What is sales efficiency?
Before we dive into how to improve efficiency, it’s important to understand what the term means. Sales efficiency measures the speed of your sales team during a specific time period. It’s one of the most important sales operation metrics to track as it also helps leaders identify how much it costs to close a deal.
How to measure sales efficiency
Measuring your efficiency is simple if you follow the sales efficiency formula. First, you need to gather these numbers:
- The gross revenue earned during the amount of time you want to track, such as a quarter or fiscal year
- Sales and marketing expenses including salaries, training, and tools from the same time frame
Once you identify both figures, divide the gross revenue by expenses to calculate your overall sales efficiency metric. For example, if an organization generates $3 million in revenue and spends $1.5 million, the sales efficiency calculation is 2 or 200%. This is also easy to calculate for individual reps, a group of new hires, and entire sales forces.
Sales efficiency vs. effectiveness
Sales effectiveness measures seller performance throughout the sales cycle. Organizations need to track a number of different sales metrics and KPIs in order to measure effectiveness. These include lead conversion rates, win-loss ratios, and quota attainment. So, the more effective a seller or team is, the more conversions and wins they’ll have at each stage of the pipeline.
While sales efficiency and effectiveness aren’t the same thing, it doesn’t mean that organizations should focus on one over the other. Instead, sales leaders should leverage efficiency and effectiveness in order to reach business goals.
Why sales efficiency matters
If an organization’s efficiency is stagnant or declines from one quarter to the next, it’s an indicator that there’s a problem with your existing sales process. As a result, sales leaders should investigate what’s working and where there’s room for improvements.
Additionally, sales efficiency directly correlates to an organization’s revenue. Efficient sellers have the resources they need to interact with buyers, answer questions, and close deals more quickly. As a result, organizations can expect to reach quotas and revenue goals. However, organizations with lower levels of efficiency have longer sales cycles and require sellers to put in more time and effort to close a deal. Therefore, they’ll likely experience lower profits and slower revenue growth over time.