This article examines the importance of Leading Indicators to your business. Next week, we look at how Salesforce can be configured to track them.
Leading Indicators. One of the most critical metrics to running an effective sales team. For without them, you can’t accurately see why your sales numbers are what they are, or predict what they’re going to be.
One of the big benefits of Salesforce CRM is its ability to track leading indicators. Even out-of-the-box, Salesforce is well positioned to help you and your team track this data, although a few simple adjustments to make it more specific to your business are extremely easy – and strongly recommend – to make. Yet, in our multiple years of delivering Salesforce training for sales teams, we’ve seen enormous reluctance by sales departments to install and track leading indicators. Why is that we wonder?
Closed Won and Closed Lost – Lagging Indicators
What exactly is a Leading Indicator? Well, it’s actually easier to answer this question if we look at its opposite – a lagging indicator – first. Most sales departments are really keen on tracking lagging indicators. We’ve worked with companies using Salesforce that have boatloads of reports with lagging indicators in place. As the name suggests, ‘lagging’ indicators mean something that has occurred ‘after’ other things have transpired. A lagging sales indicator is what happens at the end of a cycle, namely, the closing of a sale.
In Salesforce we track lagging indicators using the Opportunity Object. The Opportunity records your teams create are the most fundamental pieces of data that your salespeople use in all of Salesforce. This is where they get to tell their story – how many deals they are actively working on, and in what stage of the pipeline these deals sit. After an Opportunity is created, it typically moves through a series of stages, each one of them custom to that particular business. Ultimately, at the conclusion of the stages there are really only two outcomes – Closed Won or Closed Lost. Now, the number of Closed Won Opportunities in any given period is a classic example of a Lagging Indicator. It’s the final outcome of a successful sales cycle. The other classic lagging indicator is the actual revenue we can book from those Closed Won Opportunities. And as we mentioned, most sales departments are very keen observers of the amount of revenue closed and the number of deals won. Reams of reports are created showing this data. And it’s not that this information isn’t important…far from it. It’s a critical metric to help determine the overall health of the business. We need this data, and it’s one of the ways that Salesforce is such a useful tool.
But, the number of deals won doesn’t tell the whole story, and in fact, doesn’t allow us to do anything to help impact new, and better results moving forward. For instance, let’s say our monthly sales objective is $1,000,000. Assume too that we had a particularly poor sales month, and our Salesforce Opportunities Won Report indicates that we closed $650,000 worth of deals. Not good, right? So, what are we going to do about this? Well, in the absence of any other data, there’s not much you can do. Other than the usual array of lame excuses from the sales team, we have really no insight into why we missed a number that we know we can hit.
“C’mon guys, we just gotta try harder next month” is the everlasting battle cry of the hapless sales manager. “Uh, OK, boss. I’ll try harder. I promise.” Try harder? What does that even mean? Get up earlier? Work later? Shorter lunches? Draft more coherent proposals? Ugh.
Without any sort of meaningful data to tell us more about what went wrong that led to only achieving 65% of our sales target, we really have no way to make any sort of informed adjustments to our game plan. This is where we need to determine our true leading indicators.
Let’s look at it from another lens. A non-sales related lens. Parents out there will completely get the analogy. Let’s say your child brings home an unusually poor report card. Instead of the typical A’s and B’s, you’re shocked to see a number of Cs and even a D. Yikes. You immediately decide to take action. So, what to do? Well, it doesn’t take a rocket scientist or PhD to quickly assess that there needs to be some changes in study habits. A typical game plan might look something like –
For the next month we are going to agree to:
- commit at least two and half hours every night to your 4 key subjects, 45 minutes each;
- less time – 30 mins max – to TV
- twice a week with a private tutor
- in bed 20 minutes earlier
Seems fairly reasonable, no?
And this is essentially the essence of what we mean by Leading Indicators. 2.5 hours of study time, 30 mins for TV, 2x weekly with the tutor and bedtime 20 mins earlier than before. All of them, highly defined, easily implementable, completely trackable data points.
A Leading Indicator is nothing more than an activity – something we have some degree of control over – that is ultimately responsible for the increased likelihood of achieving an overall objective. Your child’s Cs and Ds are lagging indicators. Once the report card comes home, there’s absolutely nothing we can do to change a C and a D into an A. They’re in the past, history. They’re a direct result of other activities – likely not enough study time, too much TV, and late nights to bed – that all conspired to bring us the result that we got. But what we can do is focus on getting new results for the next report card, and the [way to do it is NOT – “C’mon, we just gotta try harder son.” No, that mom or dad should have their parenting license taken away.
