If you are selling to an enterprise, managing sales performance needs you to understand two important concepts:
– Leading and lagging indicators
– Sales cycle and cash cycle
It is very common that leaders create an aggressive sales plan with their team, only to realise towards the end of the financial year that they have missed it by a big margin.
Sales is a lagging indicator, i.e. it’s an effect. The effect takes time to show up, and at times where the sales cycle is long, it may be too late to act and course correct.
A better way to manage sales is by looking at the cause, i.e. what yields the sales, and how is that metrics moving week on week. E.g. we at Indus Net Technologies (INT.) measure the following leading indicators:
1) growth in pipeline
2) conversion rate %
3) # of performing sales reps
#1 helps us see the “quantity” of work, #2 helps us see the “quality of work” and #3 tells us if we have put sufficient performing resources to achieve the target – i.e. is the sales leader hiring, onboarding, and training sales reps as per the plan!
With past experience, we know where these numbers should be for us to meet the target of $x, and tracking them tells us the deviation from the target every week. And this gives us the opportunity to fix things before it is too late. By measuring these intermediary numbers transparently, we can also avoid micro management, which boosts team morale.
Now moving to the sales cycle and cash cycle.
It is important to know the time lag between “first contact to deal closure”, and “deal closure to money in the bank”.
Very similar to the concept of lagging and leading indicator, your efforts in sales will be visible in the form of cash flow only after “sales cycle + cash cycle” which can be multiple quarters.
This means, the current sales booking or cashflow is an outcome of work done in the past. Therefore these numbers shall not encourage or discourage you, because it must be “expected” if your leading indicators are measured properly without any bias.
How do you measure your sales performance?