Unlock the Potential of b2b sales forecasting for Communications & Media

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hi guys from driv success.com today I want to talk about lagging versus leading key performance indicators or metrics other companies call them benchmarks um and and what I'm doing today is basically I want to explain the difference between the two and then I want to go over this example right here in terms of how leading indicators can help you define a uh um the objectives that your salespeople must follow daily weekly and monthly um and then I want to basically go over the pros and cons of using leading indicators but first let's talk about lagging indicators now most companies immediately right off the bat gravitate towards lagging indicators especially when they're putting together a sales forecast and essentially lagging indicators are based on prior performance basically your history okay and anytime you review um you know historical Trends seasonality and business Cycles you're basically reviewing lagging indicators so when a company says something along the lines of you know our first quarter is always busier than our second our third is always busier than our fourth and it's been that way for the past 10 or 15 years so we know what our sales are based on history those are lagging indicators okay most companies ignore leading indicators they focus entirely on lagging indicators and it's not that lagging indicators are bad it's just that lagging indicators don't explain to you what you did in order to achieve those sales volumes all they can tell you is that that's what you did in the past now what you did to get there is anyone's guess and then in a lot of cases companies don't even track leading indicators don't determine them or don't even know how to use them so we're going to go over an example today of how you can come up with leading indicators and what you can do in order to Define what your salespeople must do every single day every single week and every single month in order to duplicate success okay so what we're using in this case are key performance indicators so let's just take an example here okay let's say that a company has tracked the following variables in the first quarter now before we get to the variables just Define the the quarter itself okay right off the bat you know there are 20 working days uh in a month there are 3 months in a quarter so there are 60 days where uh the salese can be on the phone talking to customers plus there are 12 weeks in the quarter okay just assuming um just assuming four weeks per month okay so 60 days and there are 12 weeks and what the company has done is they basically tracked the number of calls the number of discussions the number of face-to-face visits the quotations the purchase orders and the amount of repeat business that was generated in the first quarter across all of their salespeople in all the territories and what they found was they found that on average their salespeople make anywhere between 800 to 1,000 phone calls they have anywhere between 500 to 600 customer discussions from those discussions they're able to set up anywhere between 2 to 300 face-to-face visits they're able to generate from those visits and those discussions anywhere between 3 to 400 quotations the uh current closing rate in terms of of ability to close sales is about 50% so the threshold I guess you can put right here um on sales is 50% and they're also retaining about 50% in terms of uh new business okay so their customer retention rate is about 50% as well so how does a company turn this information based on prior experiences into leading indicators well what it's going to do is it's going to basically divide some of these uh key performance indicators into daily objectives and weekly objectives so right off the about we're going to start with the first two and we're going to base those on the daily objectives okay so the company uh finds that it sales people um making anywhere between 800 to 1,000 calls over 60 days so they're going to take 800 and 1,000 and divide it by 60 and they're going to come up with a minimum number of daily calls of anywhere between 13 to 16 so so that is a daily key performance indicator okay so every salesperson must average anywhere between 13 to 16 calls a day 75 to 80 during the week if they fall behind in any one given day they can make it up on the next we're going to base the next key performance indicator daily as well so we're going to take 500 and 600 and divide it by the number of days in this case we're going to say that they have to average anywhere between 8 to 10 discussions with customers daily so the first first two are done daily and the next one we're going to do weekly okay so during the week they have to average anywhere from 16 to 25 visits weekly now this is fairly simple what we've done here is we've taken 200 to 300 visits divided by the number of weeks okay they have to generate in terms of quotations anywhere between 25 to 33 weekly okay again we've done the same kind of calculation where we've taken 300 and 400 and divided it by 12 the purchase orders they should average anywhere from 12 to 16 purchase orders weekly okay that's the number of units that they have to close in order to attain the company's objectives and in terms of repeat business we're going to base this one monthly so we're going to divide this uh by 3 months so 50 divided by 3 and 100 divided 3 is going to be 16 to 33 customers monthly in terms of retention okay so look what we've done in this case is the company has basically used historical numbers in terms of these key performance indicators in order to Define daily objectives weekly objectives and monthly objectives for their sales people going forward so in essence each one of these relationships are dependent upon each other okay if the salesperson doesn't make 13 to 16 calls they're not going to have nearly enough discussions if they don't have enough discussions they're not going to generate anywhere near going to have as many face-to-face visits they're not going to generate as many quotations they're not going to sell as many units and they're not going to retain as many Customs so when you look at something like this you're probably looking at it and saying it looks a lot like a funnel and it is a sales funnel in a way this is the first step the second the third the fourth the fifth and the sixth um but it's not it's not entirely a sales funnel but what it does is it's basically defining what your sales people have to do daily weekly monthly in order to attain your company's objectives on a quarterly or annual basis okay lagging indicators Define what you did in the past they explain they allow you to track historical Trends seasonality business Cycles they're good to tell you what you did in the past but they don't Define what you have to do moving forward this is where leading indicators come in okay they allow you to Define what you have to do daily and weekly and monthly in order to obtain your objectives and what your sales people have to do in terms of their habits okay now there's a lot of Pros to this right off the bat it's obvious to see that it's easier to track these leading indicators and make sure that your sales people are on track to hit this number at the bottom however there are some drawbacks immediately the first one that comes to mind is this is not merely a numbers game this is not a question of you just asking your salespeople to call uh three times as many customers and have three times as many discussions it's not merely a question of playing around with these numbers and hoping that that that all comes out to a higher number at the bottom okay you don't want to push your C your sales people so much that they're trying to make multiple calls a day because invariably what's going to happen is they're going to call more customers they're going to shorten the discussions they're not going to get the best face-to-face customer visits they're probably going to quote too much okay they're probably going to quote without qualifying the lead they're probably not going to close as many orders because they haven't qualified the lead and they're not going to repeat or retain as many customers because they haven't properly taken the time to understand what the customer wants so there are a lot of pros and cons to this approach use it to Define daily weekly objectives monthly objectives but don't abuse it don't don't think that it's merely a numbers game where you can play with all these key performance indicators and magically at the bottom you're going to have a much better result so that's it lagging versus leading indicators Ian Johnson driv success.com bye-bye