The Sales Formula
In this lesson, we’ll take a dive into how you can reliably measure your sales performance.
How do you know where you’re leaving money on the table?
If you can identify variability in your sales performance, you’re on the right track to answering this question. To take it a step further, how can you confidently determine what the drivers are behind this variability? Let’s see how.
The hunt for lost productivity
As a data-driven sales leader, your main goal is to determine what’s causing variability to occur and determine what you can do about it.
However, if you don’t have a consistent and accurate way to measure your sales performance, you will be lost in a sea of data, unable to find your way out.
So how do you measure your sales performance?
The simplest way to measure sales
At a high level, the basic math behind sales is very simple:
Sales Revenue = # of Deals Won x Avg. Deal Value
As a sales leader, your objective is to work backwards and figure out how to get the right number of “deals won” at a particular “average deal value” in order to hit a sales revenue goal in a set period of time.
So how do you know if your strategy works? How do you measure its effectiveness?
Find the key conversion points in sales
In order to undstand why you win some deals and lose others, let’s break apart “# of deals won” and identify the key conversion points required to turn a prospect into a closed deal:
1. When you reach out to a prospect (i.e. lead)
2. When a lead is converted into an opportunity
3. When an opportunity is reviewed and worked
4. When an opportunity turns into a won deal
So what can these conversion points tell us about our sales performance?
Key Sales Productivity Insights
By analyzing these four conversion points and your average deal size, you can start asking deeper questions about your sales data and isolate potential causes for inefficiencies and bottlenecks in your sales team’s performance.
For instance, you can start asking questions like:
• Are we prioritizing leads that can bring us the most value to reach our goal?
• Are my sales teams operating at capacity?
• Are there issues with our team’s ability to convert leads or win opportunities?
• How does the velocity of a deal influence conversion rates?
• How predictable is our productivity over time?
The Sales Formula for data-driven sales leaders
In this hunt for lost productivity, having a Sales Formula for your business provides a reliable and consistent way to measure your sales performance over time.
By focusing on the key metrics of turning leads into sales revenue, a Sales Formula represents a standard measure by which you can evaluate your sales strategy, no matter how much it changes over time.
Bring science to the art of sales with the Sales Formula
The only thing that makes the science of sales different from the art of sales is the ability (and willingness) to measure.
Measurement is a tool we use as a common language of understanding. It creates reference points by which we can accurately quantify the impact of change.
In order to improve how you sell, you have to experiment and evolve your strategy. The Sales Formula provides a way to measure the effectiveness of those experiments.
So what experiments should you do?
Experiment with your sales strategy: People, Processes and Tools
Your “sales strategy” represents the way in which you take in leads and convert them into sales revenue.
The strategy itself is made up of 1) sales people, 2) sales processes, and 3) sales tools/methodologies, and your goal is to figure out how to make these parts work together as efficiently as possible to increase sales revenue.
In order to do so, the Sales Formula provides you the flexibility to experiment with your sales strategy and accurately measure the impact of those experiments.
So where should you start?
Apply the Sales Formula to your sales processes
Chances are you’re already experimenting with your sales process, but you might struggle to measure your sales performance over time. This is likely because you have:
• a sales process that gets updated and changed over time; and/or
• multiple sales processes within the same organization that are hard to match up and compare.
In reality, there is no “one-size-fits-all” sales process. You have to adapt your processes to work with different kinds of prospects and their respective needs.
However, trying to recalibrate across different processes and measure the changes you make to them over time is an impossible task without a common reference point, the Sales Formula.
So how can the Sales Formula fix this?
Map your sales process(es) to your Sales Formula
Ultimately, a sales process is an extension of your Sales Formula, providing a repeatable set of steps that a sales team follows to convert leads to closed deals. While your sales processes may change, they should always align with your Sales Formula.
A well-crafted sales process should have clearly defined stages that correspond to a key measure in your Sales Formula. In some cases, you have multiple stages that tie back to one key measure in your Sales Formula (e.g. it may take several steps in your sales process to qualify a lead or convert a lead into a closed deal).
Need help creating and mapping your Sales Formula?Learn more
Analyze at sales productivity like a data-driven sales leader
The key to analyzing sales productivity is to break down data into smaller components and look for variability and patterns.
The Sales Formula (1) does this by breaking out the key conversion points to understand how effective your sales strategy is at turning leads into sales revenue. It’s a consistent measure that does not change.
Furthermore, you can also segment your Sales Formula by a dimension (2), such as comparing sales performance over time, by sales team, by different lead sources, etc.. This analysis can reveal underlying trends that would not be observable in aggregated data sets.
Analyzing the Sales Formula by a Dimension
Analyzing data from the perspective of both the Sales Formula and a dimension can reveal a tremendous amount of potential causes for variation in your sales performance.
For instance, if you look at your Sales Formula by the dimension of “time,” how do you see performance change from quarter to quarter? Is it predictable? What might be causing variability? How might you readjust your sales strategy to increase your sales?
Available in Keynote, PowerPoint and PDF file.
Lesson #2 Summary: The Sales Formula
The Sales Formula is the math behind measuring your sales productivity. In order to experiment with your sales strategy, you need to have your sales processes map to your formula in order to understand the impact of your changes.
Once you have established consistent measures, you can analyze your sales formula by dimensions, revealing patterns in your sales data that can show you where you’re leaving money on the table.
The Levers of Sales
In this lesson, we’ll explore how to figure out which levers you should pull to increase your sales.