The Five Variables

1. Number of Sales Calls. The quantity of in-person sales calls you make to all customers. They are the power cells that fuel sales production. (Do not include telephone calls in this figure.) Reflects: Your planning and time management skills.

   For example, four hundred in-person sales calls in a year might indicate good planning. However, whether they are productive calls still needs to be determined by the four other variables.

2. Quote Ratio. The number of sales calls it takes to generate one quote. Taking your total number of sales calls and dividing that sum by your total number of quotes calculates this ratio. Reflects: Your ability to identify market segments that have goals achievable by your products and services. It also reflects both your technical (products) and market segments—that is, filters or systems of evaluations—knowledge to recognize and seize opportunities. The lower the number, the greater your skills.

   For example, you generate 114 proposals. Your quote ratio is 3.5 (400 calls 114 proposals). It took you 3.5 calls to generate a quote.

3. Closure Rate. This is the number of quotes it takes to obtain one purchase order. Calculate this percentage by taking the number of orders and dividing it by your total quantity of quotes. Reflects: Your ability to qualify customers and to obtain and build on the sequence of the MPCs. It also highlights whether you are in negotiated (higher rate) or bid markets (lower rate). Most important, it shows whether you made the order nothing more than the logical conclusion to a series of engineered agreements—the MPCs.

   For example, you sold forty-six orders. Your closure rate is 40 percent (46 orders 114 proposals). You receive orders on four out of every ten sales opportunities you quoted.

4. Average Order Size. The total dollar value of your orders divided by the total number of purchase orders. Reflects: Your technical skills and industry knowledge in identifying customers' goals, measurable benefits, and SOEs rather than just ability to respond to customers' needs or pains. It also illustrates the ability to package products and services.

   For example, your total sales are $1,150,000. Your average order size is $25,000 ($1,150,000 46 orders).

5. Average Gross Margin Percentage. This is the profit level of a sale, which only includes its direct labor, material, and overhead costs. The sell price minus direct labor, material, and overhead costs equals gross margin dollars. Dividing the gross margin dollars by dollars sold gives you the percentage. Reflects: Whether your sales are price- or value-driven. Bid sales represent the former, negotiated sales the latter. Did customers seek low-cost products or did you build goal-oriented and high-value solutions? Did you make the dollar value of Column 2 larger than Column 1?

   For example, if you generated $550,000 gross margin dollars, your average gross margin percentage is 47.8 ($550, 000 $1,150,000).

   Total gross margin dollars sold, as opposed to just total dollars sold, more accurately reflects your ability to have customers compensate you for providing more value than competitors. Do not stop at dollars sold to make any judgments about performance without accounting for gross margins (value).

Managing the Productivity Equation

Set up your productivity equation for the year. Compare your results to each variable. MeasureMax's focus is on the numbers that precede the equal's sign and on improving each variable.

View the trends to determine how your sales, marketing skills, and the effects of any new strategies or training are working (including MeasureMax.) Regardless of whether you chart this information or not, it is beneficial to be aware of how the measurable variables can influence your sales productivity.

Productivity equations also let you review the results of trade-offs. If you make fewer proposals but qualify better, will your closure rate go up? If you make more calls, will your quote ratio become worse? If you work the bid market more, will your closure rate go down but your average order size increase? What happens to average gross margins? The list of questions is endless.

If you keep a sales productivity equation, even an informal one, you have more objective questions to ask yourself. In addition, it gives you the means to perform a test of reasonableness to determine whether your planned selling efforts can achieve your targeted sales results.

Note

Do not fall into an analysis-paralysis trap. The numbers do not provide answers; they only point you to what questions you should be asking yourself about how to improve performance management expectations.

Getting the Process Rolling

As a minimum, use a Q sheet or the Pulled-Through test on your next sales call or proposal that falls under the two-plus category (two or more in-person sales calls, two or more decision makers). Big deal if you only get a few measurable goals, filters, or conditional commitments. So what if you mention specific products during MP 1: Spark Interest or MP 2: Measure Potential.

The real objective is to change your customers' systems of evaluation of value by altering yours. Make the next call or proposal measurably better than the last, and the details will work themselves out. Who knows? You might even classify market segments by the number of goals or filters you make measurable. Let the measurable benchmarks of the sales tools enable you to tap the creative strengths of all your selling resources (marketing group, sales management, other salespeople on your team, and the like).