In this post, we'll walk you through the critical metrics your startup's sales team should be measuring and show you how to calculate each metric.
Why use advanced sales metrics for your sales team?
In the past, companies would simply measure their performance based on year-on-year growth and actual sales versus sales targets, and that was that. But these lagging indicators only confirm long-term trends, hardly providing any actionable insight. Sophisticated sales metrics can help you keep up with fast-paced customer dynamics, offer you a richer context of how your numbers come to be, and lead you to what you should focus on and improve and where to cut your losses.
- Measure company-wide, team, and individual sales performance
- find out what activities are or aren't working in the sales process
- determine how to improve strategic and tactical channel sales strategies
- develop more accurate sales forecasts
- adjust sales compensation
- eliminate bottlenecks in the sales process
Here are some of the most relevant sales metrics examples to show on your next sales metrics dashboard:
7 Critical Sales Metrics Examples to Track
1. Market Penetration
Your market penetration is the ratio of your total sales volume to your target market towards which you are aiming sales efforts (not the full estimated market size) for a specific product or service. For example, you want to sell a smartphone brand, and you're targeting 60,000 cell phone users out of a population of 100,000 in a certain area. So your target market is 60,000.
This sales metric tells you how many of your targeted customers you’ve already sold to, how many opportunities remain, or how effective your marketing campaigns or sales activities are.
To get your market penetration, divide the total number of products sold (or customers sold) by the targeted market volume (or the number of targeted customers).
Total no. of products sold: 1,500 units
Target market volume: 60,000 units
COMPUTATION: 1,500/ 60,000 = 2.5%
MEANING: A good market penetration for business products is 10% to 40%. You've successfully converted 2.5% of your target market, so you need to recalibrate or step up your sales efforts.
2. Win Rate (by team or individual)
Win rate is one of several pipeline sales metrics. This type of sales metric helps you assess what is and isn't working in the different stages of the customer journey. The win rate is the ratio of the number of closed-won deals over the total number of transactions in the pipeline (both closed-won and closed-lost deals). A closed-won deal is a deal in the pipeline that has been finalized and won. In contrast, a closed-lost deal means a deal that did not conclude successfully, resulting in a lost client or sale.
This metric can help predict the factors that can produce the strongest likelihood for conversion.
Compute your win ratio by dividing the total number of closed-won deals by the sum of the total number of closed-won deals and the total number of closed-lost deals. Then multiple by 100
Total number of closed-won deals: 100
Total number of closed-lost deals: 200
COMPUTATION: (100/ 200) x 100 = 50%
MEANING: Your win rate is balanced at 50% (the average win rate across industries is 47%). This means that your marketing team gives qualified leads, which your sales team can convert into customers.
3. Average Sales Cycle Length
The average length of a sales cycle is the time it takes for a lead to be converted into a customer and then averaged over the number of deals. This sales metric can improve forecasting accuracy by anticipating when closed-won deals will be hit and estimating the revenue.
To compute, divide the number of days it takes to close each deal by the total number of closed-won deals.
Total number of days to close each deal: 70+90+64+60
Total number of closed-won deals: 4
COMPUTATION: 284/ 4 = 71 days
MEANING: It takes 71 days on average for you to close a sale (team or individual), which means you're doing pretty well. According to HubSpot, the average sales cycle length is 83 days. Note that the ideal sales cycle length may vary depending on other factors like the type of product you're selling or the complexity of your processes.
4. Sales Ramp-up Time
Sales ramp-up time is a sales hiring metric that refers to the length of time for a salesperson to become 100% productive from the recruitment date. This sales metric helps you hire more qualified salespeople who can hit the ground running.
Companies typically differ on how they compute for this, so let’s just use one of the more popular formulas that consider a new hire's experience (as represented by the variable X). The larger "X" is, the more inexperienced they are. So, for instance, someone with prior relevant experience may be assigned an X value of 15 days, while someone who is a little more green behind the ears can be given an X value of 60 days.
