11 Game-Changing Sales Metrics & How/When to Use Them
Blog: The Process Street Blog
Fortunately, it’s no longer the nineteenth century.
Thanks to wondrous advancements in technology, you now have all the tools you need to determine exactly what is working within your sales processes and why.
How? Through the use of sales metrics.
Sales metrics help to identify the strengths and weaknesses of your marketing and sales strategies. They also provide insight into how much your business spends on securing a lead and allow you to monitor and analyze the progress of your marketing actions.
The question is: which sales metrics should you be tracking?
This Process Street blog takes you through 11 of the most valuable sales metrics, how to calculate them, and how to turn the metric’s data into actions that encourage your business to grow.
To jump to a specific section of the post click the links below:
- What are sales metrics?
- 11 essential sales metrics for digital businesses
- Make your sales metrics actionable
Alternatively, to get fully clued up on all 11 metrics and how to use their data in an actionable, positive way – just keep scrolling.
What are sales metrics?
Sales metrics are data points that represent performance, be it the performance of a company or business as a whole, a team within a company, or performance on an individual level.
The data is useful because it can be analyzed to track progress toward OKRs and goals.
Sales metrics also help businesses to prepare for future growth as they identify which marketing strategies are working (or not working), help to award individual employees who are performing well, and set incentives to encourage teams whose progress is lagging behind.
Why is it important to analyze sales metrics?
Many businesses focus solely on the end goal, or, in technical terms: meeting the pre-determined total number of sales for any given period.
The problem with this is that the success of a sale depends on a long and often complex process. This process is built up of a range of components that are equally complex, such as launch techniques, outreach, customer loyalty, marketing strategies, and so on.
That’s why understanding and measuring each of these complex components through the use of sales metrics is vital for the smooth running of any business.
This is also why it’s important to incorporate, define, and analyze sales metrics. By incorporating a variety of sales metrics, you’ll have a complete vision of all the components that lead to the success of a sale.
Most importantly, sales metrics allow you to ensure that your business is succeeding and running on the right track.
Sales metrics not only help you to identify your business’ successes, but also to understand its failures. By analyzing these metrics and understanding the reasons for the successes and the failures you provide yourself with the knowledge and data that can help in defining short-, medium-, and long-term goals or OKRs.
Each business is unique. Therefore, the most beneficial metrics for your business will also be unique. When determining which sales metrics are right for you consider what your business actually needs.
As I’ve said, there are heaps of different sales metrics out there, each of which produces data. It’s up to you to determine which data is of real value to your business; Ask yourself, which data will help your business succeed? When you have clarified the data your business needs, you’ll know which metric to focus on.
By homing in on your most valuable metrics, you save yourself from getting lost in a hoard of irrelevant numbers, data, and calculations.
11 essential sales metrics for digital businesses
Sales metrics can inform a business’s future strategy and processes. They provide information about your users and what they hope to gain from your product or service.
Let’s take a look at some of the most valuable sales metrics:
1. Cost Per Acquisition (CPA)
Cost Per Acquisition (CPA) sums up the aggregate cost for acquiring each paying customer via a marketing or advertisement campaign.
Pro-tip: A low CPA is synonymous with a good sale strategy.
The equation for the CPA is:
CPA = Investment made ÷ Total customers acquired
For example: Say you invest $500.00 in a social media campaign promoting your product/service and that resulted in the acquisition of 1000 new customers, your CPA would be $0.50.
Pro-tip: If you analyze the result of a CPA calculation alongside the Average Ticket (another metric which I’ll go over next), you can determine how much return your marketing actions are generating for the business.
2. Average Ticket
The Average Ticket shows the average amount of sales per customer. Being dazzled by a high number of sales is to be expected, but that doesn’t mean much if the value of each sale doesn’t cover the Customer Acquisition Costs (CAC) of the sales (more on this later).
If the Average Ticket for your business is low then it is high time to change your marketing and sales strategy. Two tactics to heighten your Average Ticket include encouraging cross-selling and up-selling.
