What are the key sales metrics all sales teams should understand? What are the typical pitfalls around sales metrics? How should you define sales targets if you are aiming to grow? We had a chance to catch up with sales advisor and keynote speaker Aaron Ross, the author of Predictable Revenue and From Impossible to Inevitable.
Aaron Ross is a sales advisor, keynote speaker, and board member of several tech companies. He is the co-author of the global bestseller Predictable Revenue - which is often referred to as “The Sales Bible of Silicon Valley” - in which he describes the outbound prospecting process for Salesforce.com and many other companies.
More recently, Ross co-authored From Impossible To Inevitable together with Jason Lemkin, the founder of SaaStr and a serial tech entrepreneur. Aaron describes the book as a “hypergrowth playbook” that draws on the lessons learned from the successes of companies like Twilio, HubSpot, Marketo, and Salesforce.com.
We had a chance to sit down with Aaron and discuss his views on the typical pitfalls of sales metrics and how to best use them to support your company's growth.
Five Classic Sales Metrics
What are the metrics we ought to use to track our sales? And how do we choose the metrics? We, at Dear Lucy, get asked that over and over again.
In their latest book “From Impossible to Inevitable”, Aaron Ross and Jason Lemkin warn companies against getting lost in the sea of advice and metrics that get recommended to growth companies. Instead, they list five classic sales metrics and urge companies to stop for a while and truly understand what the story behind those metrics is.
I think the discipline now towards ramping up growth and hypergrowth is not which metrics should we track. It's more about - how do we interpret the metrics in a useful way?
Aaron encourages teams to be more insightful on what chosen metrics really mean before rushing into adding more things to measure. The five classing metrics to understand better are:
1. Number of open opportunities in total and per rep
The key to this metric is balance. Each rep ought to have a sufficient number of opportunities at any given time to be able to hit their targets. The number should be high enough to allow for good results but not too high as then the team may be overworked and deals start to drop.
If the number is off, you either need to focus on generating more leads or growing your sales team.
2. Number of closed opportunities in total and per rep.
Measure this as the total number of closed deals - including both lost and won deals. This figure will tell you whether your team is actively working to move deals through the sales process.
If not, does the team have enough deals to work on, or is the pipeline filled with deals that are simply “air” or deals that are not likely to proceed?
3. Deal size
Average deal size is an important indicator of how your strategy is working, and you should monitor deal size trends over time. When you know the average deal size, you can easily spot outliers and flag them for special attention.
If you suddenly see an increase in smaller deals, analyze the situation carefully: is your team focusing on the right deals, are you providing too many discounts, and is your lead generation producing leads that are too small?
4. Win rate
Win rate simply means the amount of Closed Won Opportunities divided by the Total Number of Opportunities (including both Closed-Won and Closed-Lost).
Win rate on its own does not give you much but it will start to tell a story if you can compare win rates across businesses or reps or can see the evolution of win rate over time.
5. Sales cycle duration
How long does your sales team typically take to close a deal? How long do deals stay in each sales process stage? Understanding these is key to defining the right time frame for deals to close successfully.
Keep in mind that faster isn’t always better. If the deal is closed too quickly, your customer (or sales rep) may overlook some key steps that can cause problems down the road.
Five Lessons Learned on Sales Metrics & Growth
Aaron has worked as a sales advisor for numerous companies and has seen companies struggle with both sales metrics, how to interpret them and how to use them to boost growth.
We summarized his key take-aways into 5 key lessons:
1 Popular metrics can be misleading for YOUR business
With so much content and resources available for growth companies - and especially for SaaS companies - it is really easy to be overwhelmed with all the advice and examples, Ross points out.
It is very easy to get into the zone of tracking a multitude of metrics including the likes of Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC). The metrics CAN be very useful but other times, they can even be misleading.
“It's really easy to fall into this trap of tracking metrics and using benchmarks that are out there.”
The key thing is to measure what’s helpful for your business. Sometimes companies measure so many things that they lose sight of what they are actually trying to achieve.
The best advice, Ross explains, is to be in tune with your business and your people and to understand, what is helpful. Not measuring something simply because we think we are supposed to measure that or because other successful companies are measuring it.
“Don’t try to mimic other successful companies and copy-paste what they do. Tune in to what’s right for your business and your people.”
2 Adding new metrics is easy, decluttering is hard
Ross has come across quite a few companies that are measuring 30 different metrics and getting confused by the sheer amount of metrics. Adding new metrics is easy, and it is natural wanting to experiment with different metrics.
“It is natural to go through a phase where you explore various metrics and get a bit confused by them. But then, you need to understand what the metrics tell you and focus on the key ones that genuinely help you develop your business.”
3 Be sure you are ready to grow!
Aaron urges companies to be brutally honest about whether they are ready to grow. Many founders and companies want to grow but it takes more than willpower.
“If you're struggling to grow it usually means that you are not ready. And usually, you are not ready to grow, until you nail a niche.”
So how do you know when you have done that? In “From Impossible to Inevitable” the authors explain “One of the indicators that you've Nailed A Niche is that you're consistently able to find and sign up unaffiliated customers.”
So if you can generate leads and sell (profitably) to customers that are not from your network, you are probably quite close. And if not, it may be that you do not yet have all the puzzle pieces together to build a foundation for growth.
4 Set realistic expectations
Growing a company is far from simple and Aaron agrees:
“The painful truth is, it's going to take years longer than you want.”
We are all surrounded by stories of people having fast success as those are the stories that get posted. The slow grind often required to grow a business is not as interesting, so we simply don’t hear about it that much.
The key, according to Aaron, is to be really in tune with what your company is doing well and what it isn’t doing well.
5 Set sales targets that are right for your company culture
There is no simple rule on how to define targets for growth. It all starts with the company culture and above all, the founder, says Aaron.
If you have a founder who wants to be more realistic, hugely ambitious goals may not work for them.
But if you have a CEO and investors who are wired for really ambitious goals, then that might be the right choice. And both approaches are fine.
“I believe the mistake is having ambitious goals and missing them. And then resetting ambitious goals and missing them again. It's okay to miss our goals sometimes, but if we're always missing them, then we're not doing something right.”
About Aaron Ross
Aaron Ross is a sales advisor, board member / non-executive director, and keynote speaker. He’s the co-author of From Impossible To Inevitable (with Jason Lemkin), and of Predictable Revenue, about sales systems that helped Salesforce.com, Twilio, Zuora, and other companies create billions. Aaron is on the boards of Cognism, ValueCore.ai, Administrate, and Nuvini (a SaaS acquisition/consolidation fund).
Connect with Aaron on LinkedIn
Aaron Ross’s popular books:
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