Your Key Performance Indicators (KPIs) Are Established, Now What?

Key Performance Indicators

Every year, many CEOs and business owners set company revenue growth goals and Key Performance Indicators (KPIs) and then communicate them during their annual business update meeting. But then what? Simply put, too many of these leaders fail to lead. Rather, they default to merely assuming goals will be met. After all, they hire sales team members to make things happen, hit their marks, meet their quotas – and above all, to sell, sell, sell, right? Unfortunately, that’s not how sales success is achieved. Sustainable sales performance and goal attainment requires using a “Sales Framework” in which acceptable results are built on a foundation of aggressive but attainable objectives. In turn, these objectives depend on efficient and effective sales process activities. And assessing the success of these activities is essential to sales process improvements and revenue growth.

Here’s an all-too-common scenario:

The owner of an environmental remediation product manufacturer was frustrated because the sales team was not meeting their overall revenue and growth goals, even when the sales reps were given individual KPIs and targets. The sales reps thought they were doing a great job because they were always busy, but their “busyness” did not result in acceptable sales results. The root problem? The owner failed to:

  • Create sales goals and quotas for each individual rep aligned to the company KPIs
  • Set specific objectives for revenue retention, new business revenue, product mix, and sales margin
  • Help the team translate these objectives into clearly defined and understood sales activity metrics (something that nearly four in five manufacturing business owners and CEOs admit their business fails to do)
  • Align each sales rep’s commission with individual goals and objectives

Leverage The Sales Framework

Business owners want and need positive sales results. The challenge, however, is that results can’t be managed; they are merely history. In KPI parlance, they are “lagging indicators.” Stepping down a rung, results depend on the success of sales objectives. However, while sales objectives might be leading indicators for overall results, they are lagging indicators for sales activities. And because sales is a “cause and effect” discipline, sales activities are where agile companies can make timely process adjustments to most effectively impact bottom-line sales and revenue results.

When setting new business goals or KPIs, therefore, it’s wise to leverage the Sales Framework:

  • Target Business Results: An example is increasing revenue or market share.
  • Set specific Sales Objectives: Examples might include winning 10 new customers, retaining 96% of your existing customers, or achieving a specific average deal size.
  • Manage Sales Activities: Examples include performing Quarterly Business Reviews with existing customers or making prospecting calls/visits to new customers.

Here is a practical example:

Consider a steel product manufacturing company which has been manufacturing a new product for the last year. They lead the market in quality and on-time delivery, and the product has a healthy profit margin. Their revenue goal (a business result) will be impacted by the sales objective of winning 10 new customers with this product. These sales objectives will be impacted by sales activities. So, to win 10 new customers, the sales team must effectively perform a certain number of prospecting activities such as sending prospecting emails, contacting prospects by phone and in person, etc. In this “cause and effect” process, only sales activities are leading indicators that can be managed. Everything else in the Sales Framework lags as a result of these activities.

Manage without Micromanaging

When we speak with leaders about managing sales activities, we normally hear, “I don’t want to micromanage my team.” But effective activity management is not micromanagement at all. It simply addresses the core problem most sales teams struggle with: their lack of knowledge, insight, or ability to translate a business revenue goal into sales objectives and day-to-day sales activities. They don’t know how to translate revenue goals into the various buckets from where revenue can be generated, such as from recurring or repeat sales, upselling existing customers to higher-end and higher-margin products, cross selling new products with existing products, winning business from new customers, etc.

Helping a salesperson translate sales objectives into goal-aligned sales activities is not micromanagement. It is merely helping them find the “clarity of task” they crave (as indicated by a recent Harvard Business Review study).

Invest in Professional Development

Another critical reason for monitoring activities relates to development. By tracking conversions between sales process stages, managers and leaders can identify coaching opportunities. If one sales rep converts 40% of his product demonstration sessions to sales, but another converts only 20%, this disparity highlights a need for coaching. For any sales rep, learning and development is essential; not only will it help clarify KPIs and enhance goal attainment, but it can also improve employee retention. In a 2019 Harris Poll, 70% of employees said they were at least somewhat likely to leave their current company for one that’s known for investing in employee learning and development.

The Importance of Situational Leadership

Sales activity management success depends on how strongly you apply situational leadership. If your sales professionals despise sales activity metrics, then it is either because they don’t understand how metrics can help them achieve their goals or because they have had a bad experience when metrics were used to micromanage them.

Consider these sales activity management scenarios:

  • For the salesperson who regularly exceeds his/her sales revenue goals, has objectives and sales activity goals in place, but uses situational leadership to manage when these goals are not met.
  • For the sales “rockstar,” monitor sales activities because these can provide valuable benchmarks such as how many prospecting calls or product demos are required to win a specific number of new customers.
  • For the salesperson not meeting revenue goals, analyze metrics and the conversion rate for each sales process stage. For example:
    1. Is your salesperson prospecting enough? If not, revisit your sales prospecting goal logic.
    2. Is your rep effectively qualifying prospects/customers? If not, too many unqualified “opportunities” in the pipeline could keep them busy but not truly productive.
    3. Is there a specific stage in the sales process your sales reps need help with? Provide coaching, do sales call roleplays, and offer reps the opportunity to shadow one another as a learning exercise.

 

As a manufacturer, if you rely primarily on channel sales, i.e., sales by third-party resellers, the above-mentioned approach will obviously not work as explained because you do not have direct control of your distributors’ or resellers’ sales reps. However, you can influence sales through other initiatives, and there are still metrics you can set for your inside sales team who handle channel sales orders or RFQs, such as 1) time from quote request to quote delivered, or 2) partner’s engagement-related metrics.

A Case Study

We worked with a steel product manufacturer who needed to rapidly increase sales after losing one of their largest clients. Their average sales cycle for winning a new customer was almost 18 months, so short-term revenue from new customers would not help address their need to increase short-term sales. Winning new customers with unpredictable future buying patterns would also have increased their inventory levels and the amount of working capital stuck in inventory and materials. The easiest way to increase sales quickly was to win more business from existing clients who already valued their work quality and would be willing to pay a premium for their products.

We set several sales activity goals, but the most important was to conduct quarterly business reviews with each Tier 1 account within the following month, and to continue this on a quarterly basis. By focusing attention on the customer’s overall business and seeking to understand their business challenges and growth goals, the sales team was able to identify several large opportunities for each Tier 1 account. As a result, the manufacturer was able to win some large opportunities that resulted in short-term revenue growth and new run-rate business, while subsequent quarterly business reviews helped identify additional large business opportunities. The overall result was a 42% revenue growth in just two years.

In conclusion, setting overall business KPIs/goals is vital, but does not translate to automatic success. Only by clarifying and optimizing sales process activities, and applying situational leadership, can you empower your sales team to meet objectives and deliver sustainable sales growth results.

Co-Author: Tom Gardner