How Do You Measure Sales Productivity
by Nitin Gupta, on Jun 26, 2017 6:46 AM
Measuring sales productivity is often a tough task for sales managers. Firstly, there is no single yardstick that can be used for all businesses, and secondly, the product and market dynamics may dictate an entirely new set of variables. However, measuring sales productivity can’t be avoided since it is the only way to assess the performance of sales reps, the sales team and its overall contribution to organizational goals. Measuring sales productivity helps sales managers to identify problems that may be impacting sales. It also helps them identify strategies that may have earned good results and need to be encouraged. Here are some key things to consider when measuring sales productivity.
Conversion rate: Conversion rates are an important factor in measuring sales productivity. When looking at the conversion rate, both the number of conversions and the time taken for the conversions need to be examined. The more the number of conversions and the quicker they are, the better it will be for the productivity of the sales team. Sales managers can look at the conversion rate of individual sales reps to assess their performance and their contribution to the team’s productivity. Such an assessment will help sales managers gain a better understanding of the problems being faced by sales reps and how it can be tackled with new sales strategies, incentives, or training.
Customer acquisition cost: The sales reps are bringing in business worth several thousand dollars, but should it be a reason for celebration? Well, it can be, but only after the cost of customer acquisition has been properly measured. For example, if a sales rep brings in business worth $15,000 and the associated customer acquisition cost for the same is $9,000, then it’s obvious that such deals are proving to be too costly for the sales team. Such deals cannot be sustained in the long run and it would not help the sales team to achieve its targets. Every sales team has to work within a certain budget and the team’s productivity will call for celebrations only if the sales targets are achieved within the specified budget.
Evolving market conditions: The defined goals and objectives of sales reps will keep changing depending on the evolving market conditions. For example, if a particular market segment has entered a highly competitive phase, then sales reps will have to significantly increase their performance by generating more revenue and keeping costs at the minimum. It will also mean that sales reps will have to significantly enhance their interactions with clients and prospects to increase the probability of conversions. The sales function always works in a fast-paced environment, and changing market dynamics would require the sales team to be even more agile and productive.
Cost of sales: A good way to get a decent estimate of the sales productivity is to compare the revenue generated by the sales team with all the costs related to sales. The costs would include everything from salaries to commissions, perks, benefits, etc. The revenue to cost ratio should be around 3:1 and anything below that would require the sales manager to have a relook at the existing sales strategies and related aspects. This ratio can be used to measure the productivity of individual sales reps as well.
Sales productivity measurements act as strong evidence that sales managers can use to make changes or to give the call for celebrations. These will also help sales reps to know if they are falling behind targets or are on top of things. In both cases, they will have the right motivation to give it their best in the next month, next year and beyond.