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Measuring sales-force effectiveness

One of the key challenges that I have seen in senior leadership is to measure the sales-force effectiveness. This becomes even more important if we are in an environment where revenue growth is difficult to come-by. So how does one measure the effectiveness of their sales-force.

I think there are a few key indicators that show if the sales force is doing a good job or not:

  1. Revenue growth: The easiest and the most measured variable is the revenue growth. If the revenue is growing month-on-month, quarter-on-quarter, year-on-year, the sales-force is considered to be doing a good job. This shows the ability of the company to close sales. But this alone is not a good indicator of the sales force effectiveness. 
  2. Customer acquisition: This is measured by the total net new customers acquired. Ideally this should be measured and should either show a positive trend or at least stay within a specific range. This shows that the company’s product’s and the sales force is also on the lookout for new customers. This will ensure that the sales growth is not just dependent on a specific set of large customers. This also shows that your sales teams are not just milking existing customers but also are out building more relationships. 
  3. Repeat business (as % of total revenue): This is measured as a percentage of revenue from existing customers as against total revenue. This is very important and a steady trend shows that we are consistently getting new business from existing customers as well as new customers. This in a way shows the strength of the existing customer relationships. 
  4. No. of transactions: This is nothing but the number of transactions completed in a particular time period (usually a calendar month). This is an often ignored variable which can give early indicators to the management so that they can check if there is any cause for concern. This ability of the management to be able to check any issue at an early state can provide the management with enough time to course-correct mid-way. This ability is the difference between good companies and great companies.

All these indicators when viewed together can provide with enough information to the management on the effectiveness of their sales force and can also provide them clear direction for improvement. The compensation plan for the sales force should also have weightages for all of the above (albiet differential percentages depending upon the strategic direction.

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