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.
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 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).
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.
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
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.
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: