Sales is all about hitting the number, but sometimes, those numbers can be a little misleading.
As a sales leader, you have to be able to understand your business at multiple levels by analyzing the data and assessing sales metrics. You need to forecast for next quarter, analyze the pipeline, and keep track of deals closed. It’s a lot of metrics to balance, and it’s easy to miss out on.
Any data analyst will tell you that it’s possible to frame graphs and charts to tell you anything. Many sales charts are often misinterpreted or misunderstood, to the serious detriment of your business. You can’t always take data at face value.
The cost of misinterpreting data
Unfortunately, there is a serious cost to misinterpreting the data. Say you extract the sales data, create a report in Excel, and then analyze the report. If you misunderstand it, or find out it’s completely wrong, you’ve wasted hours of time. Even worse, you could guide your company in the wrong direction. Quickly and correctly interpreting information could be the difference between success and failure for your business.
Here are the most common mistakes sales leaders make when analyzing performance metrics, and how you can avoid these missteps yourself.
Total sales bookings
Many smart business people think that if bookings steadily increased over the past year, your business is on the right track. It looks great to see a chart go up and to the right, indicating revenue growth. However, if you only look at bookings, you could be masking larger, systemic problems in your business.
The three core metrics that drive bookings are:
- Win rate
- Average sales price
Those three metrics multiplied equal the total bookings number. However, you can’t just assume all three metrics are rising along with bookings. For example, you might see bookings are going up, pipeline is going up, but your win rate is actually decreasing. How is that possible? In this case, your ASP is probably going up and compensating for the drop in win rate. Although your team is closing more business, it’s actually because you’re booking larger deals, but winning fewer deals in total.
This change in win rate and ASP isn’t necessarily a problem in the short run. But in the long run, is your business able to handle significantly larger deals? If your business is only used to closing $100K deals and suddenly closes a huge, $1 million deal, can your team effectively support a customer of that size? For a SaaS company specifically, it might look great that bookings are through the roof, but that huge account could churn the next day. Then you’ll have to explain a sudden drop off in bookings in the next month to your board of directors.
If you’re only reviewing the total bookings over time, you’re probably missing out on the bigger picture behind what’s driving that number. Though it may seem harmless, misinterpreting this specific metric could lead to huge problems for your business down the line.
Average bookings per rep
Another commonly misunderstood metric is average bookings per sales rep. You might run the numbers and find sales reps on your team are booking an average of $50K by their third month on the job. This is a solid number, and you are thrilled to see your reps are performing at a high level, that you have a great sales team, and you’ve got it all figured out. However, in data, averages can be incredibly misleading.
For example, if you separate the reps by those selling to SMBs vs. mid-market, the mid-market team generally pulls up the overall ASP. In contrast, the SMB team may be struggling. Without analyzing that data separately, you don’t really understand what’s going on within your sales team. The average doesn’t tell you much about the deals your team is really closing.
Upsells vs. new business
Looking at the unreliable total bookings number again, you may not be seeing the full picture by just analyzing pipeline, win rate and ASP. What happens if you separate upsell and new business? For example, you could have solid revenue growth, but notice that 60 percent of your revenue is from upsells. This means you’re not actually growing your business and gaining new customers. If you’re a company in growth mode, this isn’t a good sign at all. In fact, it might be time for a serious sales intervention.
Marketing lead count
Though technically a marketing chart, not a sales chart, the measurement of new leads is incredibly important to sales, and very often isn’t telling you the whole picture. For example, your marketing team could appear to be doing a fantastic job—overachieving goals and generating tons of new leads. But what is the sales team saying about those leads? If you’re constantly hearing sales reps complaining about the leads being terrible quality, you could have a problem.
You might realize that marketing is generating a lot of leads at the top of the funnel, but those leads may be very low converting. Instead of measuring by quantity alone, you should also measure by quality. One way to measure this is by using lead scoring to separate the best leads from the worst. Then, set new goals for marketing that incentivizes quality over quantity, and better aligns both sales and marketing.
Monthly recurring revenue
For a SaaS company, Monthly Recurring Revenue is one of the most important metrics. It shows the growth of your sales, upsells, and the recurring payments from happy customers. However, MRR is nothing if you don’t also take churn into account. If your churn rate is too high, it doesn’t matter if bookings are growing, upsells are growing, and MRR is skyrocketing. Churn can slowly but surely eat away at your entire business, and is a leading indicator of trouble.
Instead of focusing just on MRR, look at MRR Inflow and Outflow instead. For even more detail, you can calculate the Quick Ratio, which includes all of that data in one number.
Easily interpret your data
Don’t be complacent, thinking that you’re analyzing the right sales metrics each month. If you’re allowing your team to be misled by sales charts, your business could be in trouble.
With these insights, now you can understand every sales chart, and renew your focus on your business.
This article was written by Cara Hogan from Business2Community and was legally licensed through the NewsCred publisher network.