The Key Performance Indicator or KPI is a measurable value that demonstrates the effectiveness of the achievement of organisational business objectives.
Companies use KPIs to evaluate the success of attaining business targets. Occasionally said to be an overused term, KPIs can play one of the most important roles in the growth of a business entity. While KPIs act as a guidepost in business, the measurements can be an actionable scoreboard that keeps business strategy on track. Every company should have this important set of guidelines to reach the desired targets.
One of the most important aspects of KPIs is that it is a form of communication and conforms to the same rules and practices as any other form of exchange. Through KPIs, precise and relevant information is absorbed and acted upon. In developing a strategy to formulate KPIs, the company must understand the basic objectives to plan how to achieve and who will act upon the information. The formulating team should know which processes are required to be measured with the KPI dashboard.
Key performance indicators in sales are created to achieve the outcome, efficiency and effectiveness of the exact selling activity against a predetermined target. The KPIs in sales are decided on the specific needs of an organisation, considering various factors.
Therefore, the measurements are subjective and vary from business to business. KPIs for sales must be aligned with the results the company aims to achieve. Focus on the wrong measurements will deceive and misguide the sales team.
Let us analyse the possible advantages of setting up performance indicators. Salespeople are given targets to be achieved in a specific period and they know that their achievement can be visible after that period. It is a simple process.
The main advantage of the pre-defined indicators is that it assists the sales team in a more organised manner.
Instead of simply groping in the dark for sales, assessment of structured information on sales targets and achievements can be a tremendous support for the sales team, in addition to the motivation the indicators provide to them.
Equal treatment
KPIs also provide equal treatment to everybody in the organisation. The information derived by the program is directly communicated to the top management without the influence of others where they can evaluate each employee individually. Properly defined objectives that are divided and broken down to time-bound short and long term sales revenue targets help organisations to perform above average. The objective of a sales team is to improve the revenue of the company, defeat competition, and increase market visibility to the maximum. To reach these objectives, the senior management must understand the data, guidelines, and metrics set up through KPIs. With the tracking and monitoring of the KPIs, the sales team can be empowered more and encourage them to do better. Therefore, let us run through some of the main performance indicators used by the sales teams to find better prospects, close more deals, and boost up revenue. Conversational intelligence is an important factor to consider in sales KPIs. The strategists must look beyond the mere numbers when considering a possible customer.
An emotional link and a bond are required today to convert decision-makers who are well aware of the market conditions with the availability of technology.
Engaging prospects by sharing related personal opinions can build up trust in the said prospective customer. Acting as a trusted advisor can be a valuable asset to a salesperson in the eyes of a buyer. Tracking the effectiveness of the conversation the salesperson persists with a customer must be included as a KPI to evaluate the quality of such communications where action steps can be identified.
The average amount of time taken from the initial contact with the customer until the closure of the sale (known as sales cycle length) is another important measurement a company must constantly monitor.
Depending on the type of product or service on offer, this information can immensely help to develop the productivity of the sales team.
Usually, good salespeople do not rush prospects for the buying decision although the cycle should be reasonably timed. Measuring and keeping a close track of the length of the sales cycle can immensely help the sales forecasting, based on the available leads in the pipeline.
Work in harmony
The sales conversion rate metrics measure the effectiveness of a sales team. The information is vitally important as the knowledge of the percentage of the number of conversions gives an insight into aimed success. The sole intention of a marketing organisation is to convert the maximum possible number of prospects into buyers.
To convert prospects to customers, the entire organisation, specifically sales and marketing should work in harmony. Therefore, implementing a sales conversion rate as a KPI is an effective way to integrate all relevant divisions of the company to increase sales.
Monitoring customer retention rates or tracking the number of recurring customers is another vital area key performance indicators should be compulsorily introduced.
Measuring the retention rate in a specified period of time is enormously helpful to a sales team to ascertain that they are on the correct path in the sales strategy of the organisation. Information on the number of customers at the start of such a specified period, the number of customers at the end of the period, and the number of new customers during the period are identified and compiled through this process.
The Customer Lifetime Value, known as CLV is an analysed prediction of the total revenue projected from a customer throughout the relationship. The CLV inspires the salesperson to establish and develop mutual customer relationships that can help an organisation in many ways.
Information flow
CLV is useful for sales managers to understand the types of buyer characteristics better. These metrics represent the upper limit of expenditure to gain new customers.
Hence, customer retention must be included in KPIs. Building a powerful sales funnel is one of the most important purposes of a commercial organisation. It is an absolute necessity to know the activities of the company’s sales team and monitor how many leads they bring in.
Sales performance indicators not only inform the management of how active the sales team is but it also can point to possible problems early. Good information flow is critical for an organisation.
The key performance indicators measure against a benchmark to provide actionable information that leads to an organisation to advance more effectively. KPIs breakdown complex data into understandable metrics, making the entire organisation aligned toward a common goal. As KPIs are invariably linked to incentives, teams and individuals are tremendously encouraged to achieve goals.These incentives are offered to improve KPIs to the specified level and the time. The information provided by KPIs empowers employees to increase their performances.
Therefore, setting up Key performance indicators should be a compulsory requirement of any organisation, irrespective of whether the company is small, medium, or large.