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Introduction to Data Driven Decision Making
Sales benchmarking represents a source of sustained competitive advantage for corporations today. The second largest cost item on a company's financial statement is SG&A expense which typically represents 30%-40% of revenue. This is second only to cost of goods sold and in some cases three times research and development. Yet, most corporations today can not calculate the return they are generating for each sales dollar spent and do not understand how their return compares objectively to their external competitors. Bringing the discipline of benchmarking to the sales and marketing functions can solve this problem. The benefit of mastering this technique can be can be found in manufacturing companies using Six Sigma statistics to benchmark product quality, in finance functions using financial ratios such as return on equity to benchmark capital efficiencies, or in customer service organizations which gather statistics to benchmark customer loyalty. Benchmarking the sales function will bring data driven decision making to the mission critical process of acquiring and retaining customers thus allowing for the deployment of a continuous improvement program in sales.
How to Benchmark Sales
Benchmarking is a process where companies compare their performance over time against their competition. You'll find there are areas where you are better than most. You'll also see areas where significant improvement may be desirable.
The point of benchmarking is to focus your efforts where you can get the best return. The five steps to performing an operational sales benchmark are identifying your metrics, collecting your data, comparing and contrasting that data with best practices, planning the focused actions to address gaps, and creating a strategy for sustainable improvement.
Step 1 - Metric Identification
The first step in executing a sales benchmark is identifying the metrics to measure. The Formula for Sales Success™ assists in selecting metrics as it helps determine the key drivers of an organization’s sales performance.
Each non-constant variable in the equation (Activities, Conversion, Transaction and Talent) is defined in the company’s business terms. For example, how is an Activity defined? Is it a lead? Is it an e-mail, a phone call, a virtual sales call? Or is it a face-to-face sales call, a proposal or something else entirely? Is it all of the above? The goal is to identify the key activities currently being performed by the sales team that have the most significant impact on whether a deal is won tomorrow, next week, next month or next year.
In addition to productivity metrics, there is another non-constant variable – cost – that underscores the Formula for Sales Success™ equation. Benchmarking your sales costs results in a decrease in Selling Expense just as benchmarking productivity results in an increase in Revenue. By simultaneously doing both, a firm can significantly boost earnings and its Return on Sales (defined as profit return for each dollar of new sales generated).
Once each of the non-constant variables has been defined in the company’s business terms, it is time to select the metrics to measure. Appendix A contains a full list of metrics to consider. This list should be pared to the top 10 - 40 metrics that will make the biggest impact on the organization through internal measurement, external benchmarking and frequent reviews with the sales team. Use the following selection criteria as a guide when deciding which metrics to benchmark:
- Relevance to the company’s overall sales performance
- Degree to which each can be a leading indicator of sales performance
- Availability of the internal data and effort required to collect the data
- Availability of the external data and effort required to collect the data
Step 2 - Data Collection
Internal data collection. The first objective in benchmarking is to have a detailed, clear understanding of how the firm is performing internally. The process for gathering data about the chosen metrics is highly dependent on the individual company and the systems it uses. The information is already in the company somewhere and though it may take a little digging, it can be found.
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