There are four metrics we commonly track in sales to measure progress toward our goals: number of opportunities, average deal size, win rate, and velocity. No one disputes the value of these four metrics, but few salespeople recognize a relationship between them that can cause problems.
The Four Metrics to Track in Sales
1. Number of Opportunities
One of the greatest threats to reaching your sales target is not having enough opportunities. Most salespeople believe that the more opportunities you create, the greater the likelihood you will win enough to make your quota. But while more opportunities are better than fewer, piling up opportunities won’t necessarily help you succeed.
For example, it’s relatively easy to create more opportunities by pursuing companies that spend far less than your average deal size. These small deals naturally generate less revenue than deals with larger companies, but they often take the same amount of time. More is sometimes better, but not always. Sales leaders should not allow a salesperson to pursue too small deals just because they lack the ability to acquire bigger, better deals. Your company’s model may also not be configured to take a lot of small, transactional clients.
Occasionally, you find a deal ten times larger than your average deal size: a company that spends so much in your category that winning this client would retire your quota for the year. With this monster dominating the whole company's pipeline, you may feel certain you are in good shape, but you should recognize the risk of having little or nothing else lined up. Big deals can also take longer to win, stretching your average deal size and leaving you with little or no new revenue for several quarters.
2. Average Deal Size
Big clients are better than small clients. Larger average deals are better than smaller, more humble deals. We have already seen how deal size can change your number of opportunities, creating challenges in reaching your sales targets.
Different companies in different industries have different experiences with deal size. A friend works in an industry where there are five or six companies that all compete for the same clients. The large clients know the players, and they move around every three years. In this industry, the larger the deal, the lower the win rate. Mid-size companies are easier to win—they aren’t quite as attractive as the larger deals, but they do increase the salesperson’s win rate.
There are two mistakes sales managers and sales leaders make in terms of deal size. The first mistake is allowing a salesperson to have only one giant prospect in their pipeline, especially if the sales manager needs the deal as much or more as the salesperson. They both may confidently believe the deal is all but won—until it isn't.
The second mistake sales managers make is not continually boosting their average deal size over time, increasing their ability to grow their revenue. If every new deal is, say, seven percent larger than last year's average, you make it easier to reach your goals. You can do this by raising prices.
3. Win Rate
Win rate must be the loneliest metric of the four. It's the one metric that provides a clear view of a salesperson or sales force's effectiveness: the higher the win rate, the more effective the salesperson. However, many sales managers mistakenly believe that a higher win rate is always better than a lower win rate. Leaving aside the fact that some salespeople record their wins and find a way to Jimmy Hoffa their losses, a higher win rate isn't always objectively better.
One company I consulted with was proud of their high win rates—they regularly approached 90%, a shocking and impressive number. But a big reason for that rate is that they disqualified any prospective client who they believed might not buy from them. I wondered out loud if a 45% win rate might double their revenue, even if it required working harder to win the clients entertaining two or three potential suppliers.
In this case, their number of opportunities was lower than it should have been, the result of an unwillingness to compete. That brings us to velocity, or more accurately, sales cycle time.
4. Sales Velocity
Exclusively pursuing any one sales metric can cause problems, but none can sow more chaos than focusing on velocity or sales cycle times. The desire to go faster is a self-oriented behavior, as you can't go any faster than your client without leaving them dusty and disgruntled. Because the salesperson has traveled the path many times more than their prospective client, their confidence is far greater than their clients.
There is no such thing as a one-size-fits-all buyer's journey, and those who try to force one will see their opportunities stall or die because the client needs more time, more information, greater certainty, or more help gaining the consensus of their peers affected by any change.
The desire to go faster often reduces win rates in complex sales, as they feature decisions the client rarely has to make, as well as potentially negative outcomes for choosing…poorly. A slow cycle that results in a win is better than a fast loss, especially when you could have won simply by giving your client more time and attention.
Averages don't tell the whole story, especially the average of the entire sales force. The relationship between numbers provides another, clearer view of performance. While these metrics are important, each one may affect the others in positive or negative ways. You can learn much by studying these relationships to understand how you might optimize your performance.