The Average Ticket calculation is made by dividing the month’s revenue by the number of clients of the same period:
Average ticket = Income for the month ÷ Number of customers
For example: If monthly revenue was $10,000.00 and the number of conversions was 300, the Average Ticket for each customer would be $33.33.
3. Customer Acquisition Cost (CAC)
It’s simple, you want to spend less money for each new customer you acquire–the difficulty is knowing how. This is where Customer Acquisition Cost (CAC) comes in.
In order to reduce the acquisition cost of each customer, you need to calculate the CAC. To do this gather up all of the costs associated with generating new customers over a specific time period.
Include the following:
- Sales/Sales team salaries;
- Marketing team salaries;
- Paid campaigns (Ads, PPC, etc.);
- Marketing campaigns.
Having defined each of the costs needed to acquire a new customer, calculate the average number of new customers generated in a period of time (one month, a quarter, a year). Once you have done this you can calculate the monthly CAC:
CAC = Marketing costs + Monthly sales ÷ New customers per month
By analyzing CAC alongside the Return on Investment (ROI – which I’ll go over later) and the LTV of your business you provide yourself with a view of your sales processes. Analyzing the ROI against the CAC allows you to learn from the metric’s data and make better decisions.
4. Cart Abandonment Rate (AR)
Cart Abandonment Rate is useful for evaluating problems that may be occurring at the end of a customers purchasing process.
When a customer quits at the purchasing stage, it shows that they want to purchase your product, but have encountered an obstacle; shipping cost may be too high, the wait before receipt could be too long, or the available payment methods aren’t satisfactory.
The calculation for cart abandonment rate is as follows:
Abandonment rate = PO – PC ÷ PO
PO = Purchases open, but not completed
PC = Purchases completed
For example: Let’s assume that your online store registered 200 customers, each of whom put at least one product in their cart but did not end up finalizing the purchase. And, within the same period, 50 consumers ended up completing the purchase.
The formula would look like this:
Abandoment rate = 200 – 50 ÷ 20
Abandoment rate = 150 ÷ 200
Churn rate = 0.75 or 75%
A 75% churn rate means that 75% of the people that visited your online store did not finalize and complete the purchase.
5. Month-Over-Month Growth (MoM)
The value can be obtained by subtracting the revenue of the previous month from that of the current month. The result must be divided by the previous month’s revenue and multiplied by 100:
MoM = Income for the current month – Income from previous month ÷ Income from the previous month x 100
For example: Say this month, your business had a monthly revenue of $10,000, and the previous month it had a revenue of $7,000. Then the percentage of growth is 42%.
MoM = (10,000 – 7,000) ÷ 7,000 x 100
MoM = 3,000 ÷ 700,000
MoM = 0.42 or 42%
6. Net Promoter Score (NPS)
Net Promoter Score (NPS) allows you to identify consumers who are satified with your product. Unlike a qualitative survey, the NPS measures customer satisfaction in numbers. Meaning that the data is easily quantifiable.
The survey would have questions that look something like this:
On a scale of 0 to 10, what would you rate our product/service?
On a scale of 0 to 10, what is the possibility that you would recommend this product/service to someone you know?
Pro-tip: This type of survey can be sent by email after purchase or carried out by a plugin on the website.
7. Lifetime Value (LTV)
Lifetime Value (LTV) is the predicted net value of the revenue that a customer generates for your company over the course of the time that they are a customer of your company.
To calculate LTV, use the following formula:
LTV = Average Ticket x Customer Retention Rate (the above-mentioned sales metrics inform this calculation)
Retention rate is defined by the average time that customers maintain a relationship with your brand.
Bear in mind, this calculation is a forecast – you cannot know for sure how long a customer will stay with your company. Nor can you predict what their purchasing frequency will be, or how much they will spend on a given product/service.
8. Sales Conversion Rate
The Sales Conversion Rate measures the number of website visitors who finalized a purchase or converted into a paying customer. Ultimately, the higher the conversion rate, the better.
On the other hand, a high traffic rate with a small number of conversions, can spell trouble. It could mean that your website may not be responsive, or that the purchase and payment process may be too complex. A low rate of conversions could also mean the ad you are running is poorly targeted and attracting the wrong people to your site.
