When a client says their organization wants to increase sales, my first question is Why, aka What are you really after? My second is How? We looked at these questions in more detail in this previous post. The answers frame the selection of the right revenue growth metrics and key performance indices (KPIs) for your organization.
How are you going to increase sales to drive organizational success? There are a number of strategies with corresponding metrics to track progress. A few of the most effective are listed below.
- Gross sales – top line percentage and dollar growth in revenue
- Net sales – gross sales minus warranty, refunds, rebates, discounts (critical if employee compensation is tied to gross sales)
- Number of customers – affects both stability and complexity of your operations
- Customer retention – it costs less to retain a customer than to bring in new customers
- Number of leads and lead conversion to sales – how much of your efforts to attract leads actually convert to sales
- Number of new customers – especially for new products, services, and markets
- Average purchase – get your existing customers to spend more through companion products and services, or introduce a new offering that your customers want (or currently get elsewhere)
- Product/service performance – which offerings are most efficient to sell and/or most popular with customers
And the big question — the Pareto principle, or 80/20 rule, suggests that 80% of your customers provide 20% of your profitability – AND 20% of your customers provide 80% of your headaches. Who are the right customers?
While it may seem obvious that a goal of increasing sales should also increase net income, the net income growth should be an explicit KPI. If you offer sales-based compensation, that system should also include some component of profitability. It’s important to incentivize appropriately to ensure that increased gross revenue flows through to give you more cash/profit/options for the future. More on profitability metrics next time.
This is the second article in a series on metrics. Please share your thoughts and topic requests in the Leave a Reply section below. And visit the Contact page to arrange for a free consultation.