B2B sales have undergone a major transformation since early 2020, following the B2C pivot to more digital engagement and purchases. Now, industry analysts are advocating a digital-first approach for B2B selling, with Gartner predicting that “by 2025, 80% of B2B sales interactions between suppliers and buyers will occur in digital channels.” This shift to digital requires new ways of interacting with customers and delivering products and services.
However, the metrics that measure sales success and organizational health remain the same. Here are seven classic KPIs that B2B sales teams can use to chart their progress through the transition to a digital-first environment.
Total revenue is the big metric – the reason your business exists and an indicator of its overall health. The way your sales team tracks total revenue will depend on your business model and what you sell. For example, most businesses, including retailers, track total revenue by month, quarter, and year. This approach makes it easy to track growth, decline, or stagnation from one time period to the next.
Businesses that sell on a subscription model, such as software-as-a-service, club memberships, and product subscription services, also track monthly recurring revenue and annual recurring revenue to create snapshots and trend lines for predictable revenue. You can also break out total revenue by sales team member and by product line to identify your top performing people and products.
Your team may be booking a lot of calls and working on a lot of deals, but the close rate is critical to tracking their success. This metric is also known as the close ratio. To calculate it, divide the total number of finalized sales by the number of leads. Multiply your result by 100. For example, if your team closes 20 deals from a pool of 100 leads during a specific period, the team’s close rate is 20%.
Like total revenue, the close rate can measure performance across different time periods, the entire team and individual team members, and sales of specific products or service lines. You may also want to consider which leads you factor into your close rate. For example, a close rate calculated with only the sales qualified leads in the pipeline will be higher than a rate calculated using SQLs and marketing qualified leads combined. Seeing how the type of lead impacts the close rate can show you whether your MQLs and SQLs are aligned correctly or whether your MQLs need adjustment to drive higher close rates.
Customer lifetime value (CLV)
Customer lifetime value is the metric that shows the value your company earns from maintaining great relationships with customers and delivering value to them. It’s easy to calculate by multiplying your average deal value by the average number of purchases per customer.
Obviously, CLV is a metric that’s focused on the long-term, and it can take awhile for improvements in CLV to show up in the numbers. But a CLV that trends upward can represent many things your sales team and your leadership team want to see, including higher average order values, more frequent orders, higher ROI on marketing spend, stronger customer loyalty, and less customer churn.
Customer turnover rate
One thing that can cut into CLV growth is a high customer turnover rate, also known as customer churn rate. Rising turnover rate can indicate a problem with your product or service. It can also be a flag for friction in the customer experience, like false declines on orders or inaccurate personalization. It can also mean that your marketing is bringing in the wrong people who then don’t find what they need. High turnover can drive up the cost to acquire customers and drive down your net promoter score.
Turnover can be measured by month, quarter, or year. Within your chosen period, divide the number of customers you lost by the number of customers you had when that period began. Multiply the result by 100. For example, if your organization kicks off Q1 with 3,000 customers and loses 72 customers during the quarter, your Q1 customer turnover rate is (72/3000)*100 or 2.4% — not bad!
Year over year growth
Is your sales team helping your business grow by closing bigger deals and winning new customers? Year over year (YoY) growth is the metric that can tell you. Calculate your YoY growth by subtracting last year’s revenue (or total customers, or average deal size, etc.) from this year’s. Then, divide the result by last year’s and multiply the result by 100.
For example, if your sales team closed $10 million in deals last year and $14 million this year, your YoY growth in deals closed is 40%.
Sales expense ratio
Closing deals and generating revenue are important functions, and so is controlling costs. If your sales expenses are too high relative to your sales, they can eat into your profits. Knowing your sales expense ratio trends can also help with planning and forecasting.
For the time period you want to evaluate, divide your selling expenses by your net sales. Then multiply the result by 100. If your selling expenses for last year were $200,000 and your net sales were $2 million. Your sales expense ratio would be 10%.
Customer acquisition costs (CAC)
How much does your company spend to land each new customer? Is it getting less expensive or more costly to convert new buyers? Your customer acquisition cost (CAC) numbers will tell you. Pick your time period, then total up your marketing and sales expenses for that time. Divide the result by the number of new customers your company earned during that time. The result is your average acquisition cost per customer. For example, if you spent $200,000 on sales and marketing last month and acquired 200 new customers, your CAC is $1,000. This is a good rate if your average customer lifetime value is several thousand dollars or more. If, on the other hand, your CLV is less than $2,000, your CAC indicates that your sales and marketing costs are too high, your CLV is too low, or both.
Focusing on these metrics in the short term and over time—regardless of whether you’re selling in person, online, or with a hybrid approach–will help your sales team identify the most promising leads, the most effective selling strategies, and the best use of your budget to grow your revenue and your business.
Original article at: https://www.b2bnn.com/2022/03/the-b2b-sales-metrics-that-still-matter-now/