Measuring Sales Performance

The methods for evaluating sales performance can take many different forms.  You can look at performance on a company basis and compare it to the previous year (hopefully your revenue is growing).  You can look at sales performance on segment basis and compare it to a plan.  If you are looking at resource performance you can look at the sales team performance to quota.  And you can drill down to an individual level to measure how individuals are doing compared to quota. 

All of the methods mentioned will allow you to measure sales performance.  And depending on which method you choose, will give you some basis for reaching an opinion as to the progress your firm is making.  Chances are that the methods you are using to measure sales performance are ones that you have used for many years.  After all, we are creatures of habit, and we often do things because this is the way we have always done it.  I also know, having spent the early part of my career in accounting, financial reporting and business planning, that we can utilize numbers to represent situations that are not necessarily accurate, but are reflective of the situation we want to portray. This is not to say they are inaccurate, it is just that the base line of comparison is not always the same and therefore the change from baseline is not a completely fair evaluation of the way it is being presented. 

For example, the Dow Jones Industrial Average (DJIX) closed today at 12,807.  This index is quoted every day, from all news agencies, and is used to reflect investor’s confidence in the market.  If we looked at the DJIX one year ago it was at 10,927 and two years ago it was at 8,212.  So, logically, you can conclude that the DJIX grew 17% in one year and 56% over a two year period, and this would be an accurate statement.  In reality, there are so many factors that contributed to the growth, i.e. global events, and which companies are included in the DJIX to name a couple, that without a thorough understanding of the details, one could be misled by the numbers.  I am not saying that the economy or investors confidence is not stronger than it was two years ago, or possibly a year ago; it is just that the level of increase might not be as strong as the numbers indicate.

  How does this relate to sales performance?  One of the areas that is most important in evaluating sales performance is the utilization of resources; how you measure team and individual sales performance.  If you follow the method I described in the first paragraph you would be evaluating team and individual performance in comparison to quota and in some cases to previous years.  The resulting calculations would give you a baseline for determining their progress or lack of progress.   And upon review, one could act upon the results and set in motion changes to the organization.  All based on the assumption that your evaluation methodology fairly represented the current situation.  But what if it does not fairly reflect the current situation; would you have wanted to act in a way that resulted in changes to the organization?  In most cases you would not have wanted to.

So why am I suggesting that comparisons to quota or in some cases to the previous year might not be a fair evaluation methodology?  The answer lies in what basis or methods are used to assign quota, to assign territory or area of responsibility, what unusual events might be included in both the baseline (previous year) or in the current year and what goals or objectives of the organization might have impacted the performance of certain areas of the company.  I am sure there are other factors to consider but if you only focused on the four I mentioned it is easy to understand how a blanket evaluation of performance to quota might not be a sufficient way to evaluate team and individual performance without peeling way the onion and understanding the details behind the results. 

As an example, I know of companies that do not increase quotas from year to year.  The amount assigned to the sales professional is the same quota as the year before.  Does this make for a fair evaluation?  Not if quota achievement is less than the overall performance of the company.  One could be achieving quota and not growing their business at the same rate as the rest of the organization.  Utilization of resources (or productivity) is actually decreasing in this case and therefore sales cost is increasing.  This is not a situation you would want to continue over the long haul but if nothing changes you would never know there might be a problem with your sales performance.

Another example is in a mature industry like output devices - printers and copiers.  The growth in total units may be flat or show a small increase, so for the most part it is a replacement market.  In a replacement market protecting current customers should be your first priority and then consideration for new customers an important but secondary priority.  If quota assignment has no relevance to current customers in a particular territory, or the number of machines in the field (MIF), then the achievement to quota between sales professionals would not be relevant. 

You could, and most likely do, have territories that have more MIF than business written, yet the rep is exceeding quota.  Likewise you could have other territories with very low MIF and business written that surpasses MIF but fails to reach quota.  In this example you might be rewarding those that are costing you business (first situation) and replacing those who are failing to meet quota (second situation).  Not a good situation for your business but also one that you most likely would not recognize because you have never spent the time evaluating your methods for measuring sales performance.

Measuring sales performance is critical to evaluating the success of your organization.  Without it there is very little else that can give us a sense for how we are doing.  The methods of evaluating are also critical because without a fair, detailed review and understanding, actions taken and decisions made could unknowingly hurt the performance of the company instead of helping it.  Take a moment to review your evaluation methodology and understand the key components to proper evaluation.  If you do you will improve the measurement methodology, make sounder business decisions and help drive favorable results.

To learn more on how to structure and evaluate sales performance attended the BTA Sales Management workshop June 15 & 16 in Phoenix.  Register at: http://www.bta.org   

Ed Carroll is a principal of Strategy Development, Inc. an advanced management consulting firm, engaged in sales leadership, managed print services, operational efficiency, service productivity and business planning.  Clients include equipment manufacturers and resellers (large and small) focused on equipment and service in the document and imaging industry throughout North America.  Ed can be reached at 703.722.2973 or carroll@strategydevelopment.com.