Your business’s key performance indicators (KPI) can guide you to success if you know how to use them. They give you a clear objective and can help you strategically improve your pain points. So, what is KPI in sales, and why does it matter?
What Is KPI in Sales?
In sales, KPIs are purpose-driven metrics you track to see if you meet your quotas and objectives. They give you a way to measure your performance against your progression. These quantifiable benchmarks are essential for success. Without them, it’s challenging to tell which business approaches are practical.
What is KPI in sales used for? Business owners use it to measure how well their representatives do, how much profit they make, and how successful their approaches are. Most importantly, they use it to see if they’re on track to reach their target. There’s a wide variety they can monitor to monitor their effectiveness.
How are these KPIs any different than sales metrics? Regular statistics only contain raw data — they don’t tell a story or give you much insight into your movement toward your goals. On the other hand, performance indicators make measurable connections between critical points. Since they directly relate to a business objective, they give you clarity.
Take the sales you make per month, for example. While monitoring it may give you insight into the efficiency of your operations, it’s a somewhat meaningless statistic. It has no purpose, so it isn’t actionable. However, if you connect it with an objective, you can begin to measure your progress. Where metrics show basic numbers, KPIs guide your decision-making.
Why Track Sales KPIs?
You should monitor sales KPIs because they provide unparalleled insight into your professional advancement. After all, reaching your goals is possible if you have a quantifiable way to measure your progress. Unlike plain metrics, these can guide your decision-making because they show if you’re on track to meet your objectives.
Additionally, tracking KPIs increases a business’s effectiveness in the long term. They turn your operations into quantifiable, purpose-driven actions, making it much easier for you to strategize. If you notice your performance in an area is lower than you’d like, you can shift tactics to increase your likelihood of success.
Still, what is KPI in sales supposed to accomplish exactly? While it won’t grant you automatic success by itself, it’s supposed to give you a way to measure your business progress. After all, you can only detect and work on areas of improvement if you know where to look.
While running a small or medium-sized business can be challenging, monitoring KPIs can make things much more manageable. These reliable, impactful measurements essentially show you precisely what you need to do to pivot in unfavorable situations, which is valuable when you don’t have many extra resources.
What Sales KPIs Should You Track?
You should track the sales KPIs impacting profit, conversions, and retention. While you can choose which ones to monitor on your own, we’ve gathered seven of the best to help you.
- Sales Opportunities
Sales opportunities KPI calculates the likelihood of closing to estimate a lead’s value. Where they are in the funnel determines how much attention you should direct toward them. For example, people in negotiation are worth more than others who are only at the proposal stage.
Tracking your opportunities lets you strategize and secure a deal. A $5,000 sale near closing is much more valuable than its $10,000 counterpart in the introductory stage. You can use this sales KPI to improve your chances of success.
- Customer Retention and Churn Rate
Whether people keep doing business with you or not is known as the customer retention and churn rate. Ongoing subscriptions, payment method expiration, purchase frequency, and email click-through rate are relevant metrics for this sales KPI.
If you track how often customers renew or cancel, you can determine where they retain or lose interest. From there, you can strategically improve your efforts for dramatic improvements. Since increasing your retention rate by only 5% could get you a 95% profit increase, it’s worth the effort.
- Sales by Contact Method
Most small businesses reach out to potential customers through cold calling, email, social media, and referrals. One is bound to be more advantageous than the others, so it’s wise to track them to see which it is.
Tracking sales by contact method tells you which one has the best value so you can strategize. For example, representatives might spend most of their time calling even though they convert most leads through social media. If you know what’s more likely to generate revenue, you can restructure your approach and achieve greater success.
- Average Sales Cycle Length
The average sales cycle length is how long a representative takes to close. You use sale opportunity and successful deal metrics to measure it. It gives you insight into the efficiency of your conversion process. The average cycle length is essential to track because it tells you how profitable your efforts are.
Imagine if closing took twice as long than usual but made less than double your average revenue — even though you technically made more, the sale is not as valuable. You can use this sales KPI to get accurate calculations and increase your profit.
- Conversion Rate
A conversion rate is how many leads your business successfully converts into customers. To track this, you can measure initial purchases and subscription rates. It’s a critical sales KPI for small businesses in most industries, so it’s no surprise it’s essential in this one.
This KPI directly connects to the number of customers you have, meaning it’s one of the most important ones to monitor. If you notice dips, bumps, or plateaus in how many leads you convert, you should identify the source. From there, you make improvements and increase your conversion rate.
- Customer Acquisition Cost
The customer acquisition cost is how much a business spends to generate and convert a lead. It typically involves conversion length, sales representative salaries, and outreach cost metrics. It’s especially important to track since these costs increased by 50% between 2015 to 2020.
This KPI tells you whether your conversion process is successful or not. Substantial acquisition costs aren’t necessarily a bad thing since they can result in high-paying customers, but consistently large price tags are a sign you need to restructure your process to make it more affordable.
- Annual Contract Value
The annual contract value is the average amount of purchases a customer makes over the course of one year. It tells you how profitable they are, guiding your future efforts. If you realize specific demographics generate more sales, you can work harder to market to them.
Alternatively, you can increase your efforts toward underperforming groups. If you’re successful, you’ll strengthen your brand’s reach and broaden your customer base. This sales KPI is one of the best you can track for this reason.
What Is the Point of Tracking Sales KPIs?
The point of tracking KPIs is to strategically improve your business over time. While you could technically only use plain metrics to find business insights, performance indicators present you with a goal and a clear path to reach it. After all, what is KPI in sales for if not to help you succeed?
About The Author
Eleanor Hecks is the Editor-in-Chief of Designerly Magazine, an online publication dedicated to providing in-depth content from the design and marketing industries. When she's not designing or writing code, you can find her re-reading the Harry Potter series, burning calories at a local Zumba class, or hanging out with her dogs, Bear and Lucy.