How do you measure sales productivity?

Meeting aggressive sales goals requires more than just a dynamic sales team. It also requires you to do your homework in advance and gain an in-depth view of your company’s operational characteristics. This is where sales force productivity enters the revenue equation. You need salespeople who meet specific quotas and performance goals, reaching competitive preeminence, expanding market share and increasing sales. Then, you need tools and processes for measuring and predicting sales force productivity, including past performance, customer service and sales skill markers. The right options will aid you in streamlining efforts to meet goals faster and improve efficiency. 

1. Calculate the Cost

Cost of Sales is an important measure of productivity. To calculate this, consider all of the expenses relevant to your sales force, including not only salaries and commissions but also related benefits and incentives. Then, total the revenue your sales force generates. Divide the total revenue your sales team generates by the costs directly related to their efforts to obtain the cost of sales in ratio form. Measurement should include both hard and soft costs and help you determine ways to reduce and control costs.

2. Set S.M.A.R.T. Sales Quotas

According to Paul Nelson and Dan Horsky of the University of Rochester, sales quotas are key to measuring sales force productivity. To do so effectively, establish S.M.A.R.T. sales quotas--that is metrics that are specific, measurable, attainable, relevant and time-bound. The last thing you want is to set vague, unattainable revenue thresholds for your sales staff. With  S.M.A.R.T. quotas in place, you can evaluate where your team is excelling and where it falls short, discovering weak points that interfere with reaching your goals.

3. Track Performance

Tracking performance helps you predict the future and determine where change is critical. If your salespeople have generated $10 million on average over the last seven years, it's reasonable to expect similar sales in the current year. Performance measures facilitate the evaluation of changes in productivity and the setting of new targets, considering such factors as sales, contributions, and profits per member of your sales team. Tracking performance also involves the establishment of key performance indicators, which are quantifiable factors critical for the success of your business.

4. Monitor Industry Trends

Monitor industry trends to stay abreast of changes that might affect sales. This can include not only monitoring competitor revenue numbers, but also tracking new competitors, competitors that exit the industry, and new offerings and solutions that can affect future sales. Tracking and evaluating industry trends helps with setting realistic goals, adapting to the current market, and identifying factors that might interfere with typical performance.

5. Use CRM Software

Add customer relationship management software to the operational arsenal you use to measure and project sales force productivity. A CRM application gives you insight into factors like customer attrition, conversion rates, sales calls and quotas as well as actual revenue versus budget data. This is critical for evaluating customer acquisition and retention rates and analyzing how, when, and why individuals transition from prospects to customer status. Likewise, CRM tools help you measure sales cycle length and the number or prospects and proposals it takes to close sales.  

Summary

When it comes to monitoring your sales force productivity, you can use various tools, most of which do not require substantial investments. These tools include CRM software, benchmarking, sales quotas and sales force skill appraisal.

Calculate the salesperson's average sales per hour by taking the gross dollar amount of sales, minus any sales commissions due, and dividing it by the number of hours worked. Do not include hours when the salesperson was performing non-sales duties. This will calculation will yield a dollar amount of sales per hour. This statistic is less reliable when the goods sold are expensive items sold on credit, because of the risk that the buyer will default.

Determine the salesperson's average transaction by taking the gross dollar amount of sales per week and dividing it by the number of transactions the salesperson completed that week.

Find out the salesperson's average number of items per transaction by dividing the total number of items sold during the week by the total number of transactions.

Determine the salesperson's average profit per transaction by calculating the shop's profit from each of the items sold by the salesperson in a given week, summing these profits and dividing them by the total number of transactions. A low average profit per transaction may indicate that the salesperson is having trouble building the customer's trust to the level necessary to convince him to purchase expensive merchandise.

Examine all four of the foregoing calculations to obtain a nuanced view of the salesperson's strengths and weaknesses. A high average sales per hour combined with a low average transaction, for example, may suggest that the sales person is sufficiently aggressive but not suggestive or resourceful enough. You can obtain a more comprehensive picture of the salesperson's overall performance and potential by considering other factors such as the long-term potential of his customers, the number of days of credit extended (if any) and other risks and opportunities associated with the sales.

Evaluate the conversion rate of your entire sales staff by dividing the number of transactions completed in a given week by the number of customers entering the shop. A low number may mean that your sales staff is insufficiently aggressive, although other factors such as product prices may also factor in.