The biggest challenge sales professionals these days face is utilizing their time to actually SELL. This is because most of their time is spent on daily chores, like attending internal meetings, updating their CRM, training, and filling out expense reports. As such, it gets difficult for most sales reps to focus on selling, making achieving and maintaining sales KPIs a tough nut to crack.
And let us tell you! Guesswork may shorten your sales cycle but will not help you achieve your desired sales goals. For any business to succeed and gain maximum profits, you must ensure your sales team makes the most of its time and efforts.
Staying efficient by identifying the best sales practices and following them consistently is the key. And here’s where sales efficiency comes into play!
Let us dig deeper into what sales efficiency is.
What is sales efficiency?
In the simplest words, sales efficiency is a metric to calculate the speed of your sales operations. It allows managers to measure how each dollar they spend on expenditures adds value to the business. With sales efficiency, it’s easy to determine how quickly your reps convert prospects into leads or sales while boosting your overall ROI.
So, if you want to get the most bang for your buck, you must focus on increasing the efficiency of your sales team.
Sales efficiency vs. sales effectiveness
Often, these two terms are used interchangeably, but both are different from each other. Sales effectiveness explains how well your sales team is able to turn prospects into leads and customers. Your sales process is considered productive if you have more wins than losses.
On the other hand, sales efficiency is determined based on how quickly the prospects are converted into leads and customers. The profit margin of your sales team is the difference between their expenses and revenue.
There are still many companies that consider sales as mere art. While, in reality, sales is true science. Hence, it shouldn't be guessed or calculated on the basis of gut instincts. Instead, you should measure it based on several sales metrics.
But before we jump to learning how to calculate sales efficiency, let’s first understand why it is so important for modern-day businesses.
Why is sales efficiency important?
Think of this scenario: You have set a sales target for the quarter, say October 2022 - December 2022. You have your team ready, all the required resources in place, and invested a great deal of money in marketing and sales efforts. You are happy seeing your sales team working hard. As the quarter is about to close, you are keeping your fingers crossed to see how much your team has achieved in sales and profit.
At the end of the quarter, you were devastated to see the overall profit your business incurred. Wondering why this happened? Because your expenditures were higher than your overall sales. All the efforts you and your team put in for three months were all a waste! Did you know why this happened? Because you didn't take any measures to manage your expenses or track the performance of your sales team throughout.
Lack of an effective sales plan may lead to several inefficiencies in your sales operation, which include marketing misalignment, a lack of current information, and a slow onboarding process that may land you an unskilled or poorly skilled sales team.
Hence, to prevent all such inefficiencies, it is crucial to keep a tap on sales efficiency.
Let us learn more about the importance of sales efficiency.
As said, sales efficiency is the easiest way to track a company’s performance. It shows you a clear picture of your sales efforts and the results (revenue) they are able to generate. It is a KPI that helps you assess your current sales strategies and what improvements are required to achieve your business goal.
Further, a sales efficiency score helps you evaluate the effectiveness of your sales program in maximizing efficiency. For instance, a good sales efficiency score will indicate that your sales program is up to the mark and serving you well.
Here's another scenario: All your sales reps successfully achieved their set quota for one quarter. You reached your revenue target, but your business has barely grown; it's still at a standstill. And now you are wondering about the outcomes even when you've achieved your revenue targets successfully.
Sales efficiency metrics help you take a hard look at various aspects of your sales efforts. When you don't see efficiency in your efforts, you might consider increasing your sales quota, adjusting customer acquisition cost, or keeping a bar at certain expenses. In simple terms, sales efficiency helps you identify any potential reason that could be holding you back from achieving your highest sales goal.
In a nutshell, sales efficiency is one of the simplest ways to
- Assess your sales program from different aspects
- Identify loopholes in your sales program
- Re-evaluate existing sales processes and methodologies and make necessary amendments.
How to calculate sales efficiency?
If you aren't efficient in your sales program, it implies your team isn't using resources judiciously. Instead, they are overly utilizing valuable resources on tasks that could be performed with less. Further, if you aren't maximizing efficiency, every dollar you spend and every asset you invest will not be used to its highest potential.
To ensure you have an efficient sales program, you must know how to calculate sales efficiency. Most companies use this simple formula for sales efficiency calculation:
In this calculation:
- Revenue means the overall business revenue, including net new sales, cross-sells, upsells, downsells, and churn
- Sales and marketing costs refer to an overall total of various expenses related to those departments.
So, to calculate your sales efficiency, divide your sales and marketing costs for the last three months ( of the previous year) by the amount of new revenue generated in the current quarter, and multiply the result by 100.
Let’s take an example :
Say, in Quarter 1, your company spent $5M on sales and marketing activities and earned $8M from sales, then your sales efficiency for that quarter would be 62.5%.
($8M / $5M) x 100 = 62.5%
The resultant sales efficiency clearly indicates that you must re-evaluate your expenses and sales effectiveness.
And if you want a deeper insight on your sales efficiency, you can use the formula:
Note: ARR here does not include churn.
What is a good sales efficiency ratio?
A sales efficiency ratio clearly explains how much time it takes to reimburse sales and marketing costs through customer-generated revenue. It also helps you know how to evaluate your sales strategy and invest.
For instance, if your sales team generates $2M annually at the cost of $1M, your sales efficiency ratio would be two. This means paying back sales and marketing costs will take about 1.5 years.
