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Sales Financial KPIs - Top Level Sales Reporting For Your Business.
The sales team of any company can often feel like they have the weight of the company on their shoulders. Sales teams are responsible for money coming in. It can be easy to get distracted just looking at the top-line figures, but in this blog, we're going to be looking at the most important sales metrics to empower any sales rep and their sales performance. Sales KPIs (Key Performance Indicators) are crucial to tracking and measuring your sales process effectively.
Annual or Monthly Recurring Revenue (ARR or MRR)
This one doesn't apply to every business but for the ones that it does, it's one of the most crucial of all sales KPIs. Monthly recurring revenue is used by retainer or subscription-based businesses to track regular revenue contracted to be coming into the business.
MRR is so important because recurring revenue is much more profitable than acquiring new business. The longer a customer remains with you, the higher the customer lifetime value and therefore makes the initial customer acquisition cost much more profitable. For example, many car insurance companies don't make any profit off the first year's premium, it's only customers that renew they profit from.
Decreasing MRR can obviously indicate that maybe customer support or account management teams aren't functioning efficiently to retain existing customers or that customer satisfaction is low, but it can also be very informative for sales reps too. It might mean that your sales team isn't targeting the right customers or they aren't qualifying that the timing is right for the sale.
Revenue Per Employee
Some sales leaders use this metric to show how good they are at managing resources. Some departments or roles will be more profitable than others - an IT person would be unlikely to directly contribute to the company revenue but the company might not function without them. This metric allows you to track the efficiency of the business as a whole, taking into account all areas of the business.
Here's the formula;
Revenue per Employee = Revenue / Number of Employees
Revenue per Customer
Average revenue per customer is an important metric to track as it can tell you a lot about the sales your sales teams are making. If revenue per customer is falling, it may be that your sales team is targeting the wrong clients. The cost of acquiring these customers may be the same as the larger customers so re-targeting by sales managers can make the sales process much more profitable.
Here's the formula:
Revenue per customer = revenue / number of customers
It is important to note when calculating revenue per customer that if you have a small number of large, key accounts then these may skew the data.
Revenue Growth Rate
This is done over intervals, either monthly, quarterly, or annually and it compares either one time period over the other or static time periods like comparing quarters year over year. Because this tracks a growth rate rather than a cash value of something, it can be more informative about how your sales team is progressing and allow you to see how your sales process is improving.
Here's the formula:
Revenue growth rate = (Revenue - Historic Revenue) / Historic Revenue
Churn
Churn is a measure of total lost revenue in a period. It's not the most pleasant of sales KPIs but it's important to be aware of and to track it over time. It can be reviewed as a static figure or as a percentage. Churn is especially important for companies that work with recurring revenue business models.
Customer Acquisition Ratio
This is a great top-down view metric as it takes into account all aspects of the sales process and the fact that sales and marketing teams often work together. It also takes into account most areas of the sales pipeline; for example, how much is an increased sales cycle length costing your business? Or how much is increased churn affecting profits?
Here's the formula:
Customer Acquisition Ratio = Customer Lifetime Value / Customer Acquisition Cost
Inventory Turnover
Inventory turnover is measured over time; it looks at how long it takes to replace any inventory going through your business.
Here's the formula:
Inventory Turnover = Sales / ((Beginning Inventory + Ending Inventory) / 2 )
Sales KPIs and Metrics FAQs
What are sales KPIs?
Sales KPIs are trackable metrics that sales teams use to assess the efficiency of their sales pipeline. They can be financial or operational (e.g. customer lifetime value (financial) or sales cycle length (operational).
How often should I track sales financial KPIs?
There is no one size fits all, it will depend on the nature of your business and the industry you work in, however, most companies will take an in-depth look at things on a monthly basis.
What are the most important sales KPIs?
Again, this will vary from business to business and from industry to industry. It can be helpful to think about what problems you are facing or what your priorities are. For example, if cutting costs is the most important then sales KPIs like sales cycle length or customer acquisition cost.