Today’s competitive sales environment requires an advantage to win. Sales managers, often promoted from the field sales force, don't often get the training or tools they need to effectively manage their sales teams. Even understanding the rhythm of the business, and the difference between winning and losing sales behaviors can be hard.
For example: There is tremendous value in knowing how long it takes to win or lose sales opportunities. It is important to realize that in most cases losing sales cycles typically last longer than winning sales cycles. By comparing the rhythm of the two kinds of sales cycle, you can design for attaining more winning cycles. To do this, we believe that you must measure sales velocity for each deal, and for each sales person having first established thresholds by which to measure stellar sales performance.
Regularly assessing sales performance enables the sales manager to understand the four essential levers to improved Sales Velocity, a measure of sales achievement, or the revenue that you close in a period.
Sales Velocity comprises four main elements.
- Your average deal size, including won deal size and lost deal size
- The sales cycle days (days to win and days to lose)
- Your win rates: value win rate and number win rate
- The number of deals
Each seller should know their own metrics to improve their personal sales performance and the sales manager should understand the overall performance of the team, and relative performance of each team member. This enables him to:
- Understand objectively who needs to be coached
- Highlight the key sales velocity levers that need attention (for each rep)
- Recognize good performance, and identify which team members need motivation to do something differently
On Pipeline and Forecast calls, sales managers should use actual Sales Velocity metrics in order to show the team how they are performing, and to set the right expectations around qualification, deal size, priorities and deal coaching.
Maintaining pipeline and forecast integrity is essential to keep your sales process running smoothly to minimize surprises. Analysis of your Sales Velocity helps to do that by identifying the ‘stick-outs’ or potentially risky deals that may be unusually large, moving more slowly than your average win cycle, or owned by a seller who has not been successful in winning deals of this profile in the past.
When you are looking at your Pipeline or Forecast, you should compare the Sale Velocity actual metrics with the attributes of the deals in your Pipeline or Forecast, to ensure you are in a position to achieve the quota.
Let’s look at the components.
Ideally you want to lose early if you are to lose at all. This indicates that you are doing a good job of qualifying out of opportunities before you invest too much time and resources. Clearly, it is then important to understand your team’s Average Sales Cycle. Remember this can be different for deals of different profiles. For example, new business deals will typically take longer to close than add-on business to existing customers.
In most sales organizations there are multiple sources of revenue, each of which follows its own specific sales cycle or sales process. You may have one sales process for large enterprise type deals, and another for contract renewals. Be sure to measure the sales cycle independently for each of these.
A lengthy (or increasing) sales cycle is often an indicator of an unhealthy sales process. By understanding and communicating your team’s sales cycle, you are proactively identifying potential issues in the sales process. Breaking down your analysis or discussions by stage can help you to identify these problematic areas quickly, so that you can coach your sellers to improve their velocity.
Average Deal Size
Just like the age of a deal, an opportunity’s size tells you a lot about how likely you are to convert it into revenue. In order to understand, in your Pipeline or Forecast calls, if your sellers are working opportunities that are materially larger than the average size of the deals that you win, you need to have the baseline metric to make that determination.
If the average size of deals won is smaller than the average of all closed deals, you should consider the impact on the expected value from your existing pipeline if this performance continues, by applying the Value Win Rate percentage to the active pipeline value.
Win Rate history tells you a lot about how likely you are to convert opportunities in the future. Most people calculate their Win Rate by dividing the number of opportunities won by the sum of the number of opportunities won and lost. For example, using this method; if you work four opportunities and win one, then your Win Rate is 25%. I think this is dangerous. What if the deal you won was considerably smaller than the deals you lost?
At The TAS Group we recommend that measure $Win Rate (Value Win Rate) instead of #Win Rate (Number Win Rate). That gives you a better indicator of sales performance as well as resource utilization, your return on investment for time and resource investment in opportunities, qualification success or failure, and most importantly your ability to make quota.
5 Actions to Consider
1. Assess the age of your open opportunities against Sales Cycle Duration for deals that you have won in the past to determine if the opportunity is slower or older than your typical win. For opportunities lingering in the pipeline, validate the qualification criteria and current standing of the deal to determine if you should continue to invest time and resources to win, or if you should walk away from a potentially un-winnable opportunity.
2. To determine if you have any risk with deals that are larger than normal, examine the size of your open opportunities size against Average Deal Size for deals that you have won in the past. Deals that are larger than normal behave differently, and are typically slower than normal in the sales cycle.
3. For deals that are smaller than normal, make sure they don’t make up more than 20% of your pipeline. In addition, make sure they are not all centered with one or two sellers. You need for a balance of Rocks, Stones and Pebbles in the pipeline.
4. Consider your Value Win Rate compared to your Number Win Rate, to assess how you might reasonably expect each individual seller to perform on larger deals. If you have a seller whose average deal size if smaller than average but is working a large opportunity, then you need to understand the associated risk.
5. Use Revenue per day for each seller, in conjunction with a review of the pipeline, considering the number of deals, and average deal size, win rate, and sales cycle as an indicator of his potential future performance. There will be other factors at play, but if there are not enough deals of sufficient value in the funnel to achieve future targets, using historical performance as a reference point, then it is likely that some supporting action is required.