Depending on whether your company is product-led, sales-oriented, or hybrid, you need a way to determine if your sales and marketing team are performing, with an eye towards using that data to improve. In a purely product-led company, you’ll be measuring mostly whether marketing is driving enough people to the product and whether the product is effective at managing the sales funnel from initial conversion to final sale. In a sales-oriented or hybrid company the metrics and measurements are similar but different, because you have sales people in the mix. Either way, tracking the right information is key to understanding performance.
Revenue Performance metrics
The most important metric, in my opinion, is top line revenue. This is your company’s gross sales and this is why the business exists in the first place, so this is what we measure first. Your metrics-gathering efforts need to track revenue most of all. From there, we break down the revenue by who, what, when, where, and why we got that revenue in the first place and also attempt to identify what might be standing in the way. In terms of tracking the revenue, it makes sense to break it down by both month and quarter. Over time, this will do two important things: First, it will allow us to identify any seasonality to our business. For example, it isn’t uncommon for some web-only B2B businesses in North America to experience lulls in July and December, due to vacations and holidays, respectively. Similarly, it isn’t uncommon for B2C retailers to see massive jumps in revenue in December due to the holiday season. Second, it will allow us to easily identify what’s going well or not-so-well by comparing prior months, prior quarters, and prior years.
You will want to track revenue by month and quarter and, where appropriate, by segment. When it comes to which segments to track, that depends on what segments you have identified. Each business is different and so are each business’s segments. A segment is basically a specific group of consumers for your product who all have similar characteristics which will often mean they have similar reasons to buy what you offer. Because of these buyers’ similarities, your messaging, marketing, pricing, and features may also be geared toward tying into the values, demographics, and behaviors for those buyers. Over time you will be able to measure how your sales and marketing approaches perform for each segment. You may even want to use separate messaging and approaches for each.
Sales Activity Metrics
There are four metrics to measure as sales activity metrics:
- Lead conversion rate
- Customer Acquisition Cost
- Average deal size
- Length of sales cycle
Lead conversion rate is the percentage of leads that convert to paying customers. This measures how effective we are at selling. Customer Acquisition Cost is the amount you spend in marketing divided by the number of new customers you get from that marketing. Average deal size is the average amount of money each deal is worth and it lets us know whether our sales team is effective in cross selling and upselling. The length of the sales cycle is the average time from initial contact to deal closure. It tells us how efficient our sales team is (or, in the PLG context, how well the product is communicating value to the customer).
Like Revenue (and all other metrics) these should be tracked by month, quarter, year, and segment. Over time these will become as important as Revenue when it comes to measuring sales performance. Your goals, of course, will be to increase your conversion rate, reduce your customer acquisition cost, increase your deal size, and shorten your sales cycle. As you dial in your product, processes, and messaging you will be able to see how the things you do impact these three metrics.
Customer Retention and Sales Efficiency
Once you have the customer, you still need to work to keep them. Keeping customers happy is the key to business health, because acquiring new customers is far more expensive than keeping them happy. The longer the customer stays with you, the more that this indicates that your product meets their needs and that you’re a right fit for them. The metrics you want to track here are new customers converted, churn rate, and customer lifetime value.
New customers may seem like the same thing as conversion rate, but it isn’t. Conversion rate may include repeat sales, but in this case what you want to be tracking is how many people are buying from you who have never done so before. Naturally you want this to be as high as possible.
Churn rate tracks the exact opposite thing. Churn is a measyre if how many customers stop doing business with you. Churn is obviously very bad and must be minimized because, as I’ve already said, it is more expensive to land new customers than it is to keep them. In addition to how many customers you lose, you really want to reach out to those lost customers and ask them why they ended the relationship.
Customer Lifetime Value (CLV) is the amount of money a customer spends with you during the entire time they are your customer. In the ideal scenario you have customers who are either subscribing to your product or service over a long period of time or making a series of purchases. In other words, you provide what they need well enough that they want to keep buying it. CLV tells you how much of your business is repeat business and how much that contributes to your revenue. Naturally you want this to be as high as possible and that means you have to keep customers happy.
The other value you get out of tracking CLV is a way to identify your best customers. The customers who spend the most money with you and stick with you the longest should form the basis of a customer profile that describes what type of person is your ideal customer. Somewhere along the line, either through skill or luck, you’ve achieved success with such a customer and you should look into why that is so you can not only continue to grow those accounts but also see if the success might be replicated with other segments.
Product engagement and customer feedback
The next set of metrics determine which features are best and how happy your customers are. These metrics are Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), Customer Effort Score (CES), Daily Active Users (DAU), Monthly Active Users (MAU), and usage by feature.
NPS measures customer satisfaction and loyalty by asking how likely they are to recommend your product to others. CES and CSAT are similar tools. Generally you will use them right after a user has performed some activity with your product, whereas NPS is not tied to an event and more a measure of their overall happiness with the product. All three are criticized for their extreme brevity, as each of them are only a single question. When customers are unhappy with your company or your product, these tools don’t have a mechanism for asking the user why, so it is important to also use feedback surveys to gather details on the basis for their answers. Despite the lack of detail, NPS and CSAT are still super useful because their brevity increases the likelihood that a person will fill it out, whereas longer surveys will have lower response rates. While these three metrics are more related to customer satisfaction than they are sales and marketing, they may be indicators for predicting or explaining churn. In other words, if churn is high, the first place I’d look to see why is what our customer satisfaction scores look like.
Daily Active Users (DAUs) and Monthly Active Users (MAUs) measure how engaged customers are with your product. As their names imply, DAU measures how many people were active on that particular day whereas MAU measures how many people were active that month. Tracking things like registrations and conversion rates are fine, but it is also important to track how many of those registered users are actually using the product. Naturally, you want to aim for this to be as high as possible, especially as a percentage of registered users. What that percentage might be depends a ton on the type of product and types of users and can be severely skewed by things like fraudulent signups and duplicate registrations.
Usage by feature is also a very important metric to track. From a product management perspective it indicates which parts of the product need more (or less) attention. From a sales and marketing perspective, it can allow you to focus your messaging on what features have most value to users. Like all of the other metrics listed above, tracking this by segment can be really important.
In a follow-up post, I’ll discuss a way to identify your most desirable customer using the metrics discussed here.