What is a Sales KPI, and how are they used?

Incentives Featured

Key Performance Indicators (KPIs) are widely used to measure anything from sales targets in a professional setting, to personal goals in our everyday life. Whether you call it targets, goal setting, or KPIs, the intention is the same, to hold yourself and/or others accountable to achieve a larger goal or reach a set benchmark.  

While it’s easy to keep track of our own personal goals (or so we’d like to think), keeping track of professional KPIs, particularly within a sales team or large business, can be daunting, confusing and often lead to failures. That's why seven years ago when Kademi was challenged to build a sales incentive program for Mercedes Benz, we developed our sales incentive software, making it easy for our customers to incorporate KPIs into their channel incentive programs.

If you’re pondering the question “what is kpi in sales”, and need a quick crash course, you’ve come to the right place. Let’s take a look at what a sales KPI is, its components, and a few business use cases.

Sales KPI examples

KPIs are measurable values used to track progress towards a target or larger goal. Let's look at a few examples.

Scenario 1 - measure sales channel performance 

Your business sells a product to another company (channel partner), and you want to track your partners progress towards sales targets each month. You do this because you need to see how your channel performs relative to your sales forecast.

Scenario 2 - measuring customer service

You provide after service sales support, and want to measure if your support teams are hitting their 85% CSAT (customer satisfaction score) set by the business, and if they’re not, do something about it.

The components of a KPI

Let's take a look at the different components that come together to calculate a KPI.

Data Sources

Often overlooked initially, but when calculating a B2B sales kpi, you need to consider where your data comes from to measure progress towards a target. For example, if you're tracking progress towards a sales target, you'll need a regular feed of sales data.

Units

Units are used to record the values you need to track a KPI, and can be anything from dollars to time, or even numeric values to record eLearning module completions or a CSAT score (customer satisfaction score). 

Metrics

A metric is a system of measurement used to calculate progress towards your KPI target. Here are a few examples:

  • Count: a simple way to measure progress towards a target by counting the number of something, for example, the number of mobile phones sold in a given month. 
  • Percentage growth: a good example of percentage growth is when a company wants to track the percentage growth of sales in a current period over a previous. 
  • Sum: can be used to sum sales; for example, you might record 100 sales in a month, but the total value of all the sales records summed might be valued at $250,000.

Targets

For a KPI to work, you need to set a target representing the end goal you want to achieve. Here are a few examples:

  • 25% sales growth 
  • 250 laptop computers sold
  • 25 deal registrations
  • 50,000 dollars of goods sold 
  • 50 support requests completed
  • 10 eLearning module completions 

Periods

To measure a KPI and show meaningful progress towards a target, you have to set a realistic timeframe in which you want someone to achieve a target. For example, you might run your KPI program over a period of 12 months, but use 4 quarterly periods giving participants the opportunity to hit their target four times.

Rewards

And finally, let's not forget the dangling carrot! Ask yourself the question, what's in for the participant, and what will motivate them to achieve their target. Rewards could include awarding sales commission or points in a B2B loyalty program that can be used to purchase merchandise from a reward store.

KPIs in action

Let’s look at how to measure kpi in sales using a percentage growth metric, a common strategy used in an incentive program.

In this scenario, company A wants to incentivize company B to sell more of its product each month, and to do this, it tracks and rewards percentage growth in sales.

  • Data source: sales data provided by company B
  • Units: dollars
  • Metric: percentage growth
  • Target: 25%
  • Period: monthly
  • Reward: 500 points 

To calculate the increase:

Then calculate the percentage increase:

In this example company B surpassed its sales kpi target of 25% and achieved a staggering increase of 50%! 

Calculating a KPI doesn't have to be difficult, and that’s where Kademi comes into play. Using our sales incentive features we make it easy to set up and configure any number of KPIs, then build secure portals where your partners can view each of their KPIs and how they are tracking towards their targets each period.

KPI strategies to consider

Choosing the right KPI in a sales incentive program can mean the difference between success and failure, so before you do anything, ask yourself a few questions.

Who are you targeting?

This is important because it will establish the mechanic behind the KPI. For example, if you're targeting sales reps, you might track progress towards a dollar amount. On the other hand, if you're targeting after sales support employees, you might use a Customer Satisfaction Score (CSAT) to measure progress.

What is a realistic target?

It's easy to shoot for the stars and set unrealistic targets participants might not achieve, so before you do, ask yourself what a realistic target might look like. After all, if your participants hit their targets, it's a win for them and a win for you!

Take a scenario where a manufacturer incentivizes dealers to sell its product to consumers. Dealers can come in all shapes and sizes, so launching an incentive program using an absolute monthly sales target of $500,000 might be unrealistic for smaller dealers to achieve. 

To make the program fair for everyone, you could consider a percentage growth target that incentivizes dealers to sell more product in a current period over a previous period. This approach nurtures each dealer to improve their own performance and increase their sales incrementally.

What is a realistic timeframe?

KPIs are about nurturing participants in an incentive program to achieve a goal. It doesn't make sense to run a B2B sales KPI for an extended period of time, if you do, your participants might become demotivated, lose interest, and never reach their goal. 

Be tactical and pick a timeframe that allows your company to measure change over shorter periods, for example, monthly or quarterly. This way, you can reward success regularly, keep your participants engaged, and track changes in performance - allowing you to address performance-related issues. Of course, if you have a larger end goal in mind, you could run a parallel KPI over what could be a 12 month period.

Ready to jump in and try KPIs?

If you're interested in using KPIs in your next incentive program, contact Kademi for a demonstration