The calculation should be made from the number of visitors who converted, divided by the total number of visitors to the website. The result must be multiplied by 100.
The formula is as follows:
Conversion rate = (Number of conversions ÷ Number of visitors) x 100
For example: If in the last month you had 1000 visitors to your website, which generated 300 conversions, the calculation would be: 300 ÷ 1000 x 100 = 30%.
9. Return on Investment (ROI)
Return on Investment (ROI) is the ratio between net profit and the cost of investment. The calculation is carried out by taking the total investment and subtracting it from the net profit. The result is divided by the total investment and multiplied by 100.
Here is the formula:
ROI = Total invested – Profit ÷ Total investment x 100
For example: Suppose you have invested $1,500.00 in your business, and from that investment, you have generated $10,000.00 in profit.
The calculation would look like this:
ROI = 10,000 – 1,500 ÷ 1,500 x 100
ROI = 567%
This means that for every $1.00 invested, you have around $5.70 in return. Therefore, your business is generating profit.
10. Sales Cycle
This metric focuses on the entire trajectory of your sales funnel. The Sales Cycle refers to the time between the first contact you make with a potential lead until the point where this lead becomes a customer.
The entire focus of this metric is the user. By measuring the Sales Cycle of your users you can determine the average time it takes to make a sale, including all the necessary processes, such as prospecting, initial contact, lead qualification, cold calls/contacting leads via phone and email, etc.
To calculate the Sales Cycle, you first congregate all of the deals that you have closed in a given period. You then track the number of days between when the lead was created and when the sale was closed.
This is the equation:
Sales Cycle = Total number of days ÷ Deals closed
For example: Let’s say you had 50 deals that were won in the second quarter (Q2), and the total number of days from the creation of the lead to the closed sale for all of these 50 deals combined was 1,250.
This would be the calculation: 1,250 ÷ 50
And, the result:
The Sales Cycle for the 50 deals = 25 days
A fast Sales Cycle is good. It indicates that your customers are interacting in a positive way with your marketing efforts and that your sales team is doing well (if you have one).
On the other hand, a slower Sales Cycle shows that your potential leads are finding it harder to grasp what it is your business is offering. A slow sales funnel is informative as it shows where issues lie in your purchasing processes.
11. Average Revenue Per Account (ARPA)
Average Revenue Per Account measures the revenue generated per account, typically per month or year. ARPA is calculated by dividing your total monthly recurring revenue (MRR) by the total number of accounts. A simple way to understand ARPA is by thinking of it as the measure of revenue produced by an account within a given period.
The equation for ARPA (which is different from Annual Recurring Revenue or ARR) varies depending on the time span you have chosen. Say you are measuring the revenue generated from an account within a month, this would be the equation:
MMR ÷ Total number of accounts for monthly
This can easily be converted to a yearly metric by replacing the MRR with ARR like so:
ARR ÷ Total number of accounts for yearly
For example: Say you have 5 customers, all of whom are paying different amounts for your product or service per month (pm). Customers 1 and 2 are paying $1 pm; customer 3 is paying $3 pm, and customers 4 and 5 are paying $5 pm.
The calculation would look like this:
$15 (total MRR) ÷ 5 (number of customers)
Therefore, the ARPA is $3 per month.
Make your sales metrics actionable
Analyzing and capturing sales metrics is time-consuming. For this reason, it’s important to have optimal systems in place to store the results of the data, and transform the numbers into actions and strategic ideas that will benefit the growth and success of your business.
A good way to do this is to generate a report which stores all of the data in one place. This report should be reoccurring depending on the time span in which you are measuring your metrics.
Below is a checklist that takes you through the process of measuring your metrics and creating a final report from them. The checklist should be seen as more of a template than a checklist to be run exactly as it is.
Why? Because, as I mentioned earlier, the most valuable metrics for your business will be unique, much like the business itself.
We’d love to hear what you thought of this post and also get to know which sales metrics you use and why. Leave a comment below with your thoughts, who knows, maybe you’ll be featured in an upcoming post.