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Sales Productivity-Best Example of KPI
Evaluating sales people purely on the sales they generate can produce distorted results. Salespeople by their nature seek at maximize sales with the least path of resistance. That could entail sacrificing gross profit margins, trading terms, delivery and other "deemed" incentives. To review those financial statements knowing your sales have increased only to find that profits have been eroded can be quite deflating. Worse still finding those results months after then event through traditional financial reporting. It is important to gauge the real effectiveness of your sales people. And that real effectiveness can only "be real" if your reporting system encompasses some form of on time, real time key performance monitoring.
Reporting sales and even gross margins for a business doesn't go far enough. Your sales people need to be accountable at the individual level. What does it cost to get that sale and what profit do each of your sales people contribute to the operation? High flying, high volume sales people, the ones that seem to get noticed more, can quite often be the under performers when the 'sales profit' bottom line is determined.
So what do we need to calculate to determine this metric?. Obviously, sales and variable product costs, as well as all those costs the individual sales person incurs in pursuit of a sale. That would include salary and on costs, vehicle costs, phone and communication, entertainment and travel.
Common costs that are consistent between sales people can be ignored, for instance, if they all have the same costs is term of vehicles or phones. This will still provide a consistent benchmark. If those costs vary between sales people then they need to be accounted for.
The 'sales per person' key performance indicator is simply calculated as follows: Gross revenue less the variable product costs of the sales then divide by the sales person's expenses. This will give you a sales productivity ratio that you can consistently benchmark individual performance.
For instance, Sales of 100,000, Product costs run at 70,000 and salesperson cost of 15,000 will produce ... 30,000/15,000. A factor of 2. You would compare productivity between your sales people, the higher the factor the better sales person.
When thinking of developing your key performance indicator it's always wise to consider the end user of the metric. If using the metric above provides a measure that is difficult to relate to then simply subtract (instead of divide) the sales persons costs and come back to a dollar value of sales person's contribution. In the above example 100,000 - 70,000 - 15,000 = $15,000 is the individual's profit contribution.
A word of caution. Always look at consistent recurring sales. Sale that require no sales effort may need to be deducted in your determination of sales. The rational is that sales people need to create sales and not rely on residual recurring sales from previous engagements.
Whatever measure you use is not important as long as consistency is applied in the calculation of the metrics. Ezzykpi.com provides the calculation capabilities to ensure your metrics are consistent and timely. Try it for free.