To compute your sales ramp-up time, get the sum of the length of training time, the average length of the sales cycle, and "X."
Length of training time = 21 days
Average length of sales cycle = 90 days
X = 15 days
COMPUTATION: 21 days + 90 days + 15 days = 126 days or 4.2 months
MEANING: Your sales ramp-up time is 4.2 months. The average ramp-up time is 3.2 months, which may mean that your turnaround time from hiring to productivity (and revenue!) is lagging. One way to improve this is by hiring more experienced sales reps who are already productive or near-productivity.
5. Average Selling Price (ASP)
Your average selling price refers to the average price that your goods or service sells for. You may have a large sales volume which may amount to little sales value because the average selling price per unit or transaction is low. This may mean that you have a high cost to sales (CTS) ratio, especially when you account for all the expenses incurred in producing that sale. The higher your ASP is, the more beneficial it will be to your CTS.
Calculate your ASP by dividing the total revenue by the total number of units sold over a given period.
Total revenue: $1,000
Total number of units sold: 5
COMPUTATION: $10,000/ 5 = $2,000
MEANING: Your average sales value for each unit you sell is $2,000.
6. Cost of Sales Ratio
The cost of sales ratio compares the costs incurred by a sales team or salesperson to close a deal versus the revenue generated. This sales metric is one of the Key Performance Indicators critical to evaluating sales teams' performance, along with basic metrics such as year-on-year growth and quota attainment. Additionally, it helps assess if you are spending way more than the revenue you are generating, especially from a specific activity.
To get your cost of sales ratio, divide the total cost of sales by the total revenue and then multiply by 100.
Total cost of sales: $100
Total revenue: $1,000
COMPUTATION: $100/ $1,000 = 10%
MEANING: Your cost of sales ratio is 10%. This indicates that for every $1 you spent, you were able to turn in a gross income or revenue of $10. The sales activity you implemented must be worth replicating.
7. Weighted Sales Pipeline
An unweighted sales pipeline can help estimate the value of all potential opportunities at every stage of the customer journey (from prospecting to closing the sale. But your weighted sales pipeline can prove more incisive by assigning closing probability percentages to each deal based on where the customers are along the sales funnel. The deeper your prospect is in the pipeline, the higher the probability of closing on them.
To compute, multiply the full opportunity value per deal by the closing probability percentage. Then add all the resulting values, which will be your total weighted sales pipeline.
Consider the following hypothetical percentages for each stage:
Stage 1: Prospecting - 10%
Stage 2: Lead Qualification - 20%
Stage 3: Proposal Meeting - 50%
Stage 4: Demo - 70%
Stage 5: Negotiation - 80%
Stage 6: Closing of Deal - 100%
Stage 7: Post-purchase - n/a
Full Potential Value Per Deal: $1,000
Customer A at Stage 1 of the funnel (10%)
Customer B at Stage 3 of the funnel (50%)
Customer C at Stage 5 of the funnel (80%)
Customer D at Stage 4 of the funnel (70%)
Customer A: $1,000 X 10% = $ 100
Customer B: $1,000 X 50% = $ 500
Customer C: $1,000 X 80% = $ 800
Customer D: $1,000 X 70% = $ 700
Total Weighted Sales = $2,100
MEANING: You can more accurately forecast your sales at $2,100. Note that the percentages can vary depending on your calculations. Also, this sales metric is more suitable for companies with a wide range of activities per sales funnel stage. An option for smaller enterprises would be to estimate the closing probability specific to the opportunities in each step instead of pegging one number for the entire phase.
Using the most relevant sales metrics can help you determine exactly how your business is doing at any given point in time. This can help you make timely data-driven decisions and optimize performance, productivity, and profitability for your company and your sales teams.
At Canvas, we help operators use real-time data to build and share metrics like these without SQL. Our spreadsheet-like interface lets you centralize, combine, and analyze data from your warehouse or any app in minutes. You can get started here for free or request a demo at [email protected].