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How to use KPIs to manage your sales team

24th Jun 2006
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Setting the KPIs for the CEO is one thing. They tend to be fairly generic. What about someone real, like a sales person. And how do they fit into the reporting system?

If you're a fairly standard accountant you will, like me, find sales people second only in incomprehensibility to marketing folk (the latter because they all seem at least 20 years younger than me now, and talk a language I've never heard). In that case one of the primary goals of the KPIs will be to assist communication. There is no doubt we accountants aren't good at that, so the critical role KPIs can play in this is to help us determine what information anyone needs to fulfil their objectives. I think it is essential to bear this in mind.

Yet not all the sales person's objectives will be financially focussed. When I've been responsible for sales teams my first desire has always be that they are competent. By that I don't just mean that they can close a deal (although that helps).

I want them to really understand what the rest of the company does, how it works, when it can deliver product and what that product really costs. So my first goal for any sales person is that they understand this. The related KPI is that they can demonstrate that they have undertaken sufficient time on training courses and in internal communications.

The standards that will be set will almost certainly be related to time allocation by the salesperson. This might not seem like an accounting issue in the first instance - but it is if you're responsible for preparing KPI reports. The question you need to ask is whether you have got central diary and time recording systems (which might just be Outlook) that let you establish what has been done by each person subject to such a reporting indicator? If not, it's time to look at this.

Inevitably some of the other KPIs of the sales person will be much more financially focussed. All sales people seem to need targets and these are bound to be their KPIs. But, they must suit the goals of the company, so that just setting a sales figure is not enough. It may be that targets need to be set on:
1 absolute sales value;
2 sales mix;
3 total discount from list price.

These cover conflicting objectives for the company. For example, I intensely distrust setting a sales target for absolute sales value alone. After all, anyone can sell £1 coins for 90p, and in extremity, that's what sales value alone encourages.

Sales mix seems vital to me. It gives some direction as to what the company wants sold. Of course it would be crazy to stick to the target in the face of clear customer demand for one item over another, but in most cases sales don't come that way - they happen because an item is promoted, and the company needs to control that process by setting sales mix targets.

Finally the discount point seems obvious - it avoids the tendency for any salesman to take the risk of selling consistently at a loss. But note that it is a total figure, not a discount per item. That means the sales person has the flexibility to offer a loss leader if they need to so long as they make it up elsewhere. Empowering fairly strong headed people (and most sales people are) in that way is important. They feel good when they can make decisions like that, and that's essential if you're going to keep them.

But the issue for the accountant is this: can you identify all these issues in your accounts/CRM system? If not, what can you do about it, because they're what is needed to keep a sales team focussed, and the last thing you want (and I've seen it too often) is the sales team working off one system and the accounts off another.

I happen to think the KPIs for a salesperson don't end with these four items. There are two more I think important. The first is debt recovery. In my opinion a sale is not complete until the cash comes in. If it doesn't arrive within, say 60 days, two things should happen. First the sales person should be on notice to get out there and collect the money. The next thing is that if they haven't done so within 90 days then they should lose the commission on that sale. Again, have you got the systems to do this?

Finally, there's the issue of new lead generation. In some businesses this is done by quite distinct teams and the leads are then fed to the sales team. But even if that is done I think a salesperson who is not looking for new opportunities when they are out and about is not doing their job.

So a KPI for leads generated is needed. But be careful. I went to a company once where lead generation seemed to be the only thing that mattered - and they sent a rep 300 miles to visit a one man band in a Portakbin in Blackpool. He got his commission on a wholly fruitless visit of no benefit to the company - and I pretty rapidly suggested a change in the commission system so that a range of objectives were covered, as is appropriate.

So, there's a sales person with six KPIs, and a reason for having them. What's the difference between theirs and the CEOs? For the salesperson, the KPIs and their personal goals are closely related. For the CEO the link was more esoteric, the KPI being an indicator related to the goal but was not the goal itself. This is commonplace. By and large the higher up the management hierarchy you go the link between the goal and the KPI is less obvious at first glance (although, one hopes, apparent upon reflection).

But in both cases for the accountant the message is clear. Not all KPIs are financial, and even when they are, they're unlikely to be stuff that falls straight off conventional management accounts. That's why the art of good management reporting means the accountant has to move way out of their conventional comfort zone and requires a clear understanding of what the business and the players within it are really all about.

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By David Carter
29th Nov 2005 14:15

pls get in touch
Rick, you mention your sales and marketing package and the problems that some (male) sales managers have with it. What's your package please?

PS agree with you entirely on the UK's attitude to selling. To see a great salesman in action is a joy.

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