Delivering predictable revenue requires a repeatable and scalable sales model. To achieve predictability, it is helpful to incorporate key performance indicators (KPIs) into the management process. KPIs help to ensure the sales engine is firing on all cylinders and identify when/where tuning is needed. While it is not uncommon for leaders to hear, “I will deliver my number this quarter because I have a $1M quota and 2X pipeline”; in reality, it is difficult to accurately forecast revenue without a deeper understanding of the numbers. Below are seven KPIs to increase predictability.
- Average Close Rate – What percentage of opportunities are you closing/winning? If you are closing/winning three of every ten opportunities, you have a 30% close rate.
- Average Deal Size – What is the average amount of revenue for each closed opportunity? If you close three opportunities at $45K, $50K and $55K, your average deal size is $50K.
- Average Sales Cycle – How long does it take to go from lead to close (e.g., 90-days)? Time measurements should be done for the average deal, individual products and different segments (e.g., enterprise or mid-market).
- Lead-to-Opportunity Ratio – How many of the leads that enter the sales funnel become valid opportunities? If the number is too high, you have a quality problem. If the number is too low, you have a quantity problem.
- Number of Opportunities by Buying Stage – Are opportunities evenly distributed across buying stages? If weighted toward the front-end, focus on velocity. If weighted toward the back-end, focus on lead generation.
- Number of Stalled Opportunities – What opportunities are in buying stages longer than the average? Determining why can help develop nurturing and velocity needs.
- Pipeline Velocity – How fast are opportunities moving through the buying stages of the sales process? That is, moving from 20% to 40%, etc. Is an opportunity moving faster or slower than average?
Practical Application: You are entering Q2 and need to submit your revenue forecast to leadership. Your quota is $1M. Your average sales cycle is 90-days (KPI). Your average deal size is $50K (KPI). Your average close rate is 30% (KPI). By just using these three KPIs, it is now clear that the $2M pipeline mentioned above and in Example 1 is not enough; the seller would be $300Kshort. A 3X or $3M pipeline would actually be needed to deliver quota (Example 2). Establish and use KPIs to your advantage to gain better insight into the business and deliver predictable revenue.
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