What are the sales metrics meaning?
As we have shortly mentioned, sales metrics are specific indicators that are calculated by using individual formulas, and they point to the sales performance of a single employee, group of sales agents, or the entire company for a selected period of time. Thus, sales metrics can be classified by a subject of a sales process - a single agent, a group of workers, or the whole firm. Anyhow, it is not the only classification used for sales metrics.
Nonetheless, sales metrics have the only main sales goal - give information to the company’s sales managers about the sales performance, efficiency of all sales strategies, progress on the way to pre-set sales objectives, and the success of other processes that are the components of a sales process - lead generation, lead follow-ups, lead status updates, agent occupancy, and so on.
Are sales metrics similar to sales KPIs?
In short, no. But this answer will not satisfy anyone, so we will explain it in detail. Sales KPIs are used to measure strategic goals, and only specific, exact business goals and objectives. Additionally, each sales KPI is transparent across all business departments, while sales metrics are mostly specific for each department.
To ease this description, let’s say that sales metrics are used to track each sales KPI. How? For instance, you have a sales KPI to increase sales per month up to 20%. Now you need to use one of the sales metrics to measure this sales KPI - and you can use a Monthly Recurring Revenue(MRR) for it, or just a sales revenue metric.
Why do you need to monitor sales metrics?
First of all, without sales metrics, you will never control processes inside your business and understand sales opportunities for growth or factors that harm your company. Secondly, sales metrics is the only source of data for decision-making. Finally, sales metrics are not only about sales - but they also relate to such aspects as agent performance, customer satisfaction, customer retention, and other vital factors that influence business success.
The only question to answer is what sales metrics to track. In short, there are more than a hundred sales metrics available. On the contrary, there is no need to measure them all - some of them are used for very specific occurrences, while others are generally used, and, thank God, there are not that many generally used sales metrics that you could expect.
So, let’s discover a list of the most important sales metrics to catch all sales opportunities and reach sales targets.
Key sales metrics
As there are too many sales metrics to track, we will include only the most important ones into this list, as well as classify them by their main purpose of use.
Sales pipeline metrics(Sales efficiency metrics)
ACV(Annual Contract Value)
The metric to discover the overall revenue from a single contract on an annual basis. The formula is:
ACV = (Overall Contract Value/Overall Contract Duration), so for a 25,000 USD contract signed for 5 years you will get ACV=5000 USD. Some firms prefer to include one-time fees into the formula, so it will look like: ACV= ((Overall Contract Value - One-Time Fees)/Overall Contract Duration).
ARR(Annual Recurring Revenue)
The metric that’s sometimes confused with ACV. That’s one of the most standard sales metrics, and it is needed to calculate the overall revenue brought by one customer per year. Some experts even state that the formula we have provided you with above is related to ARR, but it isn’t. So, the right formula for ARR is:
ARR = (MRR*12)
Now you can be shocked and say “And what the hell is MRR?”. Let’s deal with it - MRR is Monthly Recurring Revenue, so that’s where we get “12” as a part of our formula.
The formula for MRR will be:
MRR = (Average Revenue per Customer/Number of Active Customers per Month)
Sales Win Rate
The term win rate can refer us to computer games, can’t it? But the fact is that we’re talking about other wins - closed deals. Sales win rate is important to understand how good your sales professionals are, and how many deals are closed from the entire number of deals in the pipeline. So, let’s check out the formula:
SWR(Sales Win Rate) = (Won Deals/Overall Number of Deals)
Keep in mind that the sales win rate can be calculated both for one sales agent and for the whole sales team. Additionally, before starting to calculate it, think of the time period you would like to measure efficiency in.
Market penetration
One of the most important sales metrics, but it isn’t about the sales themselves. By the way, it is a sales metric that refers to the number of customers acquired in every single market. In other words, it can be defined as a correlation between the overall target market size(the number of similar products sold by all market players) and your sales of such a product. Therefore, the formula for the market penetration rate will look as:
Market penetration = (Number of your buyers of an exact product or service/Targeted market size)
Annual growth of the business
This one of the sales metrics is easy to count and understand. This metric shows how much you have grown in comparison to the previous year. So, let’s find out the formula:
Annual growth = (Previous year revenue x 100/Current year revenue) x 100%
Average Customer Lifetime Value (LTV)
This one of the sales metrics is very important in planning and understanding the customer behavior of your target audience. Ignoring customer lifetime value rate can cause many problems in the future, such as high customer churn, inability to find the areas of improvement in customer experience, and other issues that are related to customer service metrics. When we are talking about customer lifetime value rate, any other sales metrics are as influential and informative for customer service metrics as it is. Customer satisfaction, customer effort, net promoter score - all these rates are closely linked to customer lifecycle management. Why? Well, because with poor customer service you won’t be able to reach high customer retention scores - one of the two components of a long and stable customer lifecycle.
Anyhow, don’t you need a formula for it?
LTV = (Average Customer Value x Average Customer Lifespan)
Let’s also state that your average customer value can be calculated by multiplying the average cost of purchase by the average number of buys per customer.
Net Promoter Score (NPS)
Surprise! What does this customer experience metric do here? We’ll explain - even though Net Promoter Score (NPS) isn’t the kind of sales metrics that measure revenue or the number of deals, it shows whether your customers are ready to become another “channel” of advertisement for you or not. As you could guess, brand advocacy (this term is the synonym for promotion) is the channel of new customers with one of the highest conversion rates. What can convince people that you are a trustworthy brand? Their friends or Google Ads? Both, but personal communication and trust are more successful in this case.
By the way, what about the formula?
Net Promoter Score (NPS) can be calculated only by surveying customers. Thus, you have to ask your buyers a question: “Would you recommend us to your friends/family? Rate the possibility of such a recommendation on a scale from 0 to 10.
