Sales Metrics: Optimizing your Sales Funnel

This is part 5 of our series on Sales Metrics, previous segments are available in our archives.

So far this week, we’ve discussed the performance of sales as if it’s a black box, where the inner workings are hidden from us. This is far from the truth, as any developed sales organization is using a repeated sales process, with clear steps and milestones that help them evaluate deals and estimate the likelihood of closing. We can measure that process like any business funnel (See Funnels) and in doing so find opportunities for improvement.  

Take the following example sales process and corresponding metrics:


Example Sales Funnel

In this example, only 3 purchases resulted from 100 customer leads, which is hard to evaluate on its own. The key measures in any sales funnel are not the actual counts at each stage, but the conversion rates between steps in the funnel. We can see that 50% of customer leads convert into customer demos, but only 20% of those demos convert into trials, which seems like a significant problem. Even worse, only 30% of trials convert into purchases, indicating that there are serious challenges in moving customers between those stages. The conversion rates in your sales funnel will often make the problems in your sales process very clear.

Measuring your sales funnel is most useful when done over time, so that you can see how the conversion rates between each step in your funnel change. As you add more salespeople, do your conversion rates go down? What if you increase your prices? These conversion rates become one of the most important indicators of the impact of larger business decisions on revenue, as well as helping you get ahead of revenue problems in the future.

Quote of the Day: “It is not necessary to do extraordinary things to get extraordinary results.” – Warren Buffett