Metrics, tracking, analytics … these are terms and practices business professionals are probably all too familiar with — and for good reason! By measuring key sales metrics, business owners can more reliably predict sales performance and can keep sales-related costs in check.
Sales, leads and profit margins are tracked by nearly every business owner, but lesser-used metrics can potentially be just as important.
Key Sales Metrics
This article bypass some of the more common sales metrics in favor of six less commonly used — but just as valuable — calculations.
1. Customer Acquisition Cost
This is a metric that’s often neglected, despite the fact that it gives business owners deep insight into how much of their budget to allocate to lead generation and sales. Think about it. If you know exactly how much you need to spend in order to make a sale (and you stick to this amount), you never have to worry whether you’re overspending when it comes to lead-acquisition and sales.
Tracking your CAC will also help you accurately calculate the resulting return on investment (ROI) of acquisition. As your business grows, you may find your CAC increases (and so your ROI decreases), but this isn’t a reason to panic.
It may mean increased competition in your industry, increased advertising costs or simply that your current methods of attracting and acquiring clients are no longer optimal. In any case, staying on top of your CAC will allow you to monitor how much you’re spending on customer acquisition, and to adjust your strategies if necessary.
Your CAC will typically include a portion of all your variable expenses such as:
- Marketing or advertising costs,
- Administrative costs,
- Sales and marketing salaries and wages,
- Research costs.
The amount of time your sales staff spends conducting phone and email correspondence with new leads can help determine real costs associated with each acquisition. You can use a tool like EmailAnalytics to visualize email analytics data for these purposes.
For maximum impact, you’ll want to assess your CAC in relation to another important metric: the lifetime value of a customer (LVC).
2. Lifetime Value of a Customer
Your CAC is a valuable metric, but much more so when expressed as a ratio with your LVC. If your CAC exceeds your LVC, you’re essentially bleeding money each time you get a new customer. This is definitely not the key to a sustainable business model!
Your LTV is the total profit or revenue you can expect to receive from a customer or client, both now and in the future. A rough calculation can be achieved by factoring in average order values, repeat purchase rates and margins. More sophisticated calculations may incorporate recency (recent purchasers are more likely to buy again).
Kissmetrics has put together an infographic that outlines various calculations you may find helpful.
3. Cost Per Lead
This metric is similar to customer acquisition cost, however CPL deals with the cost of generating leads rather than customers or clients. It can be difficult to allocate general business costs to the lead generation process, so look at monthly costs for each lead generation channel.
To calculate your CPL, look at the average monthly cost of your chosen campaign, and compare this to the total number of leads you generated with that specific channel over the same time period.
For instance, if you spent $1000 on social media ads and this generated 10 sign ups, your cost per lead is $100.
Be sure to factor in soft or indirect costs like staff wages and management time.
4. Lead to Close Ratio
This ratio will give you a good idea of how successful your sales strategy is, as well as the effectiveness of your lead nurturing. Assuming you’re investing heavily into attracting new leads, you’ll want to track exactly how many leads are actually resulting in sales.
A simple calculation you can use is as follows:
- Calculate the number of leads you acquired over a given period of time,
- Calculate the number of sales acquired over this same time period,
- Divide total sales by total leads (e.g. 5 sales/20 leads = a closing rate of 1 in 4). For every 4 leads you generate, you net one sale.
If your close rate is low, it could indicate your lead follow-ups are weak, or that you’re pursuing leads that just aren’t relevant to your business (and will therefore be less likely to convert).
5. Lead Quality
Any lead quality calculation is an attempt to determine the perceived value of a lead. The quality of your leads can vary depending on the channels you use to generate them, so it’s important to know how and where you should be investing your marketing dollars.
Lead scoring is a method businesses can use to rank the value of leads, giving them a clear picture of how much they should invest in each lead. This allows businesses to invest more heavily in highly-qualified leads, while continuing to move less-qualified leads through their sales funnel.
This can result in shortened sales cycles, improved sales strategies and bettering nurturing of qualified leads.
6. Length of Sales Cycle
Many businesses are content with simply knowing that leads will eventually result in sales. However, understanding how long your average sale cycle is can give clarity to your sales staff, and can provide you with better cash flow planning and forecasting capabilities.
Your average sales cycle is relatively simple to calculate, and this calculation can be done on a per-channel or company-wide level. It’s defined as the time it takes to turn a lead into a sale.
It can also be determined by looking at only qualified leads. Using this strategy, you’ll have a more reasonable baseline measure for how well your sales team is performing. Whatever calculation you use, be consistent and use your average cycle length to set realistic expectations for yourself and your sales team.
Tracking these 6 metrics over time can help you predict and increase sales, and can give you confidence in knowing how much money to allocate to sales-related activities.
While these metrics may not be as glamorous as sales or conversion rates, tracking them over time can have a significant impact on your sales pipeline and results.
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