12 KPIs You Should Be Measuring But May Not Know About

Transcription

1 12 KPIs You Should Be Measuring But May Not Know About Valuable Metrics to Help Your Business Make More Money The executive team, responsible for meeting the company s financial objectives, needs intelligent insights and a comprehensive understanding of how the organization is performing to deliver on quarterly commitments. Of course this is always easier said than done, especially if the wrong things are being measured. Without the proper insight, your forecasts will be little better than an exercise in finger-crossing for luck. Learn how these meaningful metrics increase visibility, understanding and, ultimately, control of the business by providing the depth, accuracy and insight necessary at the executive-level. Help make your company s forecasts less about guess work and more of a science. This paper outlines valuable metrics your company should measure in order to accelerate revenue making and eliminate surprises by providing high-impact insight into how your company is performing. You will discover performance indicators spanning the sales, contracting, and revenue management phases of your company s go-to-market process. 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: Pre-Sale (Quoting) KPIs 1. Average Quote Value Average Quote Value (AQV) is an excellent benchmark for the effectiveness of your sales efforts. Companies using sales promotions should use this metric to improve performance on upsell and crosssell opportunities and reduce sales discounts. Sum of All Quote Value / # of Quotes Generated To increase your understanding of performance across the business, measure AQV across various 2014 APTTUS 2

3 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 improvements in discount performance can have a significant impact on your bottom line. Avg. {(List Price Net Price) / List Price} 2014 APTTUS 3

4 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 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 wants 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 successful and curbs contracts that diminish a strong position for your company. Ways to limit deviation include educating employees, providing incentives and approvals APTTUS 5

6 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 Additional Dimensions to measure by: Average Risk Rating by Contract Type Min and Max Risk Rating by Contract Type Required Escalations by Risk Rating Tier 2014 APTTUS 6

7 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 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 2014 APTTUS 7

8 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. Revenue Forecast Risk Classification In businesses of all sizes and types the Finance team creates a forecast of revenue. It consists of revenue that will be recognized by Accounting each month. And, there are multiple types of revenue that make up the forecast, including revenue from subscriptions which can be recognized in a given month, and revenue from projects which will achieve milestones in a given month. Each type of revenue has risk. Some risk is so minor it could be ignored, but other risks should not. Characterizing the revenue forecast by risk category helps executive managers see more accurately to hit the targets for revenue and margin. Revenue Type ratio = recurring revenue under contract /total revenue under contract. For example: recurring revenue $100M / $300M from discrete sales and one time service events. 11. Revenue Forecast Risk Calculation Revenue can be classified into different types. In the old days you got paid for what you delivered when you delivered it. Revenue was essentially a one time event. Today, there are numerous revenue models. Recurring revenue is one important revenue model today. It refers to subscription based revenue such as for the sale of software, software-asa-service or other subscription services. It is 2014 APTTUS 8

9 important for businesses looking to improve operating ratios and cash flow. Revenue Type Ratio highlights the amount of recurring revenue relative to one-time revenue, or the deals that don t renew. Revenue Type ratio is valuable to managers who responsible for meeting monthly and quarterly revenue targets as well as those manager making investment decisions in the business. Revenue Type ratio = recurring revenue under contract /total revenue under contract. For example: recurring revenue $100M / $300M from discrete sales and one time service events. 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 APTTUS 9

10 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 off all of your company s financial objectives. These meaningful metrics increase visibility, understanding and, ultimately, control of the business by providing the depth, accuracy and insight necessary at the pre-sale, sale and post-sale stages of all of your deals. 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 10