Leading Indicators in Sales – 3 Rules
OK, now, back to the world of sales. What every business should be doing, frankly, needs to do to maximize their Salesforce ROI is sit down and map out what one, two, three, four, whatever the number is, key activities that we know, lead to Opportunities that hit Closed Won. And then they need to determine what the optimal number of those activities in a defined amount of time, likely weekly or monthly, depending on your sales cycle, should be.
Let’s start with the obvious. Prospect meetings. It’s pretty much a certainty that in a traditional selling environment that involves human interaction with your prospect, the key activity will be a meeting with that prospect. When we dive into this a little further, we’ll see that there are three critical factors to consider.
First – there are different purposes for meetings, and your business may or may not need to distinguish between them. We may hold meetings for any number of the following reasons – an Introductory discovery session, a second, third or fourth fact finding session, a meeting to present or demo your solution, a meeting to review a proposal, a meeting to discuss terms and conditions, etc. And it may or may not be important to track whether or not these different types of meetings are happening. For instance, we work with one client and they’ve determined that the single one more significant factor in closing sales is that their salesperson delivers a very well scripted and rehearsed presentation of their solution and what it does, and that other subsequent meetings are really only precursors to this main meeting. They know, from observation and record keeping, that the more presentations their sales reps perform, the greater the number of sales they’ll make. That’s a pretty impressive causal link, and every business MUST, for their own survival, establish a similar link between a key activity or activities and Opportunities marked as Closed Won.
You must determine what are the critical activities that your team must perform that we can directly link to the closing of more sales.
Now, the second thing to consider, is what is the frequency of that activity that we can reasonably expect our salespeople to perform, either on a weekly, monthly, quarterly, or in cases with exceptionally long sales cycles, annually. Here’s the thing about the determining the number – it’s never the perfect answer. BUT – you must determine a singular amount, and live with it, that is, until you don’t. An illustration. You may have decided, like our client, that the prospect demo is the singular greatest contributing factor to more sales. You need to determine what number of demos should a salesperson be expected to conduct each week. It’s simply not effective to just say ‘some’. That’s like saying, ‘just try’. No, you need a firm number. In our client’s case, they determined it to be three per week, recognizing that there is a considerable amount of effort required to get the prospect to agree to these meetings, which in most cases, lasted upwards of an hour. One might ask, would four be better? Well, perhaps. But at what cost? And if not four, then five? Ten? More? Yes, idealistically speaking, more demos would generate more sales, but it ignores the fact that this is simply not achievable by any normal human being, and an unattainable target only leads to burnout and turnover, as many a company has learned.
The reason why a fixed number works so well, is that it is clearly definable and very easy to see whether it was achieved or not achieved. So at the end of the week, it is obvious to all that the salesperson either made the target number, exceeded the target or did not meet the target. It’s black and white, not grey. In the immortal words or Yoda – “Do, or do not. There is no try.” And so, each week, the sales manager and the salesperson can sit down, review the weekly activity targets and make very clear distinctions about whether or not the targets were achieved. And on weeks when the target was not met, devise a plan is to ensure that everything possible is going to be done next week to ensure a reasonable chance at meeting the target. Hence setting a defined activity target allows for a much more effective coaching call between the sales manager and the salesperson. That, my friends, is achieving real Salesforce Adoption!
You must establish a clearly identifiable and realistic target number for a defined period of time that everyone agrees is the objective.
Finally, the third consideration. We must explore and determine how ‘controllable’ any activity is. Meaning, to what degree of control do your salespeople have over that activity occuring. It’s all well and good to say that your salespeople need to conduct three demos a week. We need to remember though that as much as you and the salesperson wants that meeting to occur, we also need the consent of the prospect. They have to agree to attending that meeting, hopefully, with their full attentiveness and interest. And that is just not something anyone can control fully. What can we control then? This is where we need to step back and look at the controllable activities that we need to perform in order to generate one demo. We can control how many times we pick up the phone, leave voice mails, send an email, attend trade shows, run ads, etc. And based on tracking this data, we can, over time, start to see what volume of controllable activities the entire team needs to perform in order to generate the non-controllable key activity, the demo. It should be clear by now, that you really do need to consider multiple activities, even if you ‘re able to convince yourself that there is truly only one key activity that directly correlates to a sale.
You need to ensure that you establish and track a number of controllable activities in addition to your non-controllable activities.
In our next article we’ll explore Activity Management, one of the key benefits of Salesforce and how it works to track leading indicators.
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