The importance of sales metrics for small businesses

sales metrics, KPIs
KPI – Key Performance Indicator mind map flowchart with marker, business concept for presentations and reports

COVID-19 and the ensuing economic recession have turned “panic mode”, that many business owners (myself included) entered in March, into status quo. When responding to new external and internal forces daily, crucial business metrics can take a back seat. It’s easy to “go with your gut” but now, more than ever, sales teams must double down on data to evaluate and respond to the constantly changing business conditions.

On top of the more obvious metrics to monitor – including overdraft balances, cashflow, accounts payable and accounts receivable – a sales pipeline dashboard is just as important to understand where your next dollar is coming from. Building the right set of metrics provides adds predictability as to what’s ahead, and allows business owners to identify potential cashflow crunches early on.

Here are some of the fundamental metrics all small businesses should be looking at:

Net new leads

Knowing the traffic volume at the top of the funnel is critical. In a slow month, this helps provide early indicators of how many leads you’re getting and refocus your sales team to make sure they’re getting more potential business through the door. In a busy month, resources should be assigned effectively to ensure all leads are handled quickly and efficiently — no more wasting time with tyre kickers.

The net new leads metric is also the basis for adjusting marketing spend, and understanding which months of the year yield the strongest lead volumes. With this, businesses can be ready to jump in and capitalise on the strongest seasons, adjust for the current climate, or plan ahead for the quieter times.

Lead conversion rate

This could be a percentage of all deals that end as “won”, or a variation. Some examples include all quotes sent versus quotes accepted or all inbound enquiries versus booked business. Understanding your conversion rate to revenue is important to understanding business’ health, the performance of your sales teams, the quality of your service and your business’ competitiveness in the market.

Average revenue per customer

Often known as ARPU (average revenue per user, or account) in the software industry, this metric helps businesses understand and quantify their customers from the top-down. This could be anything from the average sale amount or revenue per customer or a variation.

Though some suggest this is a vanity metric, in a small team it is critical to keeping the sales team focused on the right opportunities, and targeting the types of customers who will yield strong revenue results.

When the average sales amount trends down, it’s an early indication that the business needs to refocus efforts towards the customers who have bigger budgets or are more responsive to upsell efforts. It may even trigger a broader review of existing product offerings.

Customer churn and winback

A lot goes into winning new customers – so closely monitoring how long they are retained over time, and why or if they leave, will help build a stronger bottom line.

Understanding the why of customer churn is vital, too. This means being prepared to speak to leaving customers and ask what you could have done better or differently. While this is a qualitative measure, it helps you pick up on trends across the business that will help inform your strategy going forward.

Running any business requires proactive buffering against daily uncertainty and change – now in particular. But, tracking the right metrics and building them into the daily scan of the numbers can help create an agile, fit-for-purpose sales strategy and team. Over time, the benefit to cashflow will be pronounced.

Mark Tanner, Co-founder, Qwilr