The measure for good business is based on what you get for your money and effort. Continually building better company efficiency maximizes ROI in every facet of your business. As central figures in growing return in the way of revenue, salespeople need to take priority when promoting efficiency.
Sales leverage relies on win rates attained quickly and with the least amount of dollars spent. This is the crux of sales efficiency, creating a streamlined process from optimal sale search practices to consistent closes. By monitoring and improving sales efficiency, sales leaders can maximize productivity to benefit the company and the sales team.
To help move the needle for your business, let’s discuss the nature and nuances of sales efficiency. This article will define sales efficiency, detail its measurement and provide powerful tips for improvement.
What is Sales Efficiency?
Sales efficiency is measured by the return on marketing and sales investments. A common gauge for sales efficiency is the speed of the sales cycle. The higher the sales efficiency, the faster the sale. Faster sales cycles imply less wasted effort and fewer dollars spent on sales effort to achieve the desired results.
Sales efficiency is commonly, and incorrectly, used interchangeably with sales effectiveness. Both are critical to maximizing and they do work in tandem to define salesperson performance.
Sales effectiveness focuses on a sales team’s capacity to close deals. It speaks to the practicality of the sales process, displaying that it does lead to wins. Sales efficiency, however, is the rate at which those sales occur. It is reflected in the revenue generated from sales efforts relative to the cost of earning it.
Teams need to improve effectiveness and increase efficiency in their sales processes. If teams win sales quickly but have a low close rate, then they need better sales effectiveness. If teams close the majority of sales but take a long time to convert, then they need greater sales efficiency.
When your team can close but it costs a lot of time and money to win deals, growth stagnates. That is why it is so critical to accurately measure your sales efficiency and pinpoint solutions to increase it.
How to Calculate Sales Efficiency
Sales efficiency is viewed as a ratio. To calculate efficiency ratios, the revenue a sales team generates is divided by the expenses accrued while generating it. Expenses can include salesperson commissions, manager salaries, training costs, sales tool subscriptions and advertising.
Sales Efficiency = (Revenue Generated/Sales Costs) x 100
Sales efficiency metrics are set within a specified time period, most often a quarter. Let’s say a sales team generates $3 million during a quarter and they spend $1 million in that time. The equation would then be:
Sales efficiency = (3,000,000/1,000,000) x 100 = 300 percent
The sales efficiency ratio, in this case, would be 3, which is considered to be exceptionally strong. In general, it is desirable to have your ratio above 1, meaning your revenue outweighs your costs.
What is a Good Metric for Sales Efficiency?
Your sales efficiency ratio should guide how you develop and manage your sales strategy. The following outline explains how strategy should be considered and affected depending on the efficiency ratio:
- Less than 100 percent: This indicates an unsustainable model that requires reworking. Sales and marketing tactics need to be adjusted. Up-sell and cross-sell efforts need to be investigated to build revenue.
- 100 percent: This is an acceptable range to maintain investor confidence. However, this is not an efficient or sustainable model for growing businesses in many industries. In SaaS sales, for instance, accounting for non-renewed subscriptions can affect whether this range is viable or not.
- 101 percent – 300 percent: At this stage, you have ideal sales efficiency. Maintain your strategy and sales process to stay above water.
- Over 300 percent: This is the caveat of sales efficiency. Sales efficiency at this level means you are probably leaving money on the table. If you are at this stage of profitability, you should consider greater investments in sales and marketing. It is time to capitalize on the sales team’s efficiency and further your business growth.
9 Simple Ways to Improve Sales Efficiency
Increasing sales efficiency has been a business imperative for some time. As practices have evolved, sales experts have identified methods and areas of focus for driving substantial improvement.
Here are nine simple techniques to improve sales process efficiency within your sales team.
Specify Key Business Goals And KPIs
Improving sales techniques starts with understanding what success means for your business and your team. Clarity around sales goals and expectations directs salespeople in how they set their own objectives and focus their efforts.
Develop SMART goals to keep goals productive and eliminate any room for misinterpretation:
- Specific: The who, what, when, where and why of the goal. The more specific the goal, the easier it is to understand and become focused.
- Measurable: The goal should have some value attached to it that shows up in KPIs. What is the sales volume that determines efficiency? How many dollars have to be brought in?
- Action-oriented: Goals should be based around the idea that informed action by salespeople can affect results. What are the steps that can be taken to achieve the goal?
- Realistic: Shooting for the moon is a nice thought but salespeople need to know that their objectives are reasonable. Keeping your goals consistent with your business scale and available resources keeps sales teams motivated. If goals become unrealistic, salespeople can quickly throw in the towel.
- Time-sensitive: Goals need to be achievable within a certain time frame. For example, you could set a goal to be reached within six months. Your salespeople now have a benchmark that can allow them to better plan their daily, weekly and monthly activities.
“Measurable” is key because goals are only achievable by identifying KPIs against which salespeople will be held accountable. This is where teams develop most of their expectations and start formulating their own strategies for success.
Define Your Preferred Customer
Sales efficiency commonly falters at the prospecting stage when salespeople lack clear buyer personas to focus on. Salespeople need a tight description of buyers who could benefit from your product and are able to buy it. Without this, salespeople can waste time chasing weak leads who cannot or will not buy, destroying their sales efficiency. With solid buyer characteristics, salespeople can determine who to move through the sales funnel with greater accuracy.
The buyer persona also gives guidance for interactions post-prospecting. Smart salespeople are mindful of ongoing qualification. Having buyer personas available gives them an idea of how to conduct their business and nurture the customer’s desire.
Employ an Iterative Sales Process
A sales process is the salesperson’s guide from lead-generation to close. It outlines key steps and actions to take throughout the sales cycle, creating consistency, confidence and speed. Sales processes can change according to business structure and philosophy but they all carry seven key elements:
- Preparation and research: Understand your position in the market, the needs of your target consumer and your unique value proposition.
- Prospecting: Sort leads and identifies potential buyers to pursue your sales funnel. Assess the prospect’s situation to see if it aligns with your ideal customer.
- Needs assessment: Qualify the prospect to earn a deep understanding of their needs and goals. With this, you can start to custom-fit a solution and adjust the angle of your presentations.
- Pitch and presentation: Communicate the solution’s value and unique ability to solve the customer’s problem. The salesperson makes the effort to connect, earn trust and reinforce benefits.
- Objection handling: The customer may have concerns over price, availability, quality or efficacy. By effectively handling objections, salespeople can help the customer convince themselves to purchase.
- Closing: The sale is finalized or the contract is signed. Being thorough in reiterating expectations and solution specifics will set customers up for greater satisfaction with the product.
- Follow-up: Following up regularly to check in on the performance of the solution and resolve issues maintains your reputation. The care you display in this stage can engender more customer referrals and repeat buyers.
Keep Sales and Marketing Teams Cohesive
Content is key in impressing customers and making your solutions palatable. As the provider of that content, marketing teams need to be tightly aligned with sales teams. They need to understand each other’s activities, priorities and capabilities. This allows salespeople to keep their offerings current and reasonable. It also allows marketing teams to produce the right kind of content for salespeople to effectively sell to their prospects.
Train Your Sales People Correctly
Keeping your sales team trained is critical to sustaining peak sales efficiency. Without adequate training, salespeople can struggle with new resources and sales tools and use ineffective and outdated processes.
New hires should undergo comprehensive training to immerse them in the company culture and the sales process. Providing ongoing sales training keeps the sales team up to speed on new service changes, sales technology or selling techniques.
Strategic Sales Rep Assignment
In managing a large region managed by several B2B salespeople, assigning territories with clear boundaries maximizes opportunities. When sales reps have a clear area to prospect, there is less likelihood of them cannibalizing each other’s leads.
Assignment should be strategic, based on customer types within those territories and the strengths of individual salespeople. Territories can be segmented by geography, industry, product focus or profitability. Putting top sellers in the most lucrative territories can maximize your wins. Measuring goals for those territories can allow you to change salespeople or reconfigure the boundaries to optimize efficiency.
Sell to Customer Needs
A fundamental principle of effective selling is catering to customer needs. This is where research is so critical, as a more robust description of your ideal customer lends better insight. Buyer personas will indicate the common customer situation — their challenges, pain points, needs, goals and desires.
An in-depth connection to the customer’s needs can help you present your product as the best solution for resolving them. Rather than elaborating on shiny features that may set you apart, focus on benefits that customers truly care about. A deeper focus on solving the problem displays greater integrity, amplifying the power of your message.
Prioritize, Manage and Nurture Leads
Warm leads are easy to manage. Put them in the sales funnel and work the sales process to get to a close. However, a strict focus on warm leads can leave a significant portion of business potential to the wayside.
It gets more complicated, but with proper CRM work, cold leads can be nurtured on the backburner. If you stay in tune with their situation, you will know the perfect time to jump on a sales opportunity. Maybe they just needed a better deal or were waiting for a contract to run out. Knowing their constraints and maintaining regular follow-up keeps your relationship healthy, increasing your chances of a future win.
The basic sales efficiency model can tell you if you are efficient but not how or why. Knowledge and understanding are needed to move in the right direction, and specific metrics can lend more usable information. The following are some key metrics sales leaders use to learn about efficiencies, or inefficiencies, in the sales process:
- Lead response time: How long does it take for your sales reps to follow up on new leads?
- Customer contact frequency: Is your team taking time to diligently maintain regular contact with prospects?
- Number of sales calls: Is every sales rep conducting an acceptable number of cold calls?
Metrics can be applied to any area throughout the sales process where you suspect inefficiencies. By applying SMART sales goals, you can ensure that your metrics are providing worthwhile information.
If you are serious about growing your business, a focus on understanding your team’s sales efficiency is critical. The Selling Revolution can help you develop productivity efficiency to propel your team to faster wins and more deals. To learn how we can develop effective long-term process improvements for sustained success, book an introductory call today.