Evaluating sales performance should be nuanced for most businesses, but many owners are too quick to look simply at the bottom-line sales dollars.
It’s easy to understand why business leaders just want to skip to the total dollars. Money is the fuel that keeps the business engine running and pays the bills. Dollars are also one of the easiest things to measure when you’re selling something. We have the great cliché “show me the money!” Our business culture leads us to view total sales dollars as the most important measure of business performance.
While total sales dollars is a very important metric, it is not a good stand-alone measure for evaluating a company’s sales performance.
What is sales performance?
Let’s clarify what evaluating sales performance means for a business. In the context of this post, sales performance is defined as how well the sales function is delivering upon a mission to drive sustainable, profitable growth. If you lead a business that is not expecting the sales team to drive profitable growth, this post may not be for you.
You find the nuance of evaluating sales performance in this definition. To properly evaluate sales performance, the analyst should consider sustainability and profitability as qualifiers of the sales dollars. In other words, all sales dollars are not created equal.
We don’t just want sales dollars, we want sales that meet our profitability goals AND that produce satisfied, repeat customers.
Four Key Elements For Evaluating Sales Performance
In working with client sales managers or owners regarding their sales performance, I always want to view sales from the following four perspectives.
- Sales Volume. Are the sales at or above the volume we expect?
- Sales Mix. Are the products/services those we are targeting to sell?
- Sales Margins. Are the sales margins at or above the targeted profitability?
- Customer Satisfaction. Are the customers delighted such that they will be a repeat customer and refer us to others?
The four key elements of sales performance are pretty straightforward when you look at them written out, but it is soooo common for business owners/ sales managers to dwell upon total sales volume at the expense of neglecting the attention due to the other three key elements. The goal here is not to get deep into the weeds on any one element but to pitch the importance of applying all four elements whenever you evaluate the performance of your sales team.
I won’t waste many words here; you need enough sales dollars to meet or exceed your business plan targets. The point of emphasis for this post is regardless of the total sales volume, you can not properly evaluate sales performance without carefully considering the following three criteria to grade your total sales dollar quality.
Unless you only have a single product or service in your offering, understanding your sales mix is important. Sales mix is defined here as the percentage of your total sales credited to each product and/or service offering for your company. The perfect application for a pie chart to graphically depict all of your company sales by product.
Business profitability will often be a function of product sales mix as different products/services usually have different gross margins.
A critical factor for you to consider in sales mix evaluation is that you must have some balance between how much of something you sell and how able you are to produce the product /service. This can work strongly to your favor or to your detriment. Examples include a product where you have great profitability and ability to satisfy a customer should obviously occupy a large slice of your sales pie chart; conversely, a product that is hard for you to produce and is delivered to the customer for a low gross margin might not be desirable as the main source of your total sales.
There are many reasons that a sales mix can get out of balance that are beyond the scope of this post but be sure you have your sales mix front and center in any evaluation of how your sales team is performing. Feel free to reach out if you have questions about analyzing your mix.
It’s rare that margins are constant across products. You typically make a little more on some things than others and the cost of goods sold can vary widely between product or service offerings. In some cases, the margins are changing frequently making it something managers have to track on a constant basis.
Sales margins may be affected by your sales mix as mentioned above, but other major factors include rising costs, unfavorable sales pricing, or both. By keeping sales margins on any evaluation of sales performance, you improve the likelihood of catching problems before they turn serious and when you can still take corrective action.
It is common for sales teams to be so focused upon top-line sales as their performance metric, that they will consider margin as purely an operational concern; it’s not.
Customer satisfaction is so obvious and many clients give me a “well, of course we shoot for total customer satisfaction…”.
The biggest reason customer satisfaction is such a key element is that it is hard to measure and hard to track. The obscure nature of tracking customer satisfaction makes keeping it a part of any sales performance conversation essential. No matter how sophisticated or how crude your Customer Relationship Management tool is or what kind of customer survey you deploy, I’m an advocate for the old school to keep your finger on the pulse of customer satisfaction. Technology-driven data collection is great if you have it and it can be very useful, but I advise against relying solely on survey results or the sales team assessment.
The best and most proactive measure is the owner/senior managers need to be talking to customers and asking them for feedback directly. “How are we doing, what would you like to see, are we meeting all your needs???”
The best and most accurate historical measure of customer satisfaction is repeat business. If a customer goes to a competitor after using your products/services, you need to know why. It’s far easier and less expensive to keep an existing customer than to go find a new one.
I’ve had salespeople who were great at finding new sales opportunities but left a trail of dead bodies in their wake; bodies that did not want to continue buying after the initial sale. It’s hard to sustain healthy sales growth when you can’t lean on existing customers for repeat business.
Your sales performance evaluation must include how the client feels about the transaction after the sale has been made and the product delivered.
There is nothing earth-shattering about any of these Four Key Elements For Evaluating Sales Performance. What prompted me to write this post is how often I hear owners and sales managers seem to ignore one or more of the evaluation criteria in favor of just looking at top-line sales. Many salespeople show some frustration when they are held accountable for all four of these key elements and that is all the more reason to reinforce that these are sales accountabilities- all of them.
A sales team that doesn’t take ownership of all four elements listed here can quickly sell you into a financial mess.