Sales Efficiency: Defined, Developed, and Demonstrated

Sales Efficiency Defined

Before we talk about Sales Efficiency, let’s explore what we mean by this. HubSpot uses the following definition:

Sales efficiency is calculated by dividing the gross revenue a sales team generates by the costs the team incurs while generating it — like salaries, benefits, office space, and training expenses. If a sales team generates $15 million in revenue at a cost of $5 million, it would have a sales efficiency of 3 or 300%.

Given the pressures that every sales team is under, I think we can all agree that this metric becomes even more important.

The Sales Efficiency Equation

Let’s assume that someone up high (and good with spreadsheets) in your organization has already done this calculation when they worked out:

1. How many sales people do we need?
2. What should their quotas be?
3. Applied the rule of thumb that 80% should be hitting quota.

So you’ve been on a hiring spree, onboarded and ramped and you’ve now got 50 target bearing sales people with a quota of $200k per annum each.

The budget numbers stack up so we’re on track to being super sales efficient, right?

Nope.

Once these budgets have been set, you’ve got the benchmark, but your true measure of sales efficiency then becomes how many of your reps are actually hitting quota?

It’s widely reported that quota attainment in recent years has dropped.

Including our own research, we found the number ranges from 10% to 50% of reps that hit quota in recent years.

That means we have a HUGE efficiency gap problem. The answer is certainly not to throw more people at the problem. That just compounds it. We’ve seen this in recent months across the boom/bust, hire/layoff cycle.

If you are sticking by the organization benchmark (outlined above) then the 1 thing you CAN impact is the percentage of your reps that hit quota.

What Can You Do?

Firstly, look at the skills, attitudes, and behaviors of your existing sales team. What makes the top performers great and importantly, other than delivering the number, what makes them valuable to you? This is the first step towards having a competency map that will directly impact sales efficiency.

In Forrester’s Planning Guide 2023: Sales Enablement Peter Ostrow writes:

“If your sales enablement organization has not communicated the skill, knowledge, and process competencies required for sellers to be hired, onboarded, and considered fully trained, this is a quick win that will benefit a wide range of both sales and other functional leaders.”
We work with organizations every day on how they begin this process. It’s not just about looking at your best salespeople. If you don’t know where to start, we advise walking backwards from the goal.

If the goal is getting more reps to hit quota (i.e. Sales Efficiency) then we’ll start with this.

If we review the lagging indicator of quota attainment as the goal, then we can look at each individual leading indicator to understand where we can start oiling the efficiency wheel. For example:

• What is the conversion ratio from rep meeting to opp?
• What’s the average deal size?
• How many days does it take from lead to close?
• Are there specific bottlenecks as deals work through the pipeline?
• Who are the reps meeting with? Are they right?

Then, we look at what skills and behaviors the reps need to have to influence each of these elements.

Once you define and refine this process, you’ll have the makings of a strong competency framework that can actually impact your sales efficiency/quota attainment goal.

Is that it?

If only it was that easy!

Demonstrating and Sustaining Sales Efficiency

As Forrester goes on to say:

“If you have already accomplished this step, consider moving from a “once and done” mindset (“We did our sales competencies last year, so we’re all set”) to establishing a regular cadence for reviewing and updating them.”

As sales enablers, you need to know exactly where to focus to plan your programs, resources and content, all aligned to impacting that goal.

You need to have your finger on the pulse of what’s going to have the biggest bang for your buck (or your time and efforts).

So have a way you can continually assess where each of your reps are against not only the key leading indicators but also against their competency…

Not only does this enable you to plan and execute efficiently but it also aligns you to the goal of the sales team and leadership, delivering true value to the teams where it counts.

Sales Efficiency will become a key focus as budgets are squeezed and all focus is on the performance of existing sales teams. Make sure you are prepared by starting your sales competency journey today.