Spotting problems early can mean success or failure when achieving sales goals. As a sales manager it is critical to have defined measurements of all sales activities, marketing activities, opportunities in the entire revenue funnel that are needed to achieve and exceed sales targets.
A Healthy Funnel has a consistent flow of New Leads each month
While the number of new leads generated each month is a marketing KPI it should be monitored from a sales perspective as well and especially for longer sales cycles. If the marketing funnel is shallow and very few new leads are generated it will have an impact on how many new opportunities are created, and in turn impact the bottom line and your ability to meet revenue targets. What the magic number of new leads each month is will depend on the average sales cycle, type of product sold, lead to opportunity ratio, as well as the maturity of the sales team.Figure 1 – Simplistic view of the revenue funnel
Number of New Opportunities created
How many new opportunities that are created each month will vary based on the maturity of the sales person, size of the opportunities, and type of products sold.
A sample of a potential sales problem would be if the number of leads are high and the opportunities created are low this could indicate that:
- The quality of leads are poor and more friction is needed to weed them out before getting to sales to reduce noise
- It could also mean that the sales person requires further training on selling questioning techniques, and/or product training to qualify opportunities.
Lead to Opportunity Ratio
An opportunity lead ratio is the ability of the sales team to convert leads generated by marketing activities into opportunities.
Monitoring this ratio helps to identify problems early that may exist in the revenue funnel like:
- The ability of the sales team to convert a lead to an opportunity
- The quality of the lead
- Help determine how many leads sales will be needed to meet revenue goals.
The CRM Sales Funnel Shape Snap Shot
Your sales funnel represents a “snapshot” of your sales at any given point in time, and can also help you identify any “bottlenecks” or possible shortcomings in your achieving your sales goals. Armed with that knowledge a sales person is able to effectively set priorities based on closing business, and/or generating new business. For instance, is it time to hunt or is it time to farm? Which customer is the one that deserves the most time to maximize revenue? How much time should be spent with each prospect?
Effective sales funnel management is the reflection of the sales person’s ability to consistently identify the right opportunities, and to understand the true needs of the customer. As a result, it is critical for a sales person to be able to keep the funnel moving to win more business while creating value where it’s needed most which is on pursuing only those opportunities that have the best chance of closing.
The opposite hold true if a sales person is putting unqualified opportunities into the funnel. The funnel becomes distorted; create lots of unnecessary noise and lots of time wasted. The result is reduced Sales productivity, less $$$$ in yours and the sales person’s pocket and the probability of your team not reaching sales targets is high.
The Funnel Shape:
The top of the funnel representing new opportunities being pursued, and should be the widest part, and then worked through the sales process by informing, persuading, understanding obstacles in closing business, providing information, further identifying needs, etc. until at the narrow part of the funnel, an order is placed and a sales is closed.
The image of the sales funnel (see figure 2 below) is a visual representation of the step-by-step nature of a long sales process with this drop away in opportunities at each stage.Figure 2 – Probability vs Sales Potential
Some general observations of a healthy Funnel:
- Funnel should be shaped like a funnel
- The Percentages need to be applied using a standard methodology that has each opportunity defined using the same criteria. This implies that the sales person uses a standard approach using a stringent set of rules for each opportunity to move it forward or out of the funnel.
- There should be zero out of date opportunities
- While some complex sales cycles can extend from 3 months to 1+ years, one fact remains if there is a large number of opportunities out of date, and there are no activities indicating that an attempt has been made to contact the prospect you have funnel rot.
- If the funnel is opposite of the shape illustrated in Figure 2 above then there is a good chance that while business may be good now, 3-6 months from now you will see a drop in sales unless this imbalance is corrected.
Calls vs. Emails ratios in your CRM
One sales KPI that most sales people will dread but is critical for a sales manager to track is the ratio between the number of calls vs. the number of emails sent. The call vs. email ratio is a leading indicator on what activities the sales person is focused on to help move leads into opportunities and opportunities into sales.
Sales and marketing are contact sports and run on high octane that consists of intelligence, time and getting to the potential prospect before the competition. In a highly competitive market getting to the right people at the right time and asking the right question is key in any sales execution strategy in building trust, and understanding the customer’s needs. The best way to do this is get the customer on the phone. This should always be sale’s first goal. Emails are used as clarification tools following conversations and confirm commitments for sales. It is proven that conversions on leads will increase dramatically with phone calls and meetings rather than trying to sell through email correspondence.
Typically the ratio of emails vs. Number of Calls/Left message/Meetings should be relatively even with a slightly higher number emails sent.
Opportunity Closed Won Ratio
Opportunity Close Won Ratios are important for monitoring the overall health of the revenue funnel.
It should be used in combination of the Leads to Opportunity ratio and divided into categories:
- Type of Lead (white paper vs. product download vs. send me quote etc…)
- By Product/Solution
Monitoring this KPI will help determine the ratio of closed deals compared to the number of opportunities entered into the sales funnel. The conversion rate will help you understand the quality of your marketing funnel leads, sales person qualification skills and sales processes.
For example a low opportunity closed won ratio can indicate:
- A lack of competitiveness in the market and that your value proposition or market message for the products/solutions might need work.
- The type of lead is earlier on in the marketing funnel and is not quite ready for sales therefore may need further nurturing by marketing to weed out noise to sales
- If the type of lead is defined as high quality and there is still a low close rate, it may suggest that your sales person require additional training
Whereas a VERY high opportunity closed won ratio can indicate:
- That the sales person is putting opportunities in at the last minute, which can mean that some leads might be falling through the cracks resulting in potential lost revenue.
Average Sales Cycle
The average sales cycle is the time needed to move an opportunity from being first identified to becoming a sale. This time will vary with the size of the opportunity, type of solution sold and the maturity of the sales person.
It is good to set a benchmark for each type of product/solution sold. For instance, for smaller product/service sales it can range from 3-6 months. With larger solution it can range 6 months to 1 year.
Monitoring this KPI helps to determine if there is funnel rot, if tweaks are required in the sales process or sales qualification training.
Rather than a rear view approach to sales management and waiting until the end of the month, quarter or fiscal year and ask why didn’t we hit our sales target? These KPIs provide leading indicators on the true health of the sales funnel and help to identify and fix issues before they become problems that impact the bottom line. They should be monitored and a pulse on these KPIs should be done with weekly sales reports.
It is important to remember that sales and marketing KPIs do go hand and hand. Even if you have the best sales processes mapped out and your team are experts in funnel management the number of new leads will always give the earliest indicator that things are not going well.
Work with Marketing to define the following:
- Define what qualifies as lead
- The number of leads needed to meet Sales Goals
- Define lead scoring for each product/solution which should be updated in real-time based on client engagement
Questions to ask when working with marketing:
Can you provide me with Lead Scoring information on prospective contacts? How accurate is it? Does it update in real-time based on client engagement?
What is our marketing strategy? Do we leverage nurturing campaigns to move website visitors along the engagement path to the point they are ready to make an informed buying decision? Or do we get a raw lead and it is up to the sales team to massage the contact into a lead? Keep in mind the more you are marketing the less time you spend on selling.
In the end, it takes Marketing and Sales working together as a team to meet the company goals.