The Math Every Sales Must Do

As a sales rep you need to deliver closed won deals to meet your quota.  As with all journeys to a goal, there is a hard, rough road and a superhighway, fast and smooth as a baby’s butt.  To earn your commission the most efficient way possible, wouldn’t you want to be on the superhighway? Of course!

The Math Every Sales Rep Must Do

Let me show you how to do some math to start you down your sales superhighway.  The key is to leverage data as much as possible along your journey.  To get started, you’ll need a few data points.  If you don’t have historical trends to use, an estimation is fine.  In fact, you might want to do the math a few times using different number so you understand the impact each variable might have.

Here’s what you need to get started:

  • Monthly, Quarterly, and Annual Quota
  • Average Deal Size
  • Sales Cycle
    • Ideally, Lead Create to Opp Close, but Opp Create to Opp Close can work for expansion reps
  • Win Rate / Close Ratio
    • Both Count of Opps and Value of Opps
  • Lead to Opp Conversion Rate

We will use these metrics and KPIs to calculate a few additional data points.  The first is translate our quota numbers to the number of deals we’ll need to close.  The second is to understand what size pipeline we’ll need to target to hit our number.  Finally, we’ll calculate how many quarters we need to project out and how much pipeline we need.

  1. The Deal Count

The first calculation is quite simple and uses quota and average deal size.  Simply divide the quota for the period by the average deal size and it will tell you how many deals you need to hit your number.  As a best practice, add 1 to the number you get:

(Quota for period / Average Deal Size ) + 1 = number of deals you need to hit your quota

Write these numbers down in a book or journal so you can refer back to them.  You may also want to use an Excel spreadsheet and keep track of the number of deals you need and which accounts will give you those deals.

2. What Size Pipeline Do I Need?

Once we know how many deals we need, we also need to know what size pipeline we need to close those deals.  This is where win rate (also known as Close Ratio) comes in.  You should have two win rate numbers, one based on  COUNT of opportunities and another based on DOLLAR VALUE of opportunities.

Depending on which you want to calculate, use the appropriate set for count of deals and quota.  The math is:

Count of Pipeline Size:  number of deals needed to hit quota +1  / win rate of count

Dollar value of pipeline needed:  quota for period +  Avg Deal Size / win rate of dollar value

Again, write these number down.  This is the size of the pipeline you will need to build to make sure you hit the quota number based on your historical win rate.

3. How Far Do You Plan Ahead?

You may be wondering why we haven’t used Sales Cycle yet.  While we aren’t going to use it in a calculation, we will use to see how far ahead we need to be planning. to hit our number.

Sales cycle can be calculated  a number of ways so be careful and understand what the number you have means.  For instance, many clients I have worked with in the past have used a sales cycle which measures Opportunity close age, i.e. Opp Close Date minus Opp Create Date. This is misleading if your business includes prospecting.  A true sales cycle uses either Lead/Contact create date or Account First Activity Date.    Make sure the number you are using a sales cycle which represents the true time frame you need to work your leads/contacts and close your opportunities.

quota period in days / sales cycle in days

If your sales cycle is 45 days, planning one quarter ahead is sufficient.  But if your sales cycle is 105 days, you must plan two quarters ahead.

It’s a Wrap

With these three pieces of math in mind, you are well on your to establishing the foundation for your superhighway to 100%.  Understanding what it takes to hit your quota number, how long and planning far enough ahead is huge and gives you a head start against your peers.  You may be amazed at how many reps don’t DO THE MATH.


Top 5 Best Practices for Rolling Out Sales Rep Scorecards

Sales rep scorecards are that golden unicorn of any sales organization.  The scorecard is a compilation of Key Performance Indicators (KPIs) which are measured against thresholds.  In a rep scorecard, we see a visual interpretation of how a rep is doing for each of the KPIs. An example of which is below:

A Simple Sales Rep Scorecard with three KPIs

Sample Sales Rep Scorecard

Before I dive into best practices, a word on why not a lot of sales organizations have scorecards.  The primary reason is due to organizations struggling with data which best represents the business which makes it difficult for them to setup a KPI, let alone establish effective targets.   An understanding of the analytics continuum is also helpful for understanding the evolution of data practices which need to met prior to rolling out KPIs and Scorecards:

The Analytics Continuum: a blueprint for adoption

Top 5 Best Practices for Sales Rep Scorecards

  • Sales reps, Mangers, VPs, and CROs must all have agreement on the KPI definition, targets, and thresholds.  If one level of the KPI hierarchy is not on the same page as the others, there is very value in using the Scorecard to represent an ideal.
  • Targets and thresholds must be reasonable.  When rolling out KPIs, we often realize that actual performance is far from the corporate ideal. For instance, a Sales Cycle of 45 days is thought to be ideal, but the rep actual is north of 60 days.  Don’t hold this against them, consider rolling out a target of 55 and stepping the target down to 45 days within three quarters of launch.  Be kind to the reps and allow them to catch up.
  • Scorecards must be part of a larger sales communication strategy.  Rolling out a scorecard alone will have an impact on the organization, but the most impressive will happen if scorecards are a part of the larger communication strategy.  For instance, a weekly email can call out wins by reps, it should call out performance, and it needs to call out what needs to be done to hit the goal.  Scorecards are just one piece of the story in sales.
  • Scorecards need to be updated as the business evolves.  Scorecards can never be truly static, recurring reports.  Part of the role of your analytical team is maintain reports as the business changes and evolves.  Scorecards are no different.  From a subtle change of keeping thresholds and targets up to date, to swapping out KPIs for new ones, scorecards are a living animal and requires food to stay alive.
  •  Scorecards are a coaching opportunity, not a punishment tool.  While HR and managers will look at a scorecard and see a rep with all red for their KPIs, this doesn’t mean the rep needs to immediately be put on a performance improvement plan or, worse yet, fired.  Scorecards are coaching tool and enable the manager to work with the sales rep and ask questions like “why do you think your sales cycle is double the average?”  Work with the rep, train the rep, and allow the rep the chance to go for green.

As your team rolls out scorecards across the sales organization, keep these best practices in mind.  Be kind to your reps, get agreement on definition, use scorecards as part of a larger strategy, keep them updated, and use them as a coaching tool.