Tomasz Tunguz of Redpoint Ventures explains, "When sales efficiency figures fall below one and elongate payback periods, it’s likely time to revisit sales and marketing techniques or explore up-sell and cross-sell. When these figures exceed one, it’s likely time for a business to invest more capital into the sales and marketing efforts."
Generally, the sales efficiency scores are agreed to be as
- Less than 100%: Re-evaluating sales and marketing techniques. Thoroughly consider the up-sell and cross-sell techniques and make necessary changes..
- 100%: If gross margin and churn are in an acceptable range, the company is profitable.
- 101% – 300%: Continue to do what you are doing.
- Above 300%: Indicated the company is doing excellent in the market and is a profitable SaaS business. It also indicates a potential for even higher business growth if you add Sales and Marketing headcount.
So, take the time to calculate the sales efficiency ratio and see where on the scale your business stand.
And if you see a lower sales efficiency ratio as the outcome of your calculation, don't stress out! Below we have explained the tips to increase it.
How can sales efficiency be increased?
So, how do you increase sales efficiency? Taking a 360-degree look at your entire sales process can help you discover the gaps in it. This is like identifying the problem areas and fixing them through appropriate solutions. Filling such gaps can be effective to improve sales efficiency.
Here are some simple yet effective tips that will help you improve your sales team's efficiency and get you the desired results.
- Choose SMART Goals
- Having clear and defined goals is the first step to achieving them. Because when you are clear about what you want to achieve, you can determine the necessary actions and cut out unwanted efforts. The same goes for achieving sales efficiency.
- When it comes to sales goals, be specific. Your managers and team must know what you want to accomplish before they start putting effort into it. That is why you need SMART - specific, measurable, achievable, realistic, and time-based goals.
- Focus on the measurable aspects of both your goals and effort. And for that, you should establish clear key performance indicators (KPIs) to guide you. These KPIs will help you assess the progress and performance of your sales reps while giving you a clear picture of how close you are to achieving your goals.
- Determine Your Target Customers
- If you are not clear about who you are selling your products to, your business is at risk! Would you want your reps to approach prospects that are unlikely to buy your products or services? And what if they are investing their time and effort in such prospects? That is just a waste of sales productivity.
- So, you should clearly define your buyer persona to your sales reps/sales managers, as it will make it easy for them to carry out their sales efforts. They would know whom to approach and how to approach. Having clarity on your buyer persona will help carry out all the sales activities smoothly and effectively.
- Leverage Automation
- The best way to improve your company’s sales efficiency is to get the most out of the resources in use. The more you are able to reap out of each resource, the more efficient you will be. When you want to boost sales productivity, one of the key factors you must focus on is how efficiently your sales teams utilize their TIME.
- According to a study, nearly 65% of sales professionals say they cannot close as many sales as possible because they lack time. And that is so true! There are so many menial tasks, such as organizing customer calls, creating call schedules, and data entry, that a sales professional is involved in daily.
- It is actually time-consuming if your sales team handles all these tasks manually. As a solution, you must introduce automation into your sales process. Using sales enablement tools and CRM can boost your company’s sales efficiency significantly. Automating such simple tasks can save tons of time for your sales team, and they could focus more on sales. This is a great way to improve your overall sales efficiency.
- Introduce A Sales Process & Work Accordingly
- Just as guesswork doesn't work to achieve sales targets, performing tasks arbitrarily will only lead to chaos. Hence, you must have a proper, well-organized sales process in place. Now, what is a sales process? It is a set of repetitive steps that a sales rep will take, from reaching out to a lead to converting them into a returning customer. Ask your sales leaders to strategize things and come up with a sales plan.
- A sales process can act like a blueprint for your sales reps and help them proceed in their sales efforts. A typical sales process will consist of tasks such as identifying the prospects, connecting, qualifying, closing, etc. A sales process depends on a company's target audience and sales reps' capabilities.
- Train Your Sales Team To Be More Productive & Effective
- Research shows that effective sales training can improve win rates by 29%. With the increasing competition, you need to upgrade the skills of your sales reps. Your sales team should be highly productive and talented to beat the competition and get the results you expect. For this, you must organize training sessions regularly for your sales team.
- Besides, you should get them trained to utilize automation to be more effective and efficient in their conduct. Also, with proper knowledge and skills, they will be able to identify problem areas and look for solutions themselves. The more efficient and productive your sales team is, the smoother your sales process will become.
- Allow Sales and Marketing Teams To Collaborate
- Seems odd? Most companies do, and hence they overlook this often. But let us tell you, your sales and marketing teams need to synergize if you need them to achieve the sales goals. The research also favors the same: sales and marketing alignment can improve your sales by 67%. Why? Because both these teams need to communicate in order to exchange their ideas, progress, and challenges on their journey to attain goals.
- For instance, without a well-thought marketing plan by your marketing team, your sales won't be able to outreach prospects. Also, the sales team can share the challenges they face when finding the right prospects so that the marketing teams can create their marketing campaigns accordingly.
Ready to improve your sales efficiency?
Sales process and find your flaws and mistakes. Secondly, establish SMART goals and create a sales process around them. Do not overlook the importance of honing the skills of your sales reps and cross-communication between your sales and marketing teams. Lastly, be sure about your target customers and automate your sales process to make it even more efficient.