The start of a new fiscal year for many companies signals a time to assign new territories, set up quotas and implement sales comp plans. Expectations for the coming fiscal year are high as the focus shifts to execution. This is also a good time to baseline the overall productivity and health of the sales force. Having an objective view of the organization today is critical to evaluating the relative impact of programs and investments. Four core metrics should be part of every company’s sales force health check to increase the likelihood of success this fiscal year.
1. Expense to Revenue: The Sales Force ROI
Sales Expense-to-Revenue (E/R) measures how well the sales organization is utilizing the dollars invested in it. Expense to Bookings is more common in some industries, but the concept is the same: to measure the lift in revenue the company receives from its sales investments. Changes in E/R provide a foundation for evaluating new programs and prioritizing growth opportunities.
E/R measures can vary significantly not only across industries (Figure 1), but also within them. The most important consideration or benchmarking E/R is context. For example, revenue strategy and sales model can drive substantial E/R variances.
Action: Calculate your organization’s E/R at the sales model level. Determine how well the resulting values align with targeted revenue segments and growth areas. Measure changes in E/R while implementing new programs.
2. Revenue Per Rep: How High Can It Go?
Revenue per Sales Rep (Rev/Rep) benchmarks are some of the most frequently requested data points from Alexander Group’s sales metrics database. Revenue per Sales Rep is a direct line to growth, is measurable and is reflective of changes to strategy and programs.
Calculate Rev/Rep benchmarks using organic (non-overlapping quotas) sales headcount.
Rev/Rep benchmarks vary by industry, strategy and sales model. Alexander Group research finds that the average Rev/Rep across industries is just under $5MM. Unlike E/R, where one can make the argument for the appropriateness of being above or below benchmark, maximizing Rev/Rep is a desirable goal.
Action: Establish Rev/Rep baselines by business unit, role or other applicable level. Measure changes over the coming year and diagnose the potential causes, both positive and negative.
3. Headcount Ratios: Aligning the Right Pieces
Headcount ratios such as First Line Manager Span of Control are a relatively common part of the annual budgeting cycle. For organizations undertaking a change in strategy or committing to a significant change in E/R, headcount ratios play an important role in helping leaders making sure the right pieces are in place. Ratios such as Pre-Sales/Rep, Inside Sales/Field and Specialists/Rep help calibrate the sales model.
Action: Establish six- and 12-month headcount ratio targets that reflect the growth plan and go-to-customer strategy. Baseline current ratios, and establish specific plans for how to meet the targets.
4. Sales Time: Executing the Plan
The typical salesperson spends only 25 percent of their working time on engaged selling activities. Dramatic changes in the selling environment, as well as changes in strategy or to the go-to-customer model can and should manifest themselves in how people spend their time.
Action: Baseline time allocation across roles. Use the time study opportunity to gather additional field input on sales readiness (i.e., rep perception on the importance and effectiveness of enablement programs). Measure changes to the time profiles after six months.
The four core metrics described above are part of Alexander Group’s Sales Asset Utilization Framework.