Six reasons nimble business leaders move away from outdated measurement practices of sales KPIs
Many sales and fundraising leaders rely on KPIs – key performance indicators – to measure, predict, and ensure success. Ironically, these often perpetuate tiered success levels in which too many salespeople or fundraisers fail to meet their potential. The problems with KPIs stem from revenue generating leaders’ who fail to consider the opportunity cost of not taking a more scientific approach to understanding actual predictors of success. As an alternative, progressive leaders must look to replace sales and fundraising KPIs with data science.
Conventional wisdom sets a low bar for sales performance
Let’s say you have 100 people on a sports sales or university fundraising team. Are they all great? Most revenue generation leaders say no. Conventional wisdom says something like ten of them can be exceptional. Ten of them will be dogs. And, the other eighty falls somewhere between “solid performers” and “good enough to not be fired.”
I hate conventional wisdom. Especially when it’s as destructive as this. And make no mistake, this is destructive logic with little more than a baseless rule of thumb at its core. Nonetheless, most sales and fundraising leaders accept the above application of the 10-80-10 performance standard as an indisputable law of nature. In so doing, we inherently set an artificially low bar with which to measure our sales success. Provided you have a great offering and a large enough target market, the goal of revenue-generating leadership is to ensure that every individual on the team performs spectacularly.
Questions to ask about KPIs
Think about your own sales KPIs. Do you have people who hit all of them, but still land on the lower half of the leaderboard? Do you have people at the top of the leaderboard who haven’t hit all their KPIs? Of course you do! In itself, this scenario is not a problem, but it illustrates that most KPIs aren’t the locked and loaded predictors that sales and fundraising leaders might wish they were.
Replace sales and fundraising KPIs to set reasonable expectations
KPIs are usually created with the right intentions. It is possible for KPIs to get out ahead of problems before they become systemic. At other times, they set minimally acceptable levels of effort or output required by every member of the revenue generating teams. In these situations, KPIs can be directionally helpful predictors of success and failure.
However, KPIs are usually created from team averages without a detailed understanding of the individual strengths, or of nuanced attributes of individual deals. Too many leaders overlook these differences and instead see the KPIs as black and white predictors of success. The KPI approach becomes management by numbers, and these leaders tee themselves up for disappointing surprises.
Replace sales and fundraising KPIs to create the right incentives
Overemphasizing generic KPIs incentivizes the worst possible behaviors at all levels of revenue generating units. For example, most acknowledge that there may be legitimate, compelling reasons for certain deals to progress more slowly than others. But, in organizations that overemphasize sales and fundraising cycles or uniform stage velocities, hiding deals (sandbagging) is heightened. Similarly, when organizations overemphasize “call” or “contact” metrics, revenue generating team members are compelled to “commit” deals that are little more than a shot in the dark.
Organizations that lean too heavily on activity metrics often find teams logging questionable calls. Or, they send superfluous emails that don’t bring a prospect any closer to a decision. Some organizations inflexibly demand every 3 or 4 leads convert. They prematurely categorize these conversions as opportunities, and sacrifice quality for quantity. The result is a swamp of bad data that only pushes the target of understanding the true drivers of success and failure farther away.
Replace sales and fundraising KPIs to consider underperforming reps
Revenue team leaders look to define new KPIs by drawing conclusions from certain data points. For example, they look at attributes of the deals that won or the people consistently at the top of the leaderboard. That seems like a reasonable starting point, right?
As a starting point, dissecting winning deals is fine. However, we find that companies’ chosen KPIs only vary negligibly when based on attributes of winning deals. Similarly, there is little variation in attributes of the best revenue generators inside of the top 10%. If the process ends here, leaders position themselves for disappointing surprises. Their KPIs fall short if they don’t consider the traits of underperforming individuals and deals that lose.
Replace sales and fundraising KPIs with dynamic indicators
Revenue generating tactics that worked yesterday won’t always work today, nor are they guaranteed to work tomorrow. Too many revenue generating entities are built around KPIs that haven’t been re-evaluated in years. Moreover, they don’t apply more weight to recent events.
Replace sales and fundraising KPIs to broaden measurement focus
Think about your company. What is fundamentally different about the deals you win from those you lose? Is it certain buyer attributes? Is it certain seller attributes? Price? Product? Activity levels? Competition? Does sales or fundraising cycle or stage velocity mean anything?
Most revenue generation leaders intuitively recognize that all of these variables (and more) simultaneously impact every deal in the sales pipeline. Success or failure is not determined by one variable or another. Rather, it’s the product of lots of different elements all moving simultaneously. However, KPIs derived from single-variable data silos are typical. Few have any regard for nuances that predict individual deal outcomes and individual success levels.
Replace sales and fundraising KPIs to account for individual nuances
Really good sales reps and fundraising professionals are dreamers. They naturally “think big” – and they are smart, creative, and competitive. These professionals have an ego, but they’re not arrogant. Typically, they will learn from the best, but need to be better. Being less than spectacular is unfathomable.
This is the DNA that we all hire for and it’s the DNA that positions us all for success.
Forcibly jamming these forces of nature into a mold based on perceived drivers of success discounts each individual’s strengths, weaknesses, and abilities to succeed outside of that precise mold. In effect, these molds create cadence-driven robots. Thoughtful business leaders capitalize on the attributes that position each salesperson or fundraiser, and each opportunity in the pipeline for success.
Data science effectively measures success, helps teams reach potential
As measures of sales and fundraising performance, KPIs create static indicators with a narrow focus. KPIs set unreasonable expectations, incentive bad behaviors, and do not take underperforming individuals into account. Additionally, KPIs do not account individual behaviors that effect performance.
Conventional wisdom assumes only a portion of the individuals on your revenue generating teams will perform at an acceptable level. Using KPIs only reinforces this thinking. In order to ensure success, revenue generating leaders should look to replace sales and fundraising KPIs with data science as an alternative solution to measure the output of sales and fundraising teams.