Top 12 Quote-to-Cash KPIs

Transcription

1 Top 12 Quote-to-Cash KPIs Key Metrics For Growth That All Leaders Should Be Measuring Executives responsible for meeting the company s financial objectives need early warning signs and hands-on control mechanisms to deliver on quarterly commitments. Everything they need to know is housed within their Quote-to-Cash processes. Yet a majority of companies don t have an effective system in place to measure significant KPIs across different department and different stages of the customer relationship. Quote-to-Cash is the vital end to end process between the buyer s interest in a purchase and the realization of revenue, encompassing quotes, contracts, billing and revenue collection. When these elements are treated as siloed, independent processes, executives lack the necessary insight, exposing their organization to operational efficiencies and financial risk. This paper outlines critical Quote-to-Cash metrics your company should measure in order to accelerate revenue delivery and eliminate surprises by providing high-impact insight into how your company is performing. You will discover unique Quote-to-Cash dashboards, performance indicators and simple but powerful what-if tools geared for executives to efficiently and effectively meet financial objectives. These insights are the keys to unlocking numerous benefits such as greater sales productivity, increased profitability, and higher customer satisfaction. APTTUS Corporation apttus.com US: (650) EMEA: +44 (0)

2 The following key performance indicators are organized by the three major components of the Quote-to-Cash process, as pictured below: Quoting (CPQ) KPIs With Configure Price Quote (CPQ) automation, managers can define what a good deal looks like including discount level, product, status, customer restraints and required approvals to ensure reps deals are aligned with important company goals. 1. Average Quote Value Average Quote Value (AQV) is a key benchmark for the effectiveness of your sales efforts. Companies using sales promotions should use this metric to both reduce sales discounts and improve performance on upsell and cross-sell opportunities APTTUS 2

3 Sum of all Quote Value / # of Quotes Generated To increase your understanding of performance across the business, measure AQV across various dimensions, such as: Sales Representative, Sales Region, or Channel Product Line Promotional Item / Bundle Opportunity Sales Stage Customer Type 2. Percent of Opportunities Quoted Another effective measurement is Percent of Opportunities Quoted (POQ). With a greater understanding of quoting performance, you will increase sales forecast accuracy, gain control over at-risk deals, and avoid unexpected surprises at the end of the quarter. POQ is calculated using the number of opportunities quoted compared to total opportunities. # of Quoted Opportunities / # of Opportunities Gain insight to drive action by measuring POQ by various dimensions such as: Sales Representative, Sales Region, or Channel Week or Month Opportunity Sales Stage Quote Version / Last Quote 3. Discount Performance Trend Insight into your discount performance will allow you to analyze which discounts are effective as incentives, and which are excessive and, are costing your company money. You can then better define discount rules, automate approvals and ultimately improve your discount performance. Small 2014 APTTUS 3

4 improvements in discount performance can have a significant impact on your bottom line. Avg. {(List Price Net Price) / List Price} Gain additional insight into Discount Performance by viewing by various dimensions including? Sales Representative, Sales Region, or Channel Discount Level by Competitor By Date Discount Level relative to a Target Discount 4. Time to Quote, Quote Cycle Time In many cases, generating a quick, accurate quote can be the difference in beating out a competitor. Measuring the quote cycle time will help you understand where you experience delays that complicate your quoting process, and thus, how to improve it. Cutting down your quote creation time will improve close rates. Things to keep in mind while tracking cycle time include your budgetary quote process, approvals, and internal service level agreements (SLA) between sales and pre-sales. Time (Quote Request) Time (Quote Generated or Quote Approved) + (Quote Generated Quote Submitted for Approval) Learn more about quoting efficiency by measuring cycle time by: Product Line Sales Representative / Sales Region Quote Type Price, Margin, and Product Mix Approval Types 2014 APTTUS 4

5 Contracting KPIs The clauses within contracts are inundated with business critical governing terms. Start and end dates, payment terms, SLA terms, customer support levels, warranty periods and agreement values are all conveyed in your contracts. Having insight to these line items is not only critical, but can dramatically simplify everyday business for your legal, finance, sales, and executive teams. 5. Contract Cycle Time Contract cycle time often is a key point of friction between Sales and Legal. Sales places a value on speed, and want to dot the I s and cross the T s as quickly as possible to get the deal on the books. Legal however, has an obligation to be as thorough as possible in defining the terms and mitigating the risk. That being said, most Legal departments benefit by improving their responsiveness and efficiency. Insight into this KPI helps identify bottlenecks and root causes of delayed contracting cycles. It also helps organize efficient approval routing and sequencing across the cycle. Cycle time = total elapsed time to move from the beginning to the end of the process Measuring by the following dimensions will increase insights to drive action: Average Cycle Time by Contract Stage Max / Min Cycle Time by Contract Stage Average Cycle Time by Contract Type Volume by Contract Type 6. Deviation from Standard / Preferred Language Deviating from the standard language increases exposure to risk and can contribute to delays in contracting. Understanding which agreements are used and how, often helps hone in on what is 2014 APTTUS 5

6 successful and curb contracts that diminish a strong position for your company. Ways to limit deviation include educating employees, providing incentives, and approvals. Compliance ratio = non-standard contracts / total contracts Gain additional understanding by assessing Compliance ratio by Contract Type Clause Usage 7. Risk Levels / Required Escalations Legal is often asked to see around corners and manage risk for the organization, but when they lack visibility, it s nearly an impossible task. Because contracts define the obligations for the business, knowing what you re responsible for is critical. Steps to limit the risk include increased use of standard templates and clauses as well as closely managed workflow and approvals. For instance, setting an automatic escalation on any deals over a $1M threshold or any agreement with a duration of more than three years. Develop a simple numeric rating based on values for High, Medium, and Low risk. Risk Rating = (Attribute x rating) + (Attribute x rating) + n 2014 APTTUS 6

