Sales Efficiency: Cracking The Code On This Sales Metric

There are countless metrics for measuring sales performance, one of which is sales efficiency.

If you haven’t considered this metric, then it’s one to think about as your scale.

For sales teams, efficiency reflects how well you make the most of your time, budget, and resources. Your sales team will repeatably close deals and win new customers when things are going well.

When sales efficiency trends poorly, it’s likely time to re-evaluate your sales process, ideal customer profile, and where you’re spending resources. Meaning that you’re spending more than the revenue that’s coming in–which has negative consequences.

The article explains sales efficiency, how to measure it, and best practices to help improve this important metric.

What are sales efficiency metrics?

Sales efficiency explains how your company efficiently generates new revenue. In short, you simply divide your total Sales and Marketing investments by your net new revenue.

For example, companies spend their budget on events, campaign promotions, sales enablement, and technology. You want to ensure your investments drive a positive return on revenue.

To determine sales efficiency, you’ll want to look at every dollar spent and how much revenue comes out.

Tomasz Tunguz provides great benchmarks on sales efficiency for SaaS startups here. In Tomasz’s example, he provides benchmarks for 30 publicly traded SaaS companies that calculate sales efficiency on an annual basis.

He found that most SaaS companies operate around the 0.8 mark for sales efficiency. This means that it would take 5 quarters of revenue to the payback of their sales and marketing expenses. For example, companies generate $0.80 in new revenue for every $1.00 spent on sales and marketing.

A strong sales efficiency metric reflects a high-performing sales team and an effective go-to-market strategy.

How is sales efficiency measured?

There are several ways and metrics to measure sales efficiency. Most companies use a fairly simple and straightforward formula:

Sales efficiency = (Revenue / Sales & Marketing Costs) x 100

Using the sales efficiency formula above, let’s use an example of a SaaS company that generates $5M of new revenue within the year. During the year, Sales and Marketing combined to spend $5M to generate that revenue.

This company’s sales efficiency metric would be:

Sales efficiency = ($5M / $5M) x 100%

What is a good sales efficiency metric?

If your sales efficiency ratio hovers between 0.5 and 1, then your company is breaking even. Although it’s adequate if you’re focusing on aggressive growth, it’s not a good long-term strategy. A ratio above 1 is regarded as a great sales efficiency.

Here is the general consensus on sales efficiency metrics:

• Under 100 percent: Assess your sales and marketing strategies to see where you can improve. Focus on expanding current customers through upsells and cross-sells instead.
• 100 percent: This is a profitable company if gross margin and turnover are within acceptable ranges.‍
• 101 to 300 percent: Highly efficient, keep fueling resources into sales and marketing to grow.

Why does sales efficiency matter?

Sales efