Closed a $100K deal? Congrats! It should really push the sales KPIs needle forward. However, if you’re in the SaaS industry and your focus is a month over month growth, then you will need to close new deals on a much faster pace and regularly.
Luckily, with monthly product offerings, salespeople are not judged by landing those massive one-off deals anymore (although they do get you bragging rights!).
Instead, they are judged based on their ability to turn qualified leads into paying happy customers that don’t churn as fast and perhaps have the potential for up-selling.
Which leads to an increase in the expansion MRR, one of the key metrics that your CS team should be tracking (more on that in another article).
Today, we will be talking about the 8 key metrics you and your sales team should be tracking.
If you can’t measure it, you can’t improve it
If you’re not tracking the right metrics and getting actionable insights then you’re hindering the growth of your sales team.
It takes time to collect and record data, for the sales KPIs to give you the perfect snapshot of how your sales team is performing, you need to have a record of how your sales team performed in the past.
Once you have historical data, it makes it much easier for you to forecast the growth, define the right OKRs and understand what actions you will need to take in order to improve those KPIs.
To benefit from the following key metrics, You need to avoid measuring the wrong KPIs or vanity metrics that have no actual value or impact on business performance.
A well-defined set of KPIs is relevant, measurable as well as actionable. Meaning you can improve your results if you follow the trends of your KPIs.
The key metrics that you should be tracking are:
1. Qualified Leads
One of the easiest ways to calculate sales success is to see the number of qualified leads you have at the end of the month. It’s also a great indicator of the health of the MQLs (Marketing Qualified Leads) coming your way.
Qualified leads are prospects that you have a mutual fit with e.g. you know their pain points and are positive that your product is the right solution.
To understand the increase or a drop in metric, you need to track further metrics to see if there is a correlation. Compare the monthly sales KPIs with previous months results to see whether your sales performance is increasing or decreasing.
2. Qualified to Customer Conversion Rate
How many qualified leads turn into paying customers. It gives you a snapshot of the health of your sales process. Let’s say you have a 5% conversion rate from Qualified to Customer. That means 95 out of 100 qualified leads are bringing you no business whatsoever.
It’s imperative you track this metric, there is always a reason behind a qualified prospect not becoming a customer. Find those reasons, compile them and improve your sales process.
There are many ways you can improve your qualified to customer conversion.
3. Sales Cycle
The sales cycle is the time it takes a lead to convert to a paying customer. This shows you how long your sales team is taking to close deals and get the customer through the sales process.
Until and unless you are doing enterprise sales where the sales cycle can last anywhere from 3 months to a year.
There is no excuse for leads getting stuck mid-funnel, if that is indeed happening then there is an issue somewhere in the qualification process and the prospects going through are just not the right fit.
Sales cycle usually consists of 5 stages, qualification, demo, offer, negotiation, close sale.
4. New and Expansion MRR
Monthly Recurring Revenue is probably the most important metric of any subscription business. MRR = SUM(Paying customers a monthly fee).
So if you brought on 5 new clients and they all pay $100/mo each, then your new MRR is $500. Under the MRR category comes a different but related MRR and that is Expansion MRR.
So often times you won’t only bring in new clients but might upgrade the existing clients to a higher paying plan.
That increase in the MRR due to the expansion of an account would be classified as Expansion MRR.
Now imagine that the 5 customers (mentioned above) upgrade their plans from $100/mo to $200/mo. That means you have expanded your revenue from existing customers and your Expansion MRR for that month is $500.
MRR is a key sales KPI that everyone should be tracking and it’s a perfect indicator of the health of your subscription business.
MRR doesn’t come without its challenges e.g. Retention and Churn. We’ll talk more about that in a video that I’m creating just for you guys!
5. Customer Lifetime Value
It’s very important for the sales team to understand not just how much their prospect is paying but also how much that prospect is bringing to the company over time. This ensures that the salespeople know the “true” impact of their win.
LTV is very important for the investors as it helps them make a health assessment of a prospective investment. Here is how you can calculate LTV:
ARPA: Average Revenue Per Account (The average MRR across all of your active customers)
Gross Margin: The difference between revenue and COGS (Cost Of Goods Sold). This is typically extremely high in SaaS (>80%)
Customer Churn Rate: The rate at which your customers are canceling their subscriptions.
You can calculate your own LTV here.
Formula: Win rate = closed won opps / total closed apps
Win rate shows you how successful your sales team is. It shows exactly where your sales team is struggling along the sales funnel. If the opportunities are getting lost very early on in the sales process, chances are your qualification criteria isn’t good enough.
If the drop off happens quite late in the sales funnel then you probably want to coach your sales team to better handle objections and learn how to give strong rebuttals.
Analyze the sales funnel, see where the drop off is and work your way back to see how you can optimize the sales funnel to increase the win rate of your team.
As a sales leader, you should know this number by heart, by investing in sales coaching and having a strong qualification process, you can gradually increase the win rate.
7. Open opportunities (by # count)
This means the number of opportunities your team is working on at any given time.
If I had a nickel for every time a salesperson told me they are in a process of almost closing a big deal. Your sales pipeline is your #1 indicator as to how your sales team will perform in a given month or a quarter. Very seldom do prospects come in and buy right away.
The sales cycle takes time and if your team is not working on several opportunities at one-time chances are they are not going to meet their quota.
Remember the prospect doesn’t owe you anything and they can just walk away without committing to anything, so putting all your eggs in one basket is not the way to go.
In retrospect, reps working too many opportunities can also become ineffective since they might not be able to give each and every deal the right amount of focus and time.
Juggling too many opportunities means some will fall through the cracks since prospects might feel neglected and you risk losing them.
A tighter pipeline with higher conversion rates is vastly superior to a huge but unfocused one, so keep that in mind when allocating leads to your sales team.
8. Lead Response Time
Perhaps the most underrated sales KPI of all time. Sales managers love tracking all sorts of metrics but they forget this crucial piece of the puzzle.
Lead response time is the time it takes your reps to respond to an inbound lead. The longer it takes your team to respond to interested leads, the greater the chance of that opportunity slipping away.
Think about it this way: if a prospect is on your website going through the content and requests a demo, wouldn’t it be best if you reach out to him while he is still on your website and actively researching your product?
So if you take 24 hours to contact an interested prospect, chances are they might’ve already connected with one of your competitors, changed their mind or gotten busy.
SaaS companies grossly underestimate the importance of lead response time, those who do respond quickly are more likely to qualify a lead and successfully seal the deal.
In fact, research has shown that contacting an inbound lead within one hour increases the chance of you qualifying a lead by 7 times, while your odds of making the sale decrease dramatically (by 60X!) if you take 24 hours to respond.
Bottom line: Track these metrics to better understand your sales process. It’s a great way to understand how your team is performing and what might the results look like in the near future.
And at all costs avoid spending time on vanity metrics. I will write a post on that soon. Till then, happy selling 💸💪