What Is Sales Efficiency And How Can You Improve It
The business world is dynamic, and every business strives to improve constantly in order to grow - improve its marketing efforts, improve its processes, improve its sales and improve its bottom line. Improving sales can mean many things, and while improving sales effectiveness is highly important, so is improving sales efficiency.
The business world is dynamic, and every business strives to improve constantly in order to grow - improve its marketing efforts, improve its processes, improve its sales and improve its bottom line.
Improving sales can mean many things, and while improving sales effectiveness is highly important, so is improving sales efficiency.
What’s the difference between sales effectiveness and efficiency? It’s quite simple, really:
Sales effectiveness is all about how successful the sales reps are at converting prospects into leads and customers. When a sales process is effective, the business will generate more wins at every stage of the process.
Sales efficiency is about how fast a sales team converts prospects into leads and then customers. Sales efficiency is calculated by the revenue the sales team generates divided by the costs it incurs, such as training costs, salaries, benefits, etc. Or in the words of serial entrepreneur Anna Talerico, sales efficiency is “the metric everyone knows is important, but no one talks about.”
So, let’s talk about it.
Sales Efficiency Ratio
Sales efficiency, also known as the Magic Number, is usually measured within a specific time frame, normally a quarter, and “can be calculated by taking current quarter new revenue annualized, divided by prior quarter sales & marketing expenses,” as per Talerico.
The sales efficiency ratio is calculated as follows:
—----------------- X 100 = Sales Efficiency
Sales & Marketing Costs
For example, if a sales team generates $10 of gross revenue in the second quarter and spends $10 on sales and marketing in the first quarter, the sales efficiency ratio is 1. If you generate $5 in the second quarter and spend the same $10 in the first quarter, your ratio is 0.5.
A ratio of 0.5-1 is good and indicates that the marketing and sales efforts are efficient but that it still takes too long to cover sales and marketing costs. On the other hand, a ratio of 1 and greater indicates highly efficient sales and marketing and that the business reimburses sales and marketing costs faster.
Why Sales Efficiency Is Important
Unfortunately, not enough businesses pay attention to their sales efficiency, even though it’s a crucial metric that can indicate whether the sales strategy and processes are actually working.
The sales efficiency figure can uncover very deep systemic issues and help businesses understand whether or not their sales efforts are sustainable.
Once you dig deep into your sales operations, you can determine if you need to cut expenses, adjust sales quotas or improve on anything else that’s preventing growth.
How To Improve Your Sales Efficiency
Here are 5 ways that can help you improve your sales efficiency.
1. The basics: define your goals and KPIs
As always, before you do anything else, make sure your business goals are clear and define how you intend to measure success. Without clarity, it will be almost impossible to improve your sales efficiency.
Let your sales teams know exactly what’s expected of them and understand what they need to focus on.
The best way to do this is to use SMART goals:
- Specific - what are your specific goals, and how exactly do you intend to achieve them?
- Measurable - how will you know if your goals were achieved?
- Attainable - are your goals realistic and achievable?
- Relevant - are your goals aligned with your long-term objectives and strategy?
- Time-based - what is the end date to achieving your goals?
For your sales reps, the most important metric is Measurable because this helps them understand the KPIs they need to focus on.
2. Know your customer
Creating clear buyer personas helps your sales team understand who they are targeting and how they should reach and interact with them.
Make sure your sales reps know:
- Who the customer is
- Where they live and spend their time
- What are their needs and pain points are
3. Work with a clear sales process
Outlining a consistent sales process is essential if you want your sales efforts to be streamlined and efficient. A sales process is basically a set of steps that sales reps take to move a prospective buyer through the customer journey, until the actual purchase.
A sales process usually consists of the following steps:
- Prospecting. Use your buyer persona data to know where to find your ideal prospects.
- Research. Understand your prospects' needs and how your product or service can be the right solution for them.
- Presentation (demo). Interact with your prospects, use winning sales playbooks and always make sure you have relevant sales content at hand.
- Handling objections. Be well prepared so you can answer all questions and concerns the buyer may have. Use enablement tech that makes it easy to find and access any content or information you may need in real-time.
- Closing. When the sale is made, salespeople need to know what paperwork and details they need to take care of to close the deal.
4. Train and coach
Seeing as business is a very dynamic environment, coaching sales reps should be an ongoing activity.
Another option would be using a sales enablement tool that allows reps to clearly view all their demo stats, including previous ones so that they can clearly see what they need to improve and where they succeeded.
5. Make sure your sales and marketing teams are aligned
Naturally, the marketing and sales departments are interconnected. Sales needs marketing for the leads, while marketing needs sales to clarify who is the buyer persona and how to reach them.
And still, in many companies, the sales and marketing departments operate separately and don’t communicate, which makes the entire operation inefficient. For example, sales may be using irrelevant content, and marketing could be reaching out to the wrong buyer personas.
Using the right sales efficiency software, companies can make sure that all the essential and relevant data and content is streamlined and easily accessible to all, that notes and important information are instantly synced to the CRM in real-time.
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