Sales – it drives all organizations from roadside stands to mega conglomerates. It’s abundantly clear that tracking your sales is important, but why?
There are a number of reasons why sales metrics are critical to growing and maintaining your business. Chief among them is the ability to create better financial plans, including our favorite reports – cash flow forecasts.
I want to acknowledge that it’s easy to get bogged down by the sheer amount of data you can generate from monitoring your sales function. After all, most of the articles out there simply list all the potential metrics you could run, and there are a metric ton. Remember to keep it simple by identifying and sticking to your KPIs to avoid analysis paralysis.
KPIs and Sales Metrics
First, let’s dive into a little how-to background. To determine if the company’s sales department is doing well we need to analyze some data. In general, the data used can be everything from average times, sales revenues and costs, and obscure information like the number of emails sent.
The key is to determine which of the hundreds of potential metrics will give you the best information based on available data. The difference between a metric and a Key Performance Indicator (KPI) is a KPI is a specific metric that provides information on your company’s goals and objectives.
Many companies use CRMs (customer relationship management) and sales monitoring software programs to help collect the data for KPIs and sales analysis automatically. This software creates dashboards that help management teams quickly view how their sales teams are performing at any moment. Many of the programs also calculate KPIs and metrics with the click of a button.
Interpreting Sales KPIs
Once we have generated metrics and KPIs, it’s time to analyze what all this information means. This is the crux of why we monitor our sales force. When we get our hands on these numbers, we can use leading and lagging indicators to adjust our controllable actions to improve our sales numbers and, ultimately, our cash flow.
Leading indicators predict future results but can be challenging to predict. However, when used, leading indicators provide wiggle room to influence outcomes. For example, Pipeline Value tracks expected revenue from active sales opportunities as if all sales will be closed in the best-case scenario. Reviewing this KPI will allow you to determine what stage deals are in and if the sales team needs to do additional prospecting to hit their sales target for the period.
Lagging indicators are based on what has already occurred, so there isn’t wiggle room anymore. But these KPIs do provide information on what is going well and what could be improved. For example, Average Profit Margin measures the average profit made on all sales channels in a period. It’s a vital KPI because if your sales team is selling products at too deep a discount or your products cost more to make than you are earning, changes need to be made.
Monitoring your sales department is critical to generating good financial forecasts.
Sales Monitoring and Cash Flow Forecasting
Good cash flow starts with good forecasting. One of the key ingredients to creating the most accurate cash flow forecast possible is knowing what’s happening in the sales department.
We’ve previously written about the benefits of using cash flow forecasts. Forecasts can help predict hiring and investment needs. Sales metrics can even help determine if more motivation or direction needs to be given to the department to help move the business forward.
As your business grows, it’s common that sales may outpace the cash-on-hand for production to fulfill orders. Sales monitoring allows us to foresee and plan for these cash shortages and arrange financing to cover the gap. The greater our lead time, the better our terms and options will be.
Sales Monitoring Results and Uses
A clear understanding of how your sales team is functioning is essential to planning and executing company goals. This starts with spending the time to track, analyze, and interpret sales data.
If shortfalls in cash are predicted, you can rely on Liquid Ally to assist your business. With over 25 years of experience, I work with my clients to help identify areas for improvement. We can assist you in getting a great factoring package or Asset Based Line (ABL) to cover cash flow gaps and additional funding packages to help invest in your company’s growth.
To discuss how Liquid Ally can turn your cash flow shortage into an opportunity, call me for a Complementary Liquidity Assessment. We’ll discuss how your sales KPI might be impacting your cash flow and where funding may offer some relief.