7 Add additional understanding Dimensions to measure by: Average Risk Rating by Contract Type Min and Max Risk Rating by Contract Type Required Escalations by Risk Rating Tier 8. Resource Utilization to Contract Value This KPI provides insight into inefficiencies in the contracting process. It highlights breakdowns in resource utilization specifically how often high cost resources are utilized on low value contracts; as well as the source and frequency of costly escalations. Common remedies include implementing a selfservice wizard or deal desk as two ways to help get your arms around this metric. Develop a simple rating to track the amount of time by each type of resource based on an estimate of their hourly cost. For this metric, the numerator should be small relative to the denominator. Ratio = $ Spend / $ Contract Value Like the metric above, additional insight can be gained by measuring: Average Spend by Contract Type Min and Max Spend by Contract Type Revenue Metrics In an increasingly service-based economy, growth relies on your ability to close deals not just with new customers, but within your customer base as well. You need to ensure your customers maintain a positive impression of your business once they buy, which requires excellent customer service and flawless deal execution. While organizations often invest a lot in their sales and contracting processes, sometimes the invoicing, billing, renewals, and order delivery experience is overlooked, to the detriment of the customer relationship APTTUS 7

8 9. New Logo Ratio Companies all over the world like to display the logos of their customers. It s a way to honor the customer and demonstrate their own success. Tracking new customer logos as a ratio to existing logos is important to understand the effectiveness of sales efforts and forecast revenue accurately. Sales to existing customers are predicted more accurately than to new customers and sales to existing customers are 2 to 5 times more profitable. Tracking sales to new customers as a percentage of total customers and as a percentage of total revenue is important as an input for strategy development and effective sales operations. # of new customers / # of total customers $ sales revenue to new customers / $ total sales revenue total Tracking new logo ratio by line of business, region, and channel provide additional insight into sales effectiveness and a sanity check for sales and revenue projections. 10. Annual Recurring Revenue Growth Annual Recurring Revenue (ARR) is the amount of subscription revenue owed by customers over a fixed period. ARR has historically been associated with subscription based businesses such as software and software-as-a-service or other subscription services. It is increasingly important in a variety of industries, such as Life Sciences, Manufacturing, and Business Services, as businesses look to improve operating ratios and cash flow by adopting subscription based business models. ARR may be measured monthly (MMR), quarterly (QRR) or annually (ARR). Your recurring revenue is a key indicator of growth for subscription or maintenance business APTTUS 8

9 ARR = Total recurring revenue closed/won for the year Example for one contract: 2 yr contract with $24K recurring. ARR = $12K per year = $24K / 2 years ARR Growth Rate = (current yr ARR / prior yr ARR ) 1 Example: (110/100) 1 = 10% ARR Growth Dimensions to measure sales effectiveness include ARR from new sales vs retained from renewals ARR from upgrades and upsells 11. Renewal Rate This is the percentage rate of customers renewing contracts over time, usually measured on an annual basis. Retaining customers is a key for operating a healthy and profitable business. A high renewal rate is an indication that your offering represents a strong value proposition for your customers. And, it s also an important component of profitability. Acquiring a new customer can average 2 to 7 times more costly than retaining an existing customer. Your renewal rate is a valuable input for tactical decision making for instance, for forecasting revenue, as well as strategic decision making, such as a guide for investing in the business. For a comprehensive understanding of renewals, it s important to track both the percentage of all customers who renew contracts, and the percentage of all revenue dollars under contract which renew. # Customers with renewing contracts / total customers $ Revenue of renewing contracts / total contract revenue View renewal rate by sales representative, region, and product to increase visibility into organizational performance APTTUS 9

10 12. Churn Growth (Rate of Attrition) Despite our best intentions, not every customer is a customer for life. Identifying the rate of customer attrition over time, especially for subscription and annual services businesses, is important. No business likes to lose customers because as they leave so does your revenue but, profitability is also impacted. According to a study conducted by the consultancy Bain & Co., a 5% reduction in the customer defection rate can increase profits by 5 95%. It s also important to gauge the probability that a customer will cancel during a specific time period. Tracking attrition will allow you to adjust your renewal opportunities and provide more accurate forecasts. And, it s very important to understand why customers are leaving so you can take action to reduce the likelihood of churn in the future. Churn = # customers lost in a given time period Example, out of 100 customers we lost 10 in 6 months Churn Rate = (churn) / (# of customers * given time) Example, 10/(100*0.5) = 20% churn rate per yr View churn by subsidiary, region, product line, or product to gain additional insight. Summary You can t manage what you don t measure. By tracking these 12 key performance indicators, you will be able to better gauge the success across your Quote-to-Cash business processes. With this insight, decision-makers will have more visibility and control as well as the information needed to course correct if required. Increasing your ability to measure and manage these KPIs will also put your company a step closer to a streamlined, end-to-end Quote-to-Cash process that will allow you to improve deal size, shorten deal cycle times and increase revenue APTTUS 10

11 About Apttus Apttus, the category-defining Quote-to-Cash software company, drives the vital business process between the buyer s interest in a purchase and the realization of revenue. Apttus is delivered on the Salesforce1 Platform, the world s most trusted and comprehensive cloud delivery infrastructure. Applications include Configure Price Quote (CPQ), Renewals, Contract Management and Revenue Management. Additionally, Apttus patent pending X-Author technology enables Microsoft Office to be a user-interface with full interaction and control between Salesforce TM and Microsoft Office. Apttus is based in San Mateo, California, with additional offices in London, UK, Bozeman, Montana and Ahmedabad, India. For more information visit: APTTUS 11