What’s the one number any salesperson knows by heart? That they can tell you within seconds of you asking, any time of day or year?
How much revenue did I book? Did I hit quota? Did I hit my number?
That number – bookings – is an incredibly useful business metric. It’s the #1 goal your CEO has, what your investors care about, and what makes you a successful salesperson.
But it’s also what we term a lagging indicator, a metric that takes weeks, months, or years for all of your hard work to be realized.
Luckily, there are a set of leading indicators that determine how much revenue you’ll book in the future.
This post will explore the components of revenue, and how you can know exactly why you’re over or under-performing through a simple equation.
The Big Equation
Revenue = Opportunities * ASP (Average Sale Price) * Win Rate
Any easy way to visualize this is to think of a sales funnel – revenue is the bottom of the funnel, opportunities are the top, and ASP + win rate are components of the funnel itself.
Not only are these the key components of new revenue – each of these metrics is also directly tied to an aspect of your sales motion.
Opportunities come from Prospecting and Demand Generation.
Win Rate is driven by how effectively you sell the product to potential buyers.
ASP is about the level of decision maker you’re selling to, how much you initially quote them, and how much discounting you provide.
For those of you with a very transactional sale – that’s it! The above formula will keep you informed of the most important metrics that lead to new bookings.
For those of us with longer sales cycles, you’ll want to add one more component to the equation – your Average Sales Cycle (how long it takes to sign a new customer).
This update transforms the equation into Sales Velocity:
The (even bigger) Equation – Sales Velocity
Sales Velocity = Opportunities * ASP (Average Sale Price) * Win Rate / Sales Cycle Length
This sales velocity equation is useful in thinking about the ramp time of your reps, the number of deals a rep can work at a given time (and how many new deals they need each week to stay at capacity), and particularly for building out your sales staffing model.
But the purpose of this article isn’t to help you build a staffing model – it’s to help you and your team close more deals by breaking down the overall revenue number into its component parts. This lets you see what sets an individual rep apart and why they’re over or under-performing.
Metrics in Action – Understanding Excellence & Missed Targets
At Segment, the top 3 reps on our leader board each excel at a different leading metric.
Rep 1: Commander High Price (Very High ASP)
One of our reps commands a very high ASP – because they are great at focusing on organizations with large budgets, and at navigating through the organization to a high level decision maker that can purchase expensive products.
Rep 2: Qualification Master
Another rep succeeds because of an excellent win rate – she’s especially good at turning casual interest into a compelling pain point, and progressing opportunities from stage 1 → stage 2.
Rep 3: Crafty Prospector
Finally, we have a rep who’s particularly good at prospecting and starts each day with an hour of targeted outbound to companies in industries he’s successfully sold to. He always has the highest number of new opportunities created, and that higher number of opportunities leads directly to more sales.
How to Use Sales Metrics to Dissect Missed Quotas
At the other end of the spectrum, you might have a rep who isn’t quite able to hit quota but doesn’t know why. If you’ve hired well, that rep likely has drive and a data-driven mentality, but might not have access to the information they need to self-correct.
If they’re behind where they need to be on Opportunities, work on outbound techniques and set aside time each day to generate additional pipeline.
If it’s an ASP issue, focus on negotiation techniques and value selling. And If it’s about Win Rate, they can get more coaching on active deals or have a greater focus on fulfilling your sales methodology.
If your rep is doing well by Win Rate, Opportunities, and ASP – it’s likely a Sales Cycle issue.
Your Sales Cycle is something to look at only after you’ve ascertained that the other 3 metrics are all where you want them to be.
The solution is typically adjusting your sales model to make sure opportunities are created early enough and reps have sufficient ramp times.
If your average sales cycle is 180 days, and you assume it takes 2 months for a rep to learn the product and be comfortable selling, it will take at least 8 months before that rep is fully ramped, and your expectations of the team should reflect that.
What are the key takeaways?
- Revenue = Opportunities * Win Rate * Average Sale Price
- Every member of your team should know these metrics by heart!
- These numbers help you accurately forecast future earnings and see which part of your sales funnel needs attention.
- Putting this information in the hands of your team helps them self-correct and identify where they need to focus to make more $
Now that we’ve covered what metrics are important to stay on top of, the next post will cover how to get access to all that useful data, including best-in-class tools for tracking it and displaying that info to your team.
Glossary of Terms:
Want to learn more? Check out: The 7 Most Useful Sales Funnel Metrics