As the person responsible for leading your sales team and ensuring it’s performing at maximum capacity, how can you be sure that your team achieves the best results possible? How can you measure progress and success in a meaningful way?
If you are not familiar with sales metrics, you can consider defining them as the set of numbers that contribute to the performance analysis of a selling team. They help determine what is working and what needs to be changed to succeed. But how do you define the best sales metrics? What numbers are relevant — and which noise?
What Are Sales Metrics/ KPIs?
A sales metric is just a number that describes an industry or business activity. Sales metrics follow the money to measure performance and analyze trends. In short, they quantify what you are doing right and wrong in your sales process. Sales metrics are vital to the growth of any business. Developing a solid understanding of your business’ sales metrics allows you to effectively gauge how well or poorly your business is doing and take steps to optimize and improve performance.
What are the ten sales metrics or sales KPI types?
1- Customer Acquisition Cost (Cost per Customer Acquisition)
Customer Acquisition Cost (CAC) is a metric that measures the money spent acquiring a new customer against the long-term value of that customer. Startups and businesses use it to understand how much they’re spending to acquire customers from their marketing strategies. In this article, I explain CAC and usage examples and how to calculate it.
Knowing how much each customer costs your business is a critical aspect to calculating your customer acquisition cost, or CAC. By knowing how much each new customer is costing you in making that conversion, you can determine what routes are the most efficient for your business and budget. In addition, comparing cost per customer acquisition is an excellent way to identify your business’s product priorities. It is also important for marketing performance!
2- Average Revenue per Unit
What is “Average Revenue per Unit”? In simple terms, it’s the average amount you make from one unit. Understanding average revenue per unit (abbreviated ARPU) is an essential part of knowing how much money your business generates.
The average revenue per user (ARPU) and average revenue per account (ARPA) are key metrics for any subscription service company. The calculation is made by dividing the total amount of revenue generated in a given period by the average number of subscribers to that service during the same period.
ARPU/ARPA = (total amount of revenue in the given time period) / (average number of subscribers during that time period)
3- Customer Lifetime Value
It’s no secret that companies are always on the lookout for new ways to make more money. What drives most decision-making is, in large part, the quest to increase customer lifetime value.
If you’re in business, you may already know how useful it is to measure the lifetime value of your customers. It’s an important metric as it costs less to keep existing customers than it does to acquire new ones, so increasing the value of your existing customers is a great way to drive growth.
The lifetime value of a customer (LTV) is the amount of revenue you expect to receive from one of your customers over their entire lifetime as a customer. It is calculated as:
Gross Margin % X (1 / Monthly Churn) X Avg. Monthly Subscription Revenue per Customer
4- Customer Churn Rate
Churn rate refers to the number of your customers who either cancel or don’t renew their subscriptions during a specific time period. The churn rate is an important metric for your plan. It can help you decide if you should lower your prices, increase customer satisfaction, change your targets, and more… It is a common metric used by SaaS companies to track customer retention.
Each year, millions of companies worldwide lose significant revenue to customer churn. It doesn’t matter whether a business is big or small; there is always a constant threat that your existing customers leave you for the competition. It is crucial to reduce customer churn and save your organization from this downward spiral.
Customer churn is the term used to describe when a customer stops using your product or service. This can cause businesses that use the freemium pricing model and recurring subscriptions to lose revenue. There are many ways to take a hard look at why churn happened and how to fix it to avoid losing paying customers.
One of the best things you can do to improve your customer retention rate is to ask for feedback. It’s something that most companies don’t do enough of, but it has a massive impact on your business. It can help you understand why customers are churning, how happy they are with your products and services and how you can improve things in the future.
5- Average Selling Price
The average selling price (ASP) is the price a good or service sells for on average. The average selling price can serve a few different purposes. When companies sell to new customers, they may use the ASP as a benchmark to know how much to charge for their product or service. Average selling prices are one of the most critical metrics in your business, especially when managing multiple products. The average selling price is a fundamental metric you should track for selling products online. Your goal is to increase your customers’ prices while keeping that increase as small as possible.
ASP calculated as (total revenue earned) / (the total number of units sold)
6- MRR Growth Rate
Net MRR growth rate is an industry-standard metric used to determine a company’s financial health. This marketing metric calculates the percentage of growth in the monthly recurring revenue of your business. With this metric, you can track how your business is doing overtime.
MRR Growth : (Net MRR in the current period) – (Net MRR in the previous period) / (Net MRR in the previous period)
For example, assume your net MRR for June is $500.
