Efficiency is one of the top priorities for managers and company leaders across all business aspects. Sales is no exception. Sales efficiency ensures your salespeople are making practical use of their time to drive sales.
The average sales team spends approximately 1/3 of the working day talking to prospects. According to our Sales Excuse Index, the average salesperson in Australia spends only 63% of their time on activities that directly produce sales results. Seem low? It is! These statistics demonstrate that there is massive room for improvement in sales team efficiency.
Let's explore sales efficiency, how to measure it and what you can do to improve sales efficiency.
What is Sales Efficiency
Sales efficiency is essentially the revenue you make for every dollar you spend on marketing and sales activities. Sales efficiency data is typically measured in a specific timeframe, such as each quarter. The purpose of the sales efficiency metric is to shed insight into how quickly your salespeople are converting prospects into leads and customers. The metric reveals the speed of your sales activities and operations.
Sales efficiency is a formula designed to measure and understand the impact of expenses compared to the total revenue of a specific period. Sales managers can apply the sales efficiency metric to teams and individuals. Using this method, managers can understand productivity at the broader team level and each individual. The metric can reveal an opportunity for a sales enablement strategy or further sales training to boost the sales efficiency of teams and individuals.
Although traditionally measured using the sales efficiency metric, other tools help reveal the efficiency of sales teams and people, such as a sales competence assessment.
How to Measure Sales Efficiency
There are two primary ways to measure sales efficiency:
- Sales Efficiency Metric
- Sales Excuse Index
Sales Efficiency Metric:
Businesses typically use a calculation to measure sales efficiency. The metric provides a high-level overview of revenue in comparison to marketing and sales costs. These expenses may include salaries, commissions, office resources, software, marketing and sales advertising and other benefits.
To calculate sales efficiency, add up all-new revenue generated during a specific period and divide it by all the sales and marketing costs in the same period. For example, if you spent $10k in the first quarter of the year on sales and marketing activities that generated $15k in new customer revenue, then your Sales Efficiency would be 1.5.
A sales efficiency metric above 1 means you are generating more revenue than you consume. Typically a metric of 0.5 – 1.0 indicates you are breaking even. A metric below 1 means you are spending more than you are generating and need to be careful not to operate at a loss in the long run.
Sales Excuse Index
The second way to gauge sales efficiency is to analyse the Sales Excuse Index of your team and individuals. The Sales Excuse Index is a newly created metric that forms part of a broader assessment tool called the Sales Competency Assessment.
The Sales Competency Assessment includes a Sales Excuse Index that measures a salesperson's current tendency to procrastinate on sales activities. The lower the Sales Excuse Index percentage, the more likely a salesperson will focus on actions that produce sales results. The higher the Sales Excuse Index, the more likely the sales professional will find an excuse for not engaging in sales activities. While the average Sales Excuse Index is 35%, successful and productive salespeople have much lower scores.
How to Improve Sales Efficiency
There are several ways to increase sales team efficiency, including:
- Set SMART Goals
- Create and Follow a Sales Process
- Conduct Sales Competency Assessments
- Engage in Sales Coaching and Training
Set SMART Goals
Setting SMART goals is an effective way to provide clarification of targets and motivate salespeople and teams. Your sales reps and teams need to know what they are working towards before setting objectives and other KPIs. These goals will also help track performance, such as how many prospects turn into qualified leads and convert into customers generating additional revenue. Establishing clear SMART goals guides your salespeople to work effectively and streamline their efforts. Setting SMART goals provides a target to reach and ultimately increase sales efficiency. Achieving goals also increases the sense of accomplishment among your sales team.
Create and Follow a Sales Process
A sales process is a set of repeatable steps when moving prospects into leads and leads into converted customers. These are basic steps that every sales rep should use as a reference point for their sales efforts.
A sales process typically includes steps across each stage of the process, including lead evaluation, initial contact, needs exploration, and closing or negating. The sales process can extend to stages post first sale, such as initial engagement, account management and expansion. There is no ideal sales process. Every market, business and competitive situation require a different approach.
The sales process helps sales reps uncover whether a prospect is qualified and will likely eventuate in a sale. If not, sales reps may decide that specific prospects are not worth pursuing as they may require a significant time investment or are not likely to make a buying decision. Using a sales process will ensure efficient sales efforts and not waste precious resources.
Conduct Sales Competency Assessments
The capabilities of your sales team help your organisation to thrive. Competency assessments are vital to ensure organisational performance and help optimise the efficiency of your sales team. The Sales Competence assessment helps to drive the effectiveness of sales professionals and teams.
Designed specifically for sales professionals, this breakthrough sales tool measures a respondent's attitude towards key sales behaviours and captures the perception of their current level of competence. The Sales Competency Assessment provides in-depth information into critical sales competencies, sales roles, mindsets and includes the groundbreaking Excuse Index.
FinxS Sales Competency Assessment provides "uncannily accurate and quantified insights into how to work on the capabilities, behaviours and outcomes in a way that is groundbreaking and certain to transform the Sales Process for any individual or organisation that seeks improvements and a lift in efficacy." (David Hoath, Managing Director, Arlandria Ltd).
Engage in Sales Coaching and Training
If your sales team lacks the proper training and coaching, they will likely be inefficient. Sales reps may waste time and effort on ineffective approaches and not effectively moving prospects through the sales process. New hires should receive sales training that informs and teaches them about their sales process and ideal buyer profile.
Businesses should also provide sales coaching that keeps them up to date with the latest techniques and tips such as handling objections. Companies that engage in sales training and coaching will experience higher win rates than those that don't. Implementing training will increase conversion rates and improve your sales team efficiency.