Small business series: Sales metrics for SMEs

Stretch yourself – but not to breaking point 

It’s good to think big. But setting an ambitious sales goal for start-ups and SMEs is often the easy part.  

After listening to a motivational podcast, for example, it’s not unusual for founders to set an impressive stretch goal – to grow by 25 percent this year, say. The team is energized by the ambitious goal, and everyone feels like they’re part of a fast-growing, dynamic business. The goal, along with some other mission statement stuff and values, is posted on the office walls and talked about regularly.  

Q1 goes by, and the sales number is posted, which seems like a very small fraction of the end-of-year goal. Never mind: we have the rest of the year to transform ourselves. 

But when Q2 comes in, it still looks scary. So, the founder raises the urgency level.  

By Q3, only a miracle will make up the gap. Everyone’s effort goes into managing the few deals left in the pipeline. However, these customers and prospects don’t love being pressured to buy, and they delay purchasing while they look elsewhere – meaning failure by Q4. 

Where did it all go wrong? 

This story reveals the problem of focusing only on end results or retrospective, “lag” measures. And it’s a common issue for SMEs and start-ups. A clear outcome measure exists, but nothing else is in place to measure progress en route.  

Start-ups and SMEs, like more-mature companies, need lead and lag metrics. They need to measure input and output. 

So let’s dig into what these metrics might look like in a sales organization.  

The New York Marathon showdown 

Imagine you decide to run the New York City Marathon next year with a friend. It’s a bit of a competitive relationship, so you want to post a faster time. How do you measure progress to make sure that you come out on top? 

You could run a marathon today and see how fast you do it compared to your friend. But what happens if you’re slower? What do you do in preparation for the race?  

In this example, you’ll probably recognize the exact same problem we face in measuring progress toward a sales goal: what to measure, beyond just the end result? 

The causal chain in sales  

Jason Jordan & Michelle Vazzana have done extensive work and research to find a resolution to this problem. In their book “Cracking the Sales Management Code” they outline the key measures a sales organization needs. [1] 

They define three types of measures: activities, sales objectives, and output measures.  

Here are some typical examples for a sales organization, with some parallel objectives for marathon training. 
 

The key point to understand is that we can manage “activities” week by week (lead/input measures) but we can’t manage the end result (lag/output). However, having a clear set of activity measures means that we can influence the results achieved tomorrow by managing activities today.  

To do that we need to understand what the authors call “the causal chain”: the sequence of events that’s most likely to lead a customer from first contact to happy advocate. Sound familiar? This is where understanding our sales process is vital, because it reveals the key measurement points that we should pay attention to. (See my blog about sales processes for more information on this.)  

What gets inspected gets respected  

If we pay attention to our activity measures every week, we can make sure that we’re putting in the hard yards to achieve the right end result.  

If we see that we’re only running five miles each week, for instance, we’ll realize that the chances of pulling off a sub-four-hour marathon are slim, and we can up our game next week. We can make changes today to influence tomorrow.  

In business, sales objectives are a kind of intermediate measure. They provide a way to see if we’re on track in terms of performance. If we’re achieving our sales objectives, then the end result we want will likely follow. 

And it pays to remember the words of Antoine de Saint-Exupéry: “A goal without a plan is just a wish.” 

Over to the Small Business Toolkit 

In the kojopro section of the Small Business Toolkit you’ll find a video, how-to guide and worksheet to help you define the key sales metrics for your business. Every sales process/organization is slightly different, and the toolkit will help you to create 100-percent bespoke measures. It will also help you to define your sales process, so that you understand the all-important “causal chain” – and keep moving your organization toward the success it deserves.  

[1] Jordan, J. and Vazzana, M. (2011). ‘Cracking the Sales Management Code,’ New York: McGraw Hill