Measurement Need

Sales management needs to know how productive its salespeople are.

Solutioni

Productivity can be measured in the following ways:

Most sales productivity measures focus on revenues per person.

Where

SP = sales productivity

ΣSt = sum of total sales for all sales people

ΣSp = total number of sales people

Assume a company sells real estate data and software to title companies, real estate firms, appraisers, and financial institutions. The company’s revenues are $11 million, generated by seventy-five salespeople. Sales productivity was as follows:

Management’s evaluation suggested that the competition’s average sales productivity was nearly 80% higher.

The senior management team embarked on an aggressive growth plan that included new products and acquisitions. Within two years, revenues had grown to $42 million and the sales team numbered 100. Sales productivity changed as well:

Clearly, sales productivity per person improved during that period of time. This provided a key performance measure enabling us to more effectively evaluate our progress.

Impact

The results of this analysis will affect decisions at the company, team, and individual level. Sales productivity measurement should inspire deeper analysis into the underlying causes of the performance (whether good or bad). Management decision making will focus more on the questions raised by the detailed sales productivity results which, in turn, are influenced by overall company goals, sales targets, sales territory definition, and segment and account strategies.

Company-level decisions are complicated by hard-to-control factors. Assuming sales managers are familiar with their teams, they may conclude that a poor performance as revealed by sales productivity analysis could be due to other, less controllable factors such as unrealistic goals, a weak correlation between pay and performance, or shifting market conditions that affected the assumptions that supported the original sales plan. These must be weighed against sales management’s future compensation plans, sales targets, account objectives and, ultimately, changes in personnel.

Sales management will use productivity to understand a sales representative’s individual performance as compared to colleagues or competitors. Marketing can use the results to advise underperformers about more effective segmentation or new segment opportunities. Sales management can also use the results to counsel poor performers in better account selection, time management, and selling strategies for each customer. More specifically, sales managers can use the productivity results to develop a step-by-step plan for improved individual performance.

Finally, sales management must be careful not to misinterpret sales productivity data. A handful of top performers may disguise the underperformance of the rest of the team. Therefore, the sales productivity results will need to be viewed across the sales force and at the individual salesperson level. High performers will certainly generate substantial revenues, but if those results were partly secured by offering customers generous, low-cost support contracts, then the financial impact on the rest of the company could be severe. Perhaps the high performers generated strong sales, but also had higher returns due to a less thoughtful selling effort. Or, their significant sales volumes may strain the production and delivery capabilities of the firm, particularly if the revenue growth is sudden and sharp. The outcome could be unhappy customers, which is certainly counter to the purpose of selling and marketing in the first place.

Data for sales productivity is found in both regular sales reports and financial review statements.

iJonathan Byrnes, Reconnect Sales Management to Profitability, Harvard Working Knowledge, March 1, 2004. Retrieved May 11, 2017 from http://hbswk.hbs.edu/archive/3952.html; Bill Johnson, 3 Factors to Consider When Measuring Sales Productivity, Salesvue, May 21, 2013. Retrieved May 11, 2017 from https://salesvue.com/how-do-you-measure-sales-productivity/