How to measure sales success correctly
That is a topic that is on the table repeatedly in almost every company and every sales organization and often leads to considerable disputes. It is also a topic that can frequently lead to the demotivation or churn of sales staff.
At first glance, this seems to be a relatively simple issue. However, at a second glance, it is not quite that simple.
After more than 40 years in various positions, companies and industries, salesforce, sales management and management, I can say that this topic is complex also because it is linked to salary.
In essence, we distinguish between three approaches:
1. quantitative measurement values
2. qualitative measurement values
3. mixed forms
In my experience, companies and managers generally rely on quantitative values. These are easy to collect, often already integrated into today’s CRM systems, easy to compare (benchmarks) and seem to yield good results. Qualitative values, on the other hand, are generally challenging to determine.
The typical sales KPIs in practice
Indeed, the most common value is the turnover that the employee makes with his customers.
Also often used is:
– Number of customer visits made per week
– Number of phone calls made
– Number of new customers acquired
– Market share of the company with the customer
Qualitative values, such as customer satisfaction and potential utilization in the assigned sales area or customer segment, are challenging to determine and often fall by the wayside. However, sales success, at least long-term success, is also a qualitative value!
What is the main problem with quantitative values?
The core of the problem is already the measurement itself, possibly reinforced by a link to salary. All numbers that the company measures for sales, salespeople naturally influence them. In other words, “you get what you measure”.
Do you record the number of customer visits? Sales will visit customers and drink coffee without end. Do you record sales, possibly even linked to a high sales commission? The sales department will make sales by hook or crook; the higher the commission share of the income, the more. Whether the customer is satisfied in the process is irrelevant, as is whether salespeople have correctly met the customer’s needs.
The fact that sales miss the mark is something we can see every day in the insurance sector, for example, when life insurance policies are sold to very elderly pensioners or in the IT sector when unsuitable or oversized systems are sold. That can go as far as fraud, as can be seen in the case of telephone contracts or magazine subscriptions that tricksters have underbid.
These are problems that arise when payment is made almost exclusively per deal, or the variable salary component is too high.
So to measure sales success, you first have to define what is sales success for my company and my situation.
Then I can think about the appropriate metrics (KPIs) to measure success.
Also, there is always the risk that sales success and salesperson performance are confused or seen as identical. But they are two different things.
Successfully measuring sales success.
I have always had good experiences with mixed forms, i.e. a combination of quantitative and qualitative KPIs. As a rule, customer satisfaction is the central factor here. You can measure it directly using a customer survey. That is very time-consuming for the customers and can therefore only be carried out at longer intervals, semi-annually or annually. The response rates are usually low, made more difficult because, depending on the product and company, several people have to be interviewed at the customer’s site.
You can carry out indirect measurement using quantitative values, but this is much less precise and, in some cases even more difficult to obtain. Quantitative values could be frequency of the individual customer’s orders, the height of the selling price (does the customer swallow a higher price with me), how many of my market companions still sell to the customer, and how high is their portion in per cent. The ideal situation is to be able to combine the two and have both results match. For sales success, I look at the customer, not the salesperson, even though the two are, of course, related.
To measure and compare the sales success of the salesperson, i.e. actually his performance, you need to establish or take different conditions into account.
A salesman, who sells on devil coming out (pushers), leads to dissatisfied customers, complaints and cancellations and thus to high, unnecessary costs.
So, the central element here should also be customer satisfaction. When comparing quantitative factors, such as sales or the number of orders, you must consider the sales areas/potentials. A salesperson in Mecklenburg-Western Pomerania has completely different conditions (customer potential, travel times, etc.) than, for example, a salesperson in the Ruhr area, who will produce completely different results. Another factor could be, for example, how well a salesperson exploits his customer potential, i.e., another qualitative value.
How to measure sales success correctly – Conclusion
When measuring sales success, sales success (with a view to the customer) and salesperson performance should not be confused. You should also consider that already the measurement of sales success influences the results, “you get what you measure”.
So if you measure the wrong or inappropriate parameters, the worst that can happen is that your sales team meets the KPIs, but you don’t achieve true sales success because they are chasing the wrong targets. You should pay particular attention to the values that are difficult to measure, the qualitative values. For support, especially in evaluating customers, their potential and price flexibility, it makes sense to include appropriate AI systems.