Drilling for Dollars Using Sales Metrics

June 19, 2017  by HFBusiness Staff in Business Strategy, Industry   

The ultimate sales performance metric is total sales. Everything else rolls up into it. If life was simple, this would be all we need, since it is the main end result we all want to maximize. However, as with any result, in order to understand how we got it we have to look at its main ingredients and analyze them. That is because you cannot teach, train or coach a result, you must work instead on the individual elements that go into making it happen. Only when the right things are being done in the right order and at the right time, do we generate the consistent high-performance results we desire.

Each of these main factors has its own elements that go into making it happen and so do the individual elements down the line. Over the past few years, we have dissected and discussed many of these individual performance measurements and how to use them as you work to improve sales performance. I think this time we should step back a bit and look at the process of analyzing our sales performance metrics. Perhaps in doing so it will make more sense to anyone that has struggled to put a sales management process in place.

It is really a process of digging down through the numbers until you find something that needs to be either corrected or congratulated. This is a similar method to what you would go through to analyze your P & L. First you would review each of the major expense categories against your target for it and if it is not where you want it to be, you would drill down to the line items that roll up into it and try to determine where you went south. Once you find a line item problem, you would look into all the things that affect it and see what might need to be fixed.

Using sales performance metrics to help drive improvement in that important part of your business is roughly the same. You look at each of your sales people’s individual sales results, then look deeper into the ones that did not perform to your target for them or at least to the store’s average. As with your financials, you would be searching for the specific performance area that is holding back or dragging down that person’s results. Having zeroed in on the specific number that is hurting performance the most, you then need to determine what they are doing wrong or not doing at all that is causing it. In essence, the sales metrics numbers are the objective measurements you use to point you towards a problem area. Once you have that, you will often use more subjective processes and information to fix the situation.

We need to note here that we are not always looking for those metrics that are low. It is very possible to be super high in any single measurement (even total sales) and actually be hurting the overall store effort. For the most part though, there is more to gain by bringing under performers up to an acceptable level. Therefore that will be our main focus.

First, you must establish a target for where each number needs to be in order to be at least acceptable. It is not fair to expect everyone to be a super star. So looking at your top writers and comparing the rest to them is not a good idea and will lead to jealousy and failure. The best approach with all of these metrics is to use the store average as your “line in the sand”. Certainly, if you have more than one type of sales effort in your organization, such as a design or in-home team, you can separate each type of selling process and use separate averages to establish your targets.

Total Sales

As stated earlier, the main metric we are all concerned with is total sales, which if you read this column regularly, you most certainly know is the result of the following equation: Ups X Close Rate X Average Sale. The more you can get your sales staff to understand that their success is the product of how many people they work with times the percentage of those they actually sell something to, times how much on average they sell each one, the more important these sales metrics numbers will be to them.

UPS

Once you have determined which total sales performances fall below where you want them to be, the first thing to look at is the number of Ups that the individual took. The number of Ups that a sales person goes through each month is very indicative of how they sell. If someone consistently needs more opportunities in order to hit your total sales target, they could be hurting you more than you realize. It is what I call the “double whammy”, because people that take less time with each customer will wait on more customers and they most often sell less than the store average to each one (see Revenue per Up), which means that the more customers you let them wait on, the more they hurt your business! 

You also need to be aware that those who wait on too few customers may be taking too long with each one. Generally, their total sales will be lower because they are so inefficient with the Ups you give them, but it might not put them below your target. So, you need to be aware that this is happening since it hurts you by causing you to need more staff to handle your traffic.

The Ups you allow each of your staff members to interact with are truly the most valuable asset you have as a retailer. Therefore, how they handle them from both an efficiency and effectiveness standpoint is extremely important to your business. Traffic per sales person is one of the very first things I review when asked to help improve a client’s sales. It is at the core of the store’s staffing needs, it lets me know how each person shares the workload and when compared to sales results it says a lot about their value to the company. Don’t forget its importance. And, when you do see a possible issue, then go on to the next metric which is revenue per Up, to see if there really is a problem and how bad it might be.

Revenue Per Up (Performance Index or PI)

Revenue per Up is defined as: Total sales volume divided by the number of customers seen (Ups), However it can also be calculated by multiplying Close Rate X Average Sale

Revenue per Up is the next critical metric used by management to understand the true effectiveness and efficiency of each salesperson.  It is valuable because it takes into account the effects of both close rate and average sale by combining their effects into one comparative index that indicates how many dollars of revenue are generated each time an individual salesperson greets a customer. This is the best way to determine how much of an issue you have with an individual. As an example; if the store average PI is $600 and your lowest person is delivering under $300, then every time they take an Up it is costing you over $300. If they are seeing 120 customers/month, there is nearly $40,000 walking out the door that you had a chance of getting, if virtually anyone else had waited on those people. If you rank your staff by PI, you will know where you need to spend your coaching time and effort!

Keep in mind though, that revenue per Up, like total sales, is a result that can’t be directly coached, it is mainly a “Red Flag” that makes you aware of how staff members are contributing to your business. Since Rev/Up = Close Rate X Average Sale, you must drill down to those numbers to find the driving factor for the performance.

Close Ratio

Defined as: Number of sales divided by number of Ups and expressed as a percentage, this metric really tells you how well your people are connecting to their Ups. It also gives you direct indications of the quality of their selling skills, since understanding and consistently using the right steps in an effective selling process is key to higher closing rates.

If this number is below the target you establish, there may be several reasons. It could be Ups related, such as having to take too many Ups because the store is short staffed, so they rush each one. Or, perhaps they burn through too many Ups because they can’t connect to most of the people they approach on the floor, so they keep getting back into the rotation. A big part of connecting is people skills related, which is the toughest thing to fix - you just can’t train “personality”. Often though, the problem lies in a failure to establish trust with the customers, which also can be caused by a lack of product knowledge, poor needs analysis and/or bad listening skills.

Lastly, many people can do all of the selling steps but just can’t or don’t ask for the order. Closing is just as important a step as it has always been, but with today’s customers we see that opening the sale properly and gaining the customer’s trust is the biggest issue we face. If they can’t open they can’t close and that is what a low closing rate tells you to look for.

Average Sale

Defined as: Total sales volume divided by the number of sales made, expressed in dollars. Average sale tells you if your people are maximizing their opportunity with each Up. When measuring individual performance and comparing one person to the store average, the conclusion to be drawn regarding higher performers is that they have the ability to recognize the greater needs of some customers.  In other words, higher performers have and consistently apply selling skills that lower performers do not possess or do not apply. Therefore, we must look for ways to improve how low average sale performers use the needs analysis process and whether they have the product knowledge they need to step customers up to better goods. Some people struggle to understand and use a store’s established good, better, best story to make sure their customers get exactly the product they want, short circuiting the process by just selling the low priced or advertised goods.

Ways to improve this include: training and coaching the sketching process to slow down/focus needs analysis, checking category and vendor performance reports to see if they avoid selling case goods or better vendors, and adding design skills or in-home abilities to their toolbox.

Finding the Answers

As stated, these numbers are the objective measurement of performance within your selling team. They tell you a great deal about what is happening, but they only give limited insight into why it is happening. They are indicators that should be used to point you in the right direction so you can find the answer the only way possible, through getting out on the floor and actually seeing what your people are doing with the customers you let them wait on. Observation, joining sales and giving feedback for improvement during the game is the best thing your sales manager can do to create a winning team by improving the performance of those that lag behind the rest.