Sales Metrics

I. An Introduction to Sales Metrics

In the musical How to Succeed in Business Without Really Trying, the protagonist quits his job and follows the advice of a magical book. The book shows him shortcuts on how to climb up the corporate ladder and ultimately gets him to a position of leadership within the organization.

Unfortunately, in the real world, there are no magical books leading us to revenue. As most businesses must stick to tracking their success through key performance indicators, or KPIs (for a more in-depth KPI definition, check this out.)

Selling in the Modern World

In the modern selling era, different business models track specific KPIs. This depends on their go-to-market strategy and the industry they sell into. For the sake of this blog, we’re going to look at sales metrics that a sales leader at a B2B company should be thinking about if their main objectives are to grow their business through acquiring large new accounts and expanding customers via cross and up-selling. How does a sales leader hit their goals and increase sales productivity?

A B2B company is a business that provides a product or service to other businesses. The company’s revenue is primarily generated through subscriptions or recurring purchases of various products.

Sales metrics are important for a sales leader at a B2B company because they help the leader track and measure the success of their sales team and the company as a whole. This information allows the leadership team to make data-driven decisions and take action to optimize their sales processes, increase revenue, and improve customer retention.

Sales leaders, including sales managers and sales team members, need to pay close attention to Key Performance Indicators (KPIs) in order to develop an effective sales strategy. By analyzing data on sales activities, sales processes, and sales funnel metrics, sales leaders can make informed decisions about how to optimize their sales organization and drive revenue growth. So what are the key sales metrics they should be looking for?

Sales Performance Metrics:

II. Annual Recurring Revenue (ARR)

Definition

ARR is the total revenue that a company generates each year from its customers. It’s one of the key sales metrics for any business because it shows the company’s ability to acquire and grow those accounts over time. ARR is crucial for sales leaders because it helps them understand the company’s revenue trends and forecast future revenue. For example, if a sales leader notices that ARR is decreasing, they need to look at several data points such as pipeline coverage. Which segments of customers are churning, or buying fewer products if the win rate in certain industries or company sizes is causing concern and more. Revenue is up there for the ultimate sales KPIs.

Why this KPI is Important

It’s pretty obvious, the lights go out if there isn’t consistent revenue coming in! If total revenue isn’t growing, salespeople and other teams will put pressure on decision-makers to increase profit margins in other ways.

ARR is a bedrock key performance indicator for essentially any subscription-based business. It should be obvious that this KPI is a major indicator of your business growth and sales rep productivity. A sales leader can increase ARR by focusing on upselling and cross-selling opportunities, also known as market penetration. Improving retention rates and reducing the time to value for key accounts are promising ways for highly productive teams to maintain total revenue at a stable level even after the deal is done. It’s a measure of performance that will most definitely be reviewed by your board. By storing this information in a CRM like Salesforce, the sales leader can track the sales productivity metrics (meetings set, pipeline by rep, etc) tied to ARR.

III. Net Revenue Retention (NRR)

Definition

Net revenue retention is the cumulative total of retained, contracted, and expanded revenue over a set period, typically one month or one year. Net revenue retention calculates total revenue (including expansion revenue) minus revenue churn (contract expirations, cancellations, or downgrades) according to ChurnZero. It’s also regarded as one of the top sales metrics that teams need to measure and monitor on an ongoing basis.

Why Is This KPI Important

Of all the sales metrics and KPIs, NRR helps leaders understand how each cohort or segment of customers is growing over time. It may be the single biggest indicator of the health of a company. Any business that relies on subscriptions needs to see the average revenue per user go up over time, driving natural and sustainable growth. Investors deem it one of the most important sales metrics because it provides a holistic picture of the health of the business, and gives protection if there is a downturn in the market or if acquiring new business continues to become more expensive. Sales professionals work hard on bringing in the RIGHT types of customers in order to drive growth, and ultimately a larger LTV (lifetime value). NRR being higher is a good indicator that customer satisfaction is high, and that value is being provided quickly.

Our board holds our team at Prolifiq accountable to achieve a main performance goal, which is NRR with a target of 115%. Make sure you fully align where this sales KPI sits on the list of priorities for leadership as these types of goals will impact your team structure, strategy, and resource allocation.

Examples Of Growing It

There are countless ways to improve NRR. First and foremost, keeping your customers and minimizing the turnover is the best way to begin working towards a 115-120% NRR. Secondly, identify the best customers, and your happiest customers, and look at what was done differently. Why were they successful, how come the time to value was faster? Is there a specific business case your product or service is a better fit to solve? Lean into those learnings to find more customers that fit that bill.

When businesses provide a good customer experience and build trust, their odds of selling additional products, getting customers into the next subscription tier, or adding additional licenses increase. Expansion is a large percentage of revenue for Prolifiq, so it’s critical that we focus heavily on the first 60-90 days and put customers in a position to be successful, which enables our sellers to make the ask for expansion easier and helps improve their win rate. Certainly, Cross-Selling and upselling customers is a MUST if you’re going to have an elite Net Revenue Retention rate.

