How Sales Metrics Drive Revenue Forecasts

Revenue forecasts can be very difficult to project unless sales management puts in place a process to measure and evaluate their sales team’s performance.  There are many sales metrics that can be used to assist the sales leader so he must select the ones that most effectively provide the information needed to manage and motivate the team.

Two types of metrics will be most effective if used together to support the sales process.  Activity metrics track and measure the number and quality of actions taken by sales reps and pipeline metrics identify how leads flow through the sales cycle.  Used together, these metrics can drive revenue forecasts more accurately.

Activity Metrics Improve Lead Generation

If you want to track your sales team’s performance you need to track the sales reps activities.  New deals are a result of performing activities like calls, emails, meetings, etc.  If a sales rep is not doing enough activities then you will not hit your number.  Define the activities that will drive sales for your organization and start tracking these activities by sales rep.                                   

Activity alone is not enough, however.  The right activities done effectively will result in sales.  A high activity count that doesn’t result in enough sales deals highlights ineffective sales reps.  For example, if reps are making the right number of calls and not getting enough meetings then it may be that they need to be coached on their calling skills. 

Tracking ratios such as “Calls to Meetings” and “Meetings to New Opportunities” indicates that the activities are being done properly.  Based on the activities you define, determine the activities that best drive opportunities and start tracking those by rep.

Setting goals for the number of and effectiveness of sales activities will drive better performance.  As a sales leader you will be able to see which reps need coaching and, more importantly, the specific areas needed for improvement.  Goal based management creates a culture of accountability and competitiveness which leads to increased performance and a more opportunities in the pipeline.

Pipeline Management Drives New Sales

Sales leaders must understand that managing the sales funnel is the key to winning new deals and tracking conversion rates is at the center of this process.  Each organization must define the stages of the sales cycle that their leads flow through.  Tracking the percentage of opportunities that pass between each sales stage (in total and by rep) will highlight where the most drop off is and can identify where improvement is needed most. 

Just as important as the conversion rates, is the amount of time a lead stays in each stage of the sales cycle.  Once you know the average duration of each stage you will be able to see which leads are at a higher risk of failure.  Those that are stuck in the sales cycle may either need more attention or they may need to be removed from the sales process.  Spending too much time running after leads that are not going to close takes time away from managing good leads.

Tracking average deal size can also show what deals should be focused on.  If large deals have a low conversion rate overall then it is best to work on smaller deals.  If it is just a specific rep that is having difficulty selling larger deals then there is another coaching opportunity for skill development. 

In addition,  being aware of the duration a deal is in the sales cycle based on its deal size will help determine if it is worth the effort to pursue the deal.  For example, if larger deals take three times as long to close, it may be better to go after two smaller ones that take less time to close.

Use Historical Sales Metrics to Inform Revenue Forecasting

Sales forecasts are developed based on many factors including changes in business strategies, changes in the business environment, and even seasonality of the industry.   A study of historical sales metrics will also inform the forecast as it sheds light on the most recent trends in sales lead conversions. 

Studying conversion rates of the pipeline can help you forecast more accurately by shedding light on how opportunities will convert at each stage in the process.  When deal size is taken into account it is possible to create a base line forecast based on historical trends by multiplying opportunities by the historical opportunity to close conversion rate and by the average deal size a sales projection can be established.

About the Author:

Martin Begley, Director of Management Consulting Services at Business Solution Partners, is a Certified Information Systems Auditor (CISA) and a Certified Professional Business Coach (CPBC).  He helps business owners and leadership teams define and achieve their business goals through designing and implementing performance management strategies, technology solutions, and corporate policies and procedures.  You can follow him on LinkedIn at www.linkedin.com/in/martinbegley/​