Tech Bytes & Insights

AUTHORS

Jason_Bell_11099_headshot.jpg
Jason Bell
Associate Principal,
ZS
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John DeSarbo
Principal,
ZS
Kyle_Heller_thumbnail-1
Kyle Heller
Associate Principal,
ZS

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How Using the Right Sales KPIs for Different Business Models Can Fuel Growth

Posted by ZS Editors on Mon, Mar 25, 2019

 

2977_SM_focalsalesKPI_Blog (1)-1Sales KPIs are a valuable tool for companies to map their progress, but determining which ones will be most effective for your organization can be a challenge. Changing buyer behaviors add to that challenge, particularly in technology, where shifting business models often allow customers to pay as they go. However, by choosing KPIs based on their business models and revenue profiles, companies can align the entire sales engine for success. We caught up with Sean Moran, associate principal and leader in ZS’s private equity and middle market growth practice, to discuss the process and how to achieve organizational alignment through KPIs to meet overall company goals.

Q: Each company can be fundamentally described by how it earns money, its revenue profile. Based on the specific company revenue profile, which will vary across a PE portfolio, firms should hone in on a select few KPIs to monitor, build internal capability and drive financial outcomes. How does this process work, and how does it benefit growth?

A: It starts with an understanding of the basic pieces of what matters in the commercial value creation process. Everyone knows and cares about the ultimate financial outcomes, the bottom line, but there’s less clarity on what drives that from the sales organization. Companies need to do a better job of that, and that’s about peeling back the onion so that you can get a sense of why outcomes are the way they are, and more importantly, what the future will look like.

To do that, there are four basic categories in the commercial value creation process: activities, new business acquisition, customer expansion and financial outcomes. Within those, you need to figure out what matters and how much each of these matters, according to your revenue model. There are three major buckets of recurring nature of revenue: high end (transaction processing, SaaS and subscription services), medium (license and maintenance, repeat services) and low end (project-based or retail purchases). If you break down the revenue model using the four stages of the commercial value creation process, you can start to hone in on things that matter. It’s about focus: figuring out where on the grid matters for you, understanding what good looks like and tracking against that.

Q: As many technology and service companies shift from one-time or license revenue models, to pure subscription models, and ultimately to flexible consumption models, where customers pay for only what they use, what impact will this have on choosing KPIs?

A: The consumer-driven shift to pay-as-you-go models will push the emphasis on customer success. It’s not enough to acquire the customer, you also need to put an equal emphasis on enabling the adoption of the offering and expansion. End-to-end focal sales KPIs — which may include first-time appointments, trials initiated, ratio of lifetime value to customer acquisition costs, share of wallet and monthly recurring revenue — can guide that focus and make sure that you’re balanced in your commercial focus and maximizing your return.

Q: What should firms do in the first 100 days following a change in ownership to cleanly and clearly focus on the right sales KPIs?

A: When there’s a big change event, you want to align on where growth will come from: which segments, customers or geographies your team should focus on. Your revenue model can help you set clear KPIs in the first 100 days to help the full team quickly coalesce around a plan, understand what their personal role is right away and how they will be measured along the way.

Q: How do the motivational tactics, rewards or incentives you would recommend for sales teams tie to these sales KPIs?

A: Simplicity is key. For each role, you need to understand which specific KPIs they’re primarily responsible for – new business, offering expansion renewals, and so on – and align incentives to those. If there’s one role doing many things, you have to reward each activity accurately. Money still talks, and people will focus on what they’re getting paid most for.

Q: How can different departments within your organization get on the same page about which sales KPIs matter to achieving your overall goals?

A: Get the different stakeholders that impact sales KPIs involved as early as possible and synched up about what matters. Most modern B-to-B buying includes many customer touchpoints that impact sales KPIs: not just sales, but technical services, support, marketing and lead gen. Sales can’t do it alone, they need to work with the other departments. Keep them informed and bought in as you go on the business goals and whose role it is in every step of the process, so the KPI breakdown includes ownership and accountability across the team.

Q: What types of outcomes can firms expect from choosing the right KPIs?

A: KPIs alone are never enough. They’re an important starting point, but you also have to have the right growth priorities, engagement model, role definitions and capabilities, sales management, oversight, coaching and incentives aligned to the right KPIs. Any breakdown in any one of those things, and you won’t see the uptick you want to see in the KPI. But, the KPI is a mission-critical thread through all of this: it helps you know what your goal is and measure that goal in clear steps.

In our experience, companies achieve 10-15% profitable revenue lift with a focus on multiple sales force effectiveness levers, sales KPIs being one of them. Sales KPIs show you if the plan is working or not, to help you either shift focus or double down on the investment early, so that substantial changes in the growth trajectory can be achieved two to three years down the road, if not sooner. Companies also are wondering ‘what good looks like,’ and that varies by revenue model, size and maturity of the company.  While we’ve helped with comparable companies with similar revenue (in particular, public companies), ‘what good looks like’ is often most easily addressed through internal company benchmarking, looking at what you’re doing on the focal KPIs, and bright spots achieved, and tracking improvement against those baselines and bright spots.


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Topics: sales incentives, High Tech, private equity, KPIs, sales KPIs

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AUTHORS
Brandon_Mills-10924_headshot_small
Brandon Mills
Manager,
ZS Associates
Jason_Bell_11099_headshot.jpg
Jason Bell
Associate Principal,
ZS Associates
John_DeSarbo_thumbnail
John DeSarbo
Principal,
ZS Associates
Kyle_Heller_thumbnail-1
Kyle Heller
Associate Principal,
ZS Associates
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