So, those who rate you from 0 to 6, are detractors, and they won’t recommend you. In other words, they are not your promoters. People who choose 7 or 8 are passive customers, and they can become promoters, but not at this stage. Only those who say 9 or 10 are promoters.
But there is no formula in this paragraph. And yes, here it is.
NPS = (Percentage of promoters from the overall number of clients - Percentage of detractors from the overall number of clients)
Conversion Rate
One of the sales metrics that has no generally accepted use or even definition. All metrics for sales efforts that are widely used are used for each exact purpose - but that’s not about conversion rate. What do we mean?
Well, let’s consider what is a conversion. Is sale a conversion? Basically, it is. Is the order of a callback a conversion? Yes. Is the demo version a conversion? Surely.
So, conversion is any customer’s action that is focused on moving to the bottom of a sales funnel, in other words, it is any customer interaction that brings you closer to a successful deal - and closing a deal is also a conversion. Why isn’t it precisely defined? Well, the term “conversion” is widely spread across industries and different companies use it differently. Nonetheless, our topic is sales metrics, aren’t they?
So, in sales efforts, the conversion rate is generally about converting warm, qualified leads into real customers who have already paid their first bill. Thus, the conversion rate formula isn’t difficult.
Conversion Rate = (Number of newly acquired clients/Number of qualified leads processed) x 100%
Take into consideration that the conversion rate is measured for each time period, no matter whether it is a month or a quarter.
Average Sales Cycle Length
Some of the sales performance metrics are more about time than money, and this is one of such sales metrics. Duration of the Sales Cycle is a vital metric because it helps you understand how much time is spent on each deal to close it, but it also influences many other sales performance metrics, because if we are talking MRR, if you have a shorter sales cycle, you get higher MRR. If you get a longer sales cycle, you get a lower MRR, and so on,
The formula is coming:
Sales Cycle Duration = (Overall number of days spent on closing all deals/Overall number of deals)
Average Size of a Deal
One of the sales metrics that is used to measure other sales metrics. To avoid talking about it (it is already clear what does “average deal size” mean), let’s check out the formula.
Average Deal Size = (Overall revenue from the sales/Overall number of sales)
Customer Acquisition Cost
One of the most vital metrics for sales as all businesses have to acquire new clients to scale up and generate new sales. Anyhow, we have to remind you that the proven average price for customer acquisition is from 5 to 25 times more expensive than customer retention, and that’s one of the saddest facts about it. Otherwise, you can’t avoid acquiring customers just because it is expensive, you have to focus on improving customer acquisition strategy and tactics to spend less and get more customers. Nonetheless, it is a topic for another article, now get the formula:
Customer Acquisition Cost = (Total Spending on Customer Acquisition/ New Customers Acquired)
As you can see, this metric is measured for a time frame - month or year, or whatever. Moreover, let’s mention that “Total Spending on Customer Acquisition” includes such sales activities as paid ads, events, inbound marketing (social media, blog, SEO, and so on), business development, etc.
Customer Churn Rate
That’s one of the sales metrics that is widely used for customer service performance measurement too. By the way, some metrics in sales are the same as they are in other industries, so keep it in mind. Nonetheless, the customer churn rate is extremely important to measure, because it points to many problems or areas of improvement (it depends on whether you are an optimist or a pessimist).
So, the customer churn rate formula is:
Customer Churn Rate = (Overall number of customers lost for a period of time/Total number of clients you had at the beginning of that period of time)
As you could guess, the customer churn rate is generally opposite to the customer retention rate. So, if you have a 25% of customer churn rate, you have a 75% of customer retention rate, and vice versa. Additionally, if your customer churn rate is higher than the customer acquisition rate (counts almost the same as the customer churn rate), it is time to change something in your sales strategy(and in your customer service strategy too).
Final thoughts to take into consideration
Well, this guide includes a bit fewer sales metrics than other guides from popular companies, but it doesn’t mean we don’t know any other sales metrics. By the way, metrics in sales are almost endless - you can even invent your own ones, but the question will remain the same - are those sales metrics useful for your business? Can you use those sales metrics to find imperfections? Do those sales metrics point to important processes in your business? Are such sales metrics effective for decision-making? Do such sales metrics cover all aspects and nuances of the sales process or customer journey? Ask yourself about it.
Let’s also mention some SaaS sales metrics that are also crucial, but they are also easy to measure and don’t require a long description. So, such sales metrics examples include:
- Total Revenue - how much you have earned per period of time.
- Revenue by a Service/Product - the same thing, just based on each product.
- Revenue Generated by Current Customers - the percentage from the total revenue generated by your retained customers (Revenue from current customers/ Total revenue)
- Cost of a Sale - how much do you spend on each sale (Money spent on sales/Number of sales).
- Number of Open Deals - number of deals that aren’t still closed.
- Percentage of Dropped Leads - number of lost leads (Lost potential customers/All potential customers).
- Deal Slip Rate - number of deals expected to be closed, but haven’t been closed for any reason (Non-closed deals/All deals expected to be closed)
- Quota Attainment - one of the metrics in sales that is about sales reps' productivity. It shows how sales representatives are meeting their goals or quotas. So, it works as (Sales performed/Sales quota).
By the way, that’s still not the end of sales productivity metrics, sales qualified pipeline rates, and other scores for all possible business models. If you want to reach your revenue targets, you have some sales tools that will provide you with real time sales dashboards with all needed information that will include sales productivity metrics and other tools to control your sales qualified pipeline - the percentage of customers who closed the deal, profit margin, closed-won deals, and so on. Without such a tool, you will never be able to control your sales processes manually.
