Sales metrics are essentially designed to do one thing, increase revenue. As your company looks at the sales process there are three perspectives to consider, it’s effectiveness, efficiency, and final results. Effectiveness is all about determining if the sales process steps and activities are progressing the sales process to the eventual sale at an acceptable rate. It’s answering the questions, “Does the process convert a prospect into a customer, or do many of the prospects fall out along the way?” Efficiency looks at the sales effort through the lens of customer acquisition cost. In essence, how long does it take to get from the prospect to the customer stage and how much do we need to spend out of each revenue dollar to secure the customer? But typically, the most revered perspective is sales results. Are we increasing revenue through our sales process?
All the sales metrics and ratios used are focused on providing perspective to one of these three areas. Every metric or calculation has value if the company can use it to improve performance. After all, that’s what we’re all really after. So, if you’re starting to think about how to increase revenue through your sales process, let’s distill this down to something that will achieve dramatic results without all the noise. As you learn how to leverage these 4 simple metrics to increase sales, you’ll likely find other sales metrics valuable in implementing continuous improvement strategies. But start here for the quickest increase in revenue and always keep these 4 metrics at the forefront of your sales efforts.
All sales begin with leads. You have to understand the persona of your ideal customer and be able to specifically identify them in a way that you can actually reach them. Once this is done, and contact is made, you’ve generated a lead. In every sales process the sales funnel starts with a number of leads, some of which eventually become customers. The greater number of leads put into the funnel the greater number of customers generated. Therefore, monitor the number of leads being generated in your sales process. To increase sales, increase leads.
How many of those leads that become customers determines your conversion rate. If you start with 100 Leads and end up with 32 customers, you have a 32% conversion rate. The level of the conversion rate rests in the sales process effectiveness. This can be impacted by numerous factors, not the least of which includes, sales process steps and approach, sales scripts, and sales team skill sets, but if you can identify and implement ways to increase your conversion rate you’ll obviously increase sales, revenue, and hopefully, profits.
AVERAGE SALE SIZE
As you obtain customers, you’ll find that they have a typical purchasing pattern. They’ll typically order the same type of goods and service at similar volumes to past purchases. With that information you can determine the average sales size for your company. Now consider implementing strategies that will increase the average sale size across your customer base or in the initial orders from new customers. As the average sale size increases so does revenue.
In regard to customer purchasing habits, the same is true about the frequency of their purchases. Any time you can increase the frequency of the purchase orders you accelerate revenue. However, increasing the frequency of purchase may be a short lived increase in revenue. Sometimes the key to this is helping the customer consume your product or service through their increased business activity. In other words, solution selling can bring longer term benefits when trying to increase your sales frequency.
Remember, what gets measured, get done. Therefore, measure and monitor these 4 key sales metrics and you’ll find opportunities for a huge improvement in revenue. Don’t believe me, try these simple calculations.
# Leads x Conversion Rate = # Customers
# Customers x Average Sale Size x Purchase Frequency = Revenue
Now, plug in your current numbers for the 4 key metrics. They don’t have to be audit level exact but should be reflective of current business performance. Next, increase those 4 metrics by, say 10%. Shouldn’t you be able to achieve a mere 10% improvement in each metric? Now, recalculate the Revenue. Did you get much improvement? Here’s a quick example.
1000 Leads x 25% Conversion Rate = 250 Customers
250 Customers x $2000 Average Sale Size x 1.5 Purchases / Year = $750,000 in Revenue
Now add the 10% increase (each metric x 1.10):
1100 Leads x 27.5% Conversion Rate = 302 Customers
302 Customers x $2200 Average Sale Size x 1.65 Purchases / Year = $1,096,260 in Revenue
THAT’S A $346K or 46% INCREASE IN REVENUE!! Seems like magic. It’s not. Run the calculations for your company. Even if you don’t reach 10% improvement in each metric, you’ll dramatically increase revenue. Focus on these 4 sales metrics to really grow business.
To begin developing your revenue growth strategies request a free Strategic Business Assessment with me at https://strategicorientation.com/contact/ and while you’re there, check out my other blogs at https://www.StrategicOrientation.com/Blog for more key tips on accelerating your business success.
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