Understanding Sales Performance Metrics - Part 3
Furniture World Magazine
By Joe Capillo
Calculations that retailers can and should use to foster continuous salesperson improvement.
Editor’s Note: This important series on sales performance metrics began in the February/March issue with information on how to calculate the retail sales equation, revenue per up and related issues. The second installment (also posted to the sales management index on www.furninfo.com) looked at specific ways to use sales metrics to encourage continuous sales improvement. This four part series continues with a discussion of additional sales metrics and begins to outline a system for using metrics to improve sales team performance over time.
Other Sales Metrics
Goals: The issue of salesperson goals is central to successful sales management. Tracking individual performance versus goals helps tie together all of the performance metrics discussed in previous articles. Salespeople should be committed to their own goals, and managers should act as their coaches.
Goals are a result, an outcome, of calculations contained in the retail sales equation (UPS x Close Rate x Average Sale = Sales) and Revenue Per UP (RPU = Sales Volume / Opportunities). The constant measurement of actual performance (where you are) versus your goals (where you should be) is a crucial management tool that can be used to drive individual performance.
Gross Margin: Tracking gross margin should be an important part of your daily management reporting system. Generating gross margin dollars is, after all, the true goal of sales. Gross margin dollars pay all the bills. Whether or not you pay sales commissions based on gross margin, you should have gross margin goals at the center of your management goals system.
You will find that there is the same kind of range-of-performance in gross margin as in all of the other factors in the selling success equation. Sales managers need to know this range and develop training strategies and action plans to optimize gross margin dollar generation. Our thinking is simple: Salespeople at the high end of the gross margin range should be more highly compensated than those at the low end.
Category Performance: Measuring category performance in many different ways is an important sales management and performance improvement tool because it is in these metrics where you will be able to view performance for all of the important non-furniture categories such as fabric treatment, extended warranties and furniture protection plans.
Often when there is a sales performance problem to be solved, category performance is the first place to look for clues. Secondly, you should look into the customer-based sales performance factors discussed in previous articles (posted to the sales management article index on furninfo.com) to get a rounded picture of individual performance.
Customer Returns: For many retailers the issue of returns is an important factor that affects profitability and must be managed carefully.
Using SalesMetrics to Manage
Measuring everything is important, but if you don’t or can’t use these metrics to manage performance improvement, the information you gather is of little value to you as a manager.
Retail managers need to take the time to think about and use sales metrics as the basis for constant improvement in sales performance. To achieve this it is necessary to first identify the connection between each of the metrics we’ve been discussing and at least one element of your defined selling strategy. Then you can execute training and implementation plans for each salesperson’s improvement.
To begin this process, some new understanding may be required about how to deal with metrics.
Range of Performance
An important use of metrics in our business is in comparing the performance of different people working in the same environment, with the same conditions over the same time period. In an ideal world, salespeople working in the same environment and having equal opportunity should produce equal results. In practice, varying levels of skills and motivation contribute to unequal results. Sales management is all about how we deal with this issue.
Over the course of a year you may have one salesperson generate $600,000 and engage 1,500 customers. This is a PIN of $400 per customer (see a discussion of performance index calculated as sales volume/opportunities, also known as revenue per up or return on customer asset in the February/March issue of FURNITURE WORLD posted to www.furninfo.com in the sales management article index).
Another salesperson may also engage 1,500 customers, but generate only $500,000 resulting in a PIN of only $333 per customer. This lower performance level can be thought of as costing you $100,000 in revenue!
Same store, same customer base, same advertising, same merchandise – everything is the same for these two people except the results you get. Only by knowing the range of performance of each person in all key factors can you identify where performance needs to be improved and to what extent.
A Necessary Caution
Ranking salespeople is a management tool to help understand the performance dynamic of the sales team and develop improvement initiatives. It is usually not wise to share these rankings with the team members until they are edited and fully understood. Public embarrassment is not an effective motivational tool for most people. The best way to use these rankings is in one-to-one coaching sessions. There will be, however, some situations where the public use of rankings for team motivation and employee recognition can be useful.
Using Averages to Improve Performance
Every range of performance will show the average for the factor being considered. In large staffs (20 or more salespeople) the average level of performance will approach the mean (the point where there are as many people above as below). For large staffs there will be approximately half of the staff performing below the store average.
Your goal as manager is to help all of the people below average in any factor to achieve that average level over the next selected period.
For smaller sales staffs the same thinking will apply, but there will be fewer people below average unless there is one person far outperforming the others in which case that one person may be the only one above the average.
In dealing with average performance levels it is possible to calculate the affect on sales and profits of raising performance of those below average to the average level.
By using averages to set future goals for performance you will not ask your top performers to do more and will not ask your low performers to be equal to the top people, just to the calculated past average.
When you’ve achieved this, there will be a new range of performance and a new average to strive to achieve, and the process of continuous improvement will become part of your store’s management culture.
Metrics Reveal Patterns Over Time
When measuring any of the factors in the sales performance equation it is important to know that short-term measurements have less value than those taken over the long-term. There will be anomalies in your business related to marketing, seasonality, promotions, and other environmental influences that can affect such factors as average sale, close ratio, gross margin, add-on sales and traffic in the short term.
People work in set ways. Everyone is comfortable with consistency in their lives, both at home and at work. This always leads to too much complacency and acceptance of the status quo as the best things can be. By measuring all key factors regularly you will begin to understand that:
- The differences among people are due to the fact that top performers do things differently and do different things than low performers
- Over time, top performers remain at the top and the low performers remain at the bottom of the performance rankings
- Low performers are comfortable where they are – even when they are not achieving the income goals they set for themselves
- All people are reluctant to change the way they work, but low performers are the most tenacious in clinging to their set ways.
- People work the way they do because there is no expected standard to follow.
This four part series will conclude with a discussion of how to identify patterns of performance for individual salespeople and manage the process to get the best results from your entire sales team.
Joe Capillo is a 41 year career veteran, experienced in managing and consulting with furniture retail operations. He is also a contributing editor for Furniture World Magazine. He is a contributing editor to FURNITURE WORLD and a frequent speaker at industry functions. See all of Joe’s articles on the furninfo.com website.
Read other articles by Joe Capillo