percentage.
For example, imagine a year in which you identified 250 leads, and 50 of those leads became paying customers. That’s a conversion rate of 20 percent (50 / 250 x 100).
This number is useful to track over time. As you optimize your sales process—by investing more in lead nurturing, for example—ideally you will see your conversion rate go up. That increase (or decrease, sometimes) will be an indicator of how effective the tweaks to your sales process have been.
Don’t worry if your conversion rate percentage seems low. In many industries, a conversion rate in the single digits is normal.
New customers vs. returning customers
It costs more money to acquire a new customer than it costs to retain an existing customer.
Ideally, over the course of your business, your returning customers will become a bigger and bigger proportion of your customer base. The more sales from returning customers, the lower the cost of doing business.
If you notice that business increasingly comes from new customers over time, this could indicate that you’re not spending enough time nurturing established customer relationships. This is where investment in customer relationship management (CRM) pays dividends.
As the team at cloud consulting company Galvin points out, CRM provides an excellent framework for nurturing relationships with existing customers. The software will let you (or your sales team) prioritize customer touches and assign a cadence to outreach (e.g. message them once per month or once per quarter). That lets everyone on the sales team know when it’s time to follow up with someone.
Further, you can record the type of outreach (e.g. phone call, email, LinkedIn message) to create a history of how that relationship-building has progressed.
Once you’re in the habit of regularly nurturing those customer relationships, you reintroduce those people back into your sales funnel.
Year-over-year (YoY) growth
Tracking year-over-year growth is an excellent way to alert yourself to hidden costs.
This is a percentage, and it’s easy to calculate:
- Start with your current year’s earnings.
- Subtract from that number your previous year’s earnings.
- Divide by last year’s earnings.
- Multiply that number by 100 to get a percentage.
Let’s say your company earned $500,000 in the current year and $450,000 in the previous year. The math will look like this:
(500,000-450,000) / 450,000 x 100 = 11.11 percent
If you see positive percentages year after year, that means business is growing.
If, however, the percentages start to drop or go into the negatives (this happens when current-year earnings are less than previous year earnings), this could indicate a number of things, as Meredith Wood at Fundera points out:
- It could mean productivity has slipped. Wood gives the example of a business that opens a second storefront. If that second location’s revenue falls short of expectations, that would be reflected in year-over-year growth.
- It could mean a core business process is running inefficiently. Wood uses the example of a manufacturer. If year-over-year growth stalls for that company, that might be a sign that production times are getting longer and longer, or even that the machinery is showing signs of wear.
Keeping an eye on your year-over-year growth will give you a broad view of your business’s growth, and whether there might be money walking out the door.
No matter the industry, sales success depends on the relationships you build with people, and whether you nurture those relationships over time. Tracking the six sales metrics above will show you what aspects of relationship-building you have down, and which need a little more attention.