The Formula

• (Starting ARR + Expansion Revenue) – (Churn MRR – Downsell MRR)/ Starting Annual Revenue of that cohort
  • Example of a cohort of all the new logos you acquired in 2021, totaling $100,000 of ARR.
    • ($100,000 + $25,000 (Expansion) – ($15,000 (Churn) – ($5,000 (down-sell) = 105% NRR ($125,000-$20,000)/$100,000

IIII. Customer Acquisition Cost (CAC)

Definition

CAC is the total cost of acquiring a new business, including marketing and sales expenses. It’s easy to forget that to acquire high-paying customers, you must first spend your own cash to market to these large organizations. The lower you can get this KPI, the better. A low CAC is important for a Saas company. Mainly because the company can acquire new business at a lower cost and generate more revenue from each customer. A sales leader can use this metric to identify which marketing channels and sales tactics are most effective for acquiring new business.

Qualified leads don’t come cheap, and while they’re critical to growing a business, keeping the cost of acquiring new customers is important. A few ways to decrease your CAC.

• Referrals: Whether you’re a SaaS business, a company selling data (Lusha has a great referral program), leveraging happy customers who are in turn trusted advisors to their network is a terrific way to scale revenue efficiently and feed your team good leads
• Increasing the amount your current customers spend. They already trust you, have seen value, and understand the impact you make on their role and their business. Find ways to drive revenue from your customer base
• Increasing conversion rates, which we’ll touch on below. The more you convert traffic on your website and turn those leads into pipeline and revenue, the more efficient your numbers will be for acquiring customers. See if there is unnecessary friction in your sales process and remove it, this alone will bring down the cost of a new logo.

Why this KPI is Important

A sales leader can decrease CAC. Typically by optimizing their sales and marketing performance, increasing conversion rates, and reducing customer acquisition costs. One of the sales KPIs worth checking out for B2B companies is the duration a deal spends at each part of a sales cycle. Where do deals get stuck or take longer to progress? What types of companies or stakeholders is this most common with? These are sales analytics you can leverage and act on immediately.

You can focus on creating more targeted marketing campaigns that are more likely to reach your ideal customer or invest in lead generation tools to increase the number of leads generated. By storing this information in a CRM like Salesforce, the sales leader can track their marketing and sales spending and identify areas where they can cut costs.

V. Lifetime Value (LTV)

Definition

LTV is the amount of revenue a customer is expected to generate over the course of their relationship with the company. A high LTV is an important KPI for a Saas company because it means the company can generate more revenue from each customer and have a better return on investment. Subscription-based companies should track one of the key metrics, especially if they have multiple product lines, subscription tiers, etc., which begins with the first sale.

Out of all the key performance indicators listed here, this one will likely be the most helpful in providing insights into what an acceptable cost is for a new customer. A sales leader can use this metric to identify which customers are most valuable to the company. It helps them understand which accounts require additional attention to retain.

Why this KPI is Important

A sales leader can increase customer lifetime value. Typically by improving the customer experience, offering to upsell opportunities, and ensuring your tool’s adoption is high. This is where it becomes the sales leader’s responsibility to enforce sales activity metrics that their sales teams should be carrying out. For example, they can invest in improving customer support (KPIs should be tracked here too). Or provide personalized product recommendations to increase the value customers get from their subscriptions. Key performance indicators like LTV are crucial to a growing business. As many have said in the past; there’s no use in filling a leaky bucket.

VI. Sales Pipeline

Definition

Out of the thousands of key performance indicators, it’s likely you’re familiar with this one. It’s a foundation for other relevant KPIs. It’s what many sales teams look at when setting KPIs for the coming year or quarter. There are a few different ways to define the sales pipeline. Firstly, the sales pipeline is the process a potential customer goes through from initial contact to winning their business. Secondly, it’s the actual dollar amount that is within your sales funnel at any given time. It’s important for sales leaders because it allows them to understand where potential customers are in the sales process and which deals are likely to close. To forecast future revenue and identify areas where the sales process can be improved, a sales leader can use this information.

Why this KPI is Important

A sales leader can improve the sales pipeline by implementing a well-defined sales process. This involves providing sales training for their team and using automation tools to streamline the sales process. By storing this information in a CRM like Salesforce, the sales leader can track the progress of deals. Look at the pipeline and identify which deals need additional attention to close.

VII. Conversion Rates

Definition

Conversion rate measures the number of leads who converted into opportunities and ultimately into a customer. It’s one of several sales pipeline metrics that provides visibility into the efficiency of individual sales reps or pods that turn demand into revenue. One can break this down by the win rate based on the source of pipeline or other metrics.

Why this KPI is Important

Conversion rate is another important metric for sales leaders to track. By understanding the percentage of potential customers who take a desired action, such as making a purchase or scheduling a demo, sales leaders can optimize their sales funnel to increase the number of closed deals. By analyzing response time and improving sales reps’ performance, sales leaders can improve conversion rates and boost sales revenues.

