Measuring Sales Performance
We often look at sales performance on the basis of production or revenue. This makes sense because, obviously, the purpose of having a sales function is to generate those outcomes. Plus, the metric is easy to look at–it’s in dollars or units, which are critical to the ongoing success of a business.
The challenge for sales managers is that comparing salespeople on that basis alone doesn’t provide an apples to apples comparison.
Think about this: If we wanted to compare the accuracy of two shooters, we would want to put those two shooters the same distance from a target, using the same equipment, in the same environmental conditions. When we compare the performance of two salespeople, the targets are different, their skills are different, and they are usually in different environments.
Using revenue as the only metric hurts salespeople who want to see how their skills improve over time, too. In one year, the market might be up and buyers are willing to spend some money, while in another year, the market is down and they don’t. It’s really difficult to identify the causes of differing revenue amounts.
A better metric to include in evaluating sales performance might be to compare performance relative to opportunity. While it’s still hard to make comparisons over time or across territories, knowing how well a salesperson is doing relative to what they could be doing at least gives us a picture that’s a bit clearer.
Using a relative performance metric, though, raises the question about how best to measure opportunity. Fortunately, we don’t have to calculate how many customers are in a territory and how much they all buy—though it can be worthwhile to do that when we’re looking at a market area as a whole. If we follow the 80-20 rule, where 80 percent of business comes from 20 percent of buyers, measuring opportunity starts by identifying the top target customers and prospects. Those are the “opportunities” we care most about. It takes time to measure opportunity, so we ought to invest that time where we get the biggest bang.
Once we know where our top opportunities are, then we can look at where we stand on each of those opportunities:
* How big are they?
* In total, what do they buy from us today, if anything, in each product category we offer?
* What more could we be selling?
Once we’ve answered those questions, measuring sales performance can be done by looking at how much progress a salesperson makes in expanding those relationships. And we can compare salespeople on the basis of their ability to move those numbers rather than just sales volumes.
This isn’t perfect. There are obviously still extraneous factors that can influence the results, and a good sales manager or salesperson wishing to improve still has to consider those. But this gives us a bigger picture.
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