Posted by Milena Nazaruk
Categories Market Assessment
I recently read a simple and to-the-point article about the three key metrics all small and mid-sized businesses should monitor called 3 Numbers All Entrepreneurs Should Know. These metrics are true and useful not just for start-ups but for CEOs of larger more established organizations, like many of the B2B companies we work with. The author talks about:
- Pipeline coverage: the percentage ratio between what’s in the pipeline and your sales goal.
- Sales per employee: the ratio of the gross sales to the number of employees.
- Customer payback period: the time it takes to recover the costs of acquisition.
The above metrics are simple but get to the point quickly.
Pipeline coverage is a great way to understand how probable the pipeline really is. This is particularly relevant to B2B companies as they evaluate whether they are making the right connections and spending their time in the right places. Ultimate efficiency would be to have 1x pipeline coverage if all the deals you were presenting were materializing into actual business. Of course that’s a great theoretical goal but a practical impossibility. You might set different targets (the author suggested 2.5x), but this all depends on your experience in your business. When you meet with prospects, how often do you get a deal? Does it matter how much preparation you do for these meetings? Have you looked at the most efficient deals you have closed – what worked? By doing this you can reduce the pipeline coverage target while being more efficient on the items in your pipeline, and freeing up resources to pursue other things.
While pipeline coverage focuses on getting business into the organization, sales per employee and customer payback period both help you understand the profitability of existing clients and the resources needed to service them. Highest sales per employee and lowest payback period both drive the bottom line. The more sales the better, but of course, within the constraints of service delivery. At some point, additional people are needed to drive and handle additional sales thus reducing the metric. Any changes to infrastructure investment will affect the customer payback period – it is definitely impacted not only by the current resources dedicated to the project but any additional overhead necessary to run or expand the operation.
These are simple metrics but they speak volumes. Dashboards will give you loads of information; however, focusing on a few key items is important when you want to know how your company is doing at a glance. Below are some great resources that speak to strategies for tackling these effectively:
- Pipeline coverage:
- Understand the sales pipeline (forecasting, management, related metrics).
- Focus on the ideal sales pipeline.
- Consider ways to increase the sales pipeline through online channels.
- Sales per employee:
- Get the most out of your sales staff.
- Manage your human resources most effectively.
- Enhance or ensure effectiveness of your marketing.
- Customer payback period:
What are the key metrics that you use to evaluate the success of your business? Is there a set that you look at regularly to give you a sense of what’s going on in your business?