Conversion rates are the percentage of potential customers who take a desired action. Such as making a purchase or scheduling a demo. Also, conversion rates are important for a sales leader. That’s because they allow them to identify which parts of the sales process are working and which ones need improvement. A sales leader can use this information to optimize the sales process and increase revenue. Sales tracking tools like Gong or Chorus can help you identify why deals get stuck. They help reps decide if taking different actions leads to success.

A sales leader can improve conversion rates. Typically by creating more targeted marketing campaigns, improving the sales pitch, and offering incentives to potential customers. By storing this information in a CRM like Salesforce, the sales leader can track the effectiveness of different marketing and sales tactics and identify areas where their team can improve.

VIII. Average Deal Size

Definition

Why this KPI is Important

One important sales metric to monitor is average deal size. This metric allows sales leaders to understand the value of each business transaction and identify areas where they can increase sales revenues. By analyzing customer lifetime value and average sales cycle length, sales leaders can optimize their sales processes to maximize revenue per customer.

Average deal size is the average amount of revenue generated from each customer business transaction. It’s important for a sales leader because it allows them to understand the value of each customer and identify areas where the company can increase revenue. A sales leader can use this information to make data-driven decisions about pricing and product offerings.

A sales leader can increase the average deal size. Typically by offering upsell opportunities, bundling products or services, and providing customized pricing options. By storing this information in a CRM like Salesforce, the sales leader can track the effectiveness of different pricing and packaging strategies and identify areas where they can improve metrics.

IX. Sales Velocity

Definition

Why this KPI is Important

Sales velocity is one of the metrics that can often be forgotten about or deprioritized. This metric measures the speed at which potential customers move through the sales pipeline, and it allows sales leaders to identify areas where the sales cycle can be shortened. By analyzing sales cycle length and customer acquisition cost, sales leaders can optimize their sales strategy to accelerate revenue growth.

Sales velocity is the speed at which potential customers move through the sales pipeline. It’s important to a sales leader because it allows them to identify areas where the sales process can be improved and accelerate revenue growth. Generally, a sales leader can use this information to optimize the sales process and increase the number of deals closed per month.

A sales leader can increase sales velocity. Typically by shortening the sales cycle, improving lead generation and qualification, and increasing the efficiency of the sales process. Storing this information in a CRM like Salesforce allows the sales leader to track the progress of deals in the pipeline and identify areas where the sales process can be optimized.

X. Sales Forecasting

Definition

Why this KPI is Important

Sales forecasting is another important metric for sales leaders to track and for their team to do well. By analyzing historical data and current trends, sales leaders can make data-driven decisions about resource allocation and sales targets. By setting realistic sales goals and monitoring sales performance metrics, sales leaders can drive revenue growth over a specific time period.

Sales forecasting is the process of predicting future sales revenue based on historical data and current trends. It’s important for a sales leader because it allows them to make data-driven decisions about resource allocation and revenue goals. Basically, A sales leader can use other forms of sales analytics to help provide predictions on revenue performance to leaders.

To effectively monitor these sales metrics, sales leaders need to store all this information in a CRM like Salesforce. By doing so, they can track the progress of deals in the sales pipeline, identify areas where sales reps need additional training or coaching, and make data-driven decisions about resource allocation and sales strategy.

Conclusion

In conclusion, there are a lot of sales KPIs that sales leaders need to closely monitor. We can argue all day over what the best sales metrics to drive revenue growth and optimize their sales performance are as well. The difference between metrics that your team must track will differ from company to company. By tracking metrics like average deal size, conversion rate, sales velocity, and sales forecasting, sales leaders can develop an effective sales strategy and achieve their sales goals. By storing all this information in a CRM like Salesforce, sales performance will improve. Leaders can make informed decisions about their sales organization and drive revenue growth over time. All of these critical sales performance metrics can help lead teams in the right direction!

FAQ

What team performance metrics are most important?

Answer: There isn’t a right or wrong answer here, but our GTM team focuses most on ARR growth, Net Revenue Retention, Conversion Rates, and Customer Acquisition cost. Put together a sales KPI dashboard and evaluate the trends in certain rates impacting your success. Is there an issue more at the beginning of the process with conversion, do deals slow down and get stuck? Generally, the number of deals can be small, especially if your average deal size or average revenue per account is on the larger side

 

What are the metrics to improve sales performance the fastest?

We’d recommend you start with conversion rates and pipeline velocity. Where are there areas to improve your sales teams performance? This also involves marketing, if someone requests to talk to your sales team, what does the process look like? Furthermore, can they book time with a sales rep at their convenience? Is the response within a few minutes if you don’t offer that option? If you sell through partners or the channel, are there specific channel sales metrics that drive quick wins? Look for those.

Metrics such as lead to the meeting are early indications of future performance. Lead to meeting rate is one of our sales development metrics that we track for BDR’s, along with lead to opportunity, and lead to close. Additionally, this could also include things such as the number of deals being stuck in certain opportunity stages, or identifying the sources of pipeline and prioritizing and maximizing the impact of those deals. One of the examples and recommendations we laid out in our opportunity management guide walks through this use case.