In the month of July.
-$500 of new MRR
-$150 added from existing subscription upgrades
-$50 of customer churn
So your net MRR for July = (500+150) – 50 = $600
Net MRR Growth Rate = ((600-500)/500)*100 = 20%
7- Annual Recurring Revenue
Annual recurring revenue (ARR) is a critical metric in the subscription economy. ARR is a recurring-revenue metric that shows money rolling in every year for the life of a subscription. Annual recurring revenue (ARR) is one of the main SaaS business metrics because it shows the potential profit from ongoing subscription sales. ARR is the annualized version of monthly recurring revenue (MRR), the monthly sales multiplied by twelve months.
Companies can use the average recurring revenue (ARR) metric to measure their growth over time. For example, a company can use ARR to determine whether its decisions to sell additional products or services have any impact on its business.
ARR = (Total Subscription Cost (Yearly) + Recurring Revenue From Add-ons/Upgrades) – Cancellations
8- Conversion Rate
Have you ever been to a website and wondered about the % of traffic converting into customers? There’s a term for it: conversion rate.
It’s the most important number for an eCommerce business. The conversion rate is a percentage that tells you how many visitors to your site do whatever you want them to do. For example, you want them to fill out a contact form, buy a product, download a white paper, etc.
The conversion rate tells you how many visitors turn into customers. For example, if you have 1000 website visitors and 100 of them choose to sign up for your service, your conversion rate is 10%.
CR: (the number of conversions) / (the total number of visitors)
Do you want to improve your conversion rate? There is no easy answer to this question. It depends on the type of website and business you run, who your target audience is, what role social media plays in your success – and the list goes on. Yet, we have some practical tips which you can implement your business:
- Designing your website with conversions in mind is an important step. You can have the best website on the Internet, but you will fail as a business if it doesn’t lead to conversions. If you want people to buy, sign-up, or complete your forms, it pays to have a conversion rate optimization process.
- By A/B testing different elements on your page, you can make even more conversions. Start by changing the background. Is that too drastic? How about the color of your Call-to-Action buttons? Try different methods to find which one works best for you.
- A good CTA is what converts your visitors into a customer, a subscriber, or even a donation. It should lead the user from point A to B, and that’s all it needs to do. Consider how this component has been created and implemented. Is the CTA prominent or placed out of sight? Does it feel authoritative and trustworthy?
- As mobile users increasingly transact on mobile websites and apps, it’s essential to ensure that your site and landing pages perform well on mobile devices.
9- Cost per Acquisition
CPA is a term that stands for Cost Per Action. It represents the dollar amount you spend on a non-customer, like the cost of advertising to acquire leads, new users or registrations, or purchases in a free trial period. Cost per acquisition (also known as cost per conversion) measures aggregate marketing costs related to user behavior that leads to revenue.
CPA = (the total cost of a campaign) / (# of conversions)
To increase your ROI (return on investment) within a fairly short period of time, it might be a good idea to reduce your cost per acquisition.
How to Decrease the Cost per Acquisition:
- When it comes to generating leads and growing your business, landing pages are at the core because they are the first thing your customers see after clicking on your ad.
- Make sure to include all fees and taxes in the price you quote. While this may make it seem like your products are a bit more expensive, it’s best to be upfront with your customers on how much they’ll pay for the total order.
- Did you know that most landing pages don’t contain the same things your ad promised? This is because landing page marketers email the same creative to whoever will pass the CPA review. The sad thing is, this means the landing page is of lower quality than what the advertiser originally promised. Make sure you are honest and consistent with your customers.
10- Negative Churn
Negative churn is a recurring revenue growth accelerator, and it’s the holy grail of subscription-based businesses. The concept is pretty simple: when you constantly provide your customers with valuable, consistent value, they should never want to leave.
Negative Churn: If new revenue from existing customers > revenue you lost from churn customers
Organizations need the right metrics to measure progress in the right business areas. They also need the leadership to understand which metrics are most essential to allocate resources more effectively. Sales leaders must align their teams on a clear set of strategic objectives and measures while selecting performance indicators and establishing baseline goals. Then, they should work with their management team, who in turn should work with their executives, to build an entirely new performance management discipline around these principles. Ultimately, suppose your organization wants to increase sales capacity at all levels. In that case, you have to have the leadership and management commitment necessary to create a sophisticated performance management system that recognizes different roles within various teams. You will position your company for long-term sustainable sales growth if you achieve that.