Werner gave this presentation at the Future of Sales Festival in December 2022. You can find the replay of this talk and a whole lot more in the SEC membership dashboard.
I’m Werner Schmidt, CEO and Co-founder of Lative. In this article, I’ll be talking about how to measure your sales efficiency, including looking at:
- What it means to grow efficiently
- Four key components of measuring sales efficiency
- Why this is so important now
Let's get started. 👇
Is a company's growth at the expense of sales efficiency?
There's a great quote from Kasper Hulthin, who's the Chairman of Normative and co-founder of two successful startups.
The quote goes:
“If you've ever attended a board meeting, you'll know the conversations hyper focused on grow, grow, grow, and whatever cost. The next meeting, it switches to ‘we need to grow more efficiently’.
So what do we mean by growing more efficiently? Because we've had two decades of hypergrowth, where it's been growth at all costs, and as we know, that's no longer being rewarded in the market.
What does it mean to grow efficiently?
Growing efficiently means investing in the most productive and cost-efficient areas, in order to generate revenue. I think everyone will agree with that.
So if that’s the meaning, then what’s the outcome of growing efficiently?
Well, if we can grow efficiently, then we know:
- We can align to the company's goals and objectives
- We're able to invest in the right areas
- We’ll get the return that we could expect
- We'll be able to establish the sales teams effectively and efficiently.
- And importantly, actually secure sales capacity to reach their targets.
- Set the targets that drive the right behaviors
- Invest in enablement programmes that lift productivity
Four key components to measuring sales effiency
First, I'll write about the four key components to measuring sales efficiency.
Sales contribution
Sales contribution is the value that a sales organization brings to a business. Let's break it down.
So really, it's maximizing your headcount return on investment, by seeing what your sales teams produce versus what they cost. It’s the sales team’s productivity versus the cost of their sales organization.
What does this figure do?
- It determines if the headcount investment costs are yielding the expected return
- It allows you to start comparing one sales team to another
That’s when we start to look at sales teams based on what they generated versus what they cost, what that return on investment (ROI) was.
You can start thinking about the percentage of the contribution that the team is bringing into the sales organization, not just in dollars that are being booked, but also what it's costing.
We know, for example, new business teams will cost more, when it comes to the cost of acquisition, than say a renewals team, and that needs to be factored in as well. But it’s important to be looking at it.
Lastly, what's key about sales contribution is knowing when and where to hire.
Because that then helps you identify when it’s time to put extra headcount in, and where it should go.
Capacity planning
Number two is capacity planning. This is dear to my heart. I think any RevOps leader, and even any RevOps team member, knows the joys of the two to three month planning cycles that happen every year.
Really, what you're doing is aligning resources to achieve your goals.
But what we need to do and get better at is being able to start building capacity plans in real time. So that we can we move away from this idea that we only do annual planning - when we do that, it becomes real time.
By doing that, we start building capacity plans that help us ensure we reach our numbers. At the end of the day, we've got a number to hit, and we've got a certain number of salespeople to do that.
One divided by the other tells us what each salesperson needs to do.
But of course, then you've got movements of salespeople coming in and out of the organization, and changes along the way, given that we're in an ever-changing environment.
Part of capacity planning is being able to evaluate where your resources are located, and start to perform what-if scenarios.
For example, what if finance comes in, says they'll give you another million dollars, euros, or pounds?
- What would you be able to generate with that?
- If you took that and hired additional headcount, what would be the return?
- And how long would it take to see that return?
Because, of course, we've got to factor in ramp times.
That leads to my third point: if we start to build accurate capacity plans that are in real time, we can then start to predict the amount of revenue we can get out of those given investments.
That's why capacity planning is a very critical component. In my belief, we need to make this process real time, and that's how we need to think about this in the future.
Agility
Number three is agility. I was alluding to this in the previous section, and this is really about moving to real time.
By doing that, we start to be able to execute decisions faster, because now we can see the data in real time.
I'm sure you're all well used to needing data points, and having to ask a data analyst or pull the numbers and figure out which system it is.
Generally, you'll end up in Excel, putting it all together and then coming up with a number. By the time you've done that, weeks or sometimes even months have gone by, and you start to make decisions that aren't accurate, and crucially - decisions become slower.
I go back to the plan: we do planning once a year.
Why? Because it's time-consuming, and we have to pull the data together and get analysts to do it.
But if we were able to see that all in real time, we'd start to make decisions faster and rethink how sales organizations can look because we can make adjustments then and there.
As I mentioned earlier, we can start to simulate options, make the call, put the changes in, and then see the impact.
So, if you can start to see your outcomes in real time, like sales productivity and ramp-up calculations, you can actually see what your sales team is producing in real time and how long it's taking to ramp up your team.
Then you can start to plan what you need to do next, whether that's the next day or the next week, because you can start to look into the future of what's going on.
Daniel O’Dowd
This leads us into customizable business dimensions, where you need to be able to see your real-time data, productivity data, and ramp times against your dimensions and how you measure the company.
For example, if you have a new business team versus a renewal business team, you need to be able to look at the productivity of the new business team compared to the renewal team and see how they're performing.
By being able to do that, you can start to segment certain parts of the productivity and say: "Well, what's Product A doing in productivity versus Product B? And if we switch off Product B, what happens to my productivity?"
By doing that and moving to real time with the right technology, you can make decisions like switching off a product because the impact on productivity won't be as high as expected, and it won't negatively impact the business.
You can do this in real time - so you don't have to wait two or three months for the analysis to be done. You can just see it in the technology and the tool.
Customer business dimensions are important, and you need to be measuring your productivity that way.
Agility is key because it enables you to link sales and finance data, which is often in multiple places.
It's hard to get revenue data from sales systems and cost data from finance systems or tools.
Why not have these numbers together in one platform that allows you to see your return on investment in one place? You can start to link your sales and finance, as well as the revenue and the cost together, and hence see your true sales contribution, again, in real time.
That's what's key about this, and that's how you drive sales efficiency through agility.
Benchmarking
Number four leads us on to benchmarking. This is about knowing where your sales teams stand within the organization.
It's important to measure your sales teams throughout the organization, not to pit them against each other, but to start comparing sales performance.
By doing so, you can learn why one team performs better than another.
For example, you should be able to benchmark sales organizations in Munich, Dublin, North Carolina, or San Francisco, and draw conclusions on their performance in a consistent way.
Additionally, benchmarking allows you to start trending the data. By doing that, you can identify trends and optimize investments.
If you can see the trend lines, you can predict where they're headed, which means you have a view into the future and can optimize your investment decisions, such as hiring more or pulling back hiring, or optimizing certain parts of the sales organization.
By being able to do this benchmarking, measuring sales performance in a standard way, and seeing trends to optimize investments, you can start predicting the amount of revenue you can get from a given investment.
This is possible because you've seen your sales contribution, moved to real-time capacity planning, gained agility to see across business dimensions, and benchmarked your organization in a consistent way.
Why is this so important now?
To summarize, the four key components to measuring sales efficiency are:
- Sales contribution
- Capacity planning
- Agility in real-time, and linking the data between sales and finance
- Benchmarking.
This is important because sales efficiency has always existed, but it's been a manual process for years, and we need the technology to surface this information.
The time is now, especially in the technology and SaaS world, where many are down considerably, and investors are focused on efficiency rather than growth at all costs.
We can see that in the data, with companies' market caps dropping despite revenue growth. If we start to grow efficiently, the multiples will come back in, and growth at all costs will no longer be an option.
We need to be more scientific about how we approach sales efficiency.
I hope you found this useful, and thank you for reading! If you want to contact me on LinkedIn or have any questions, please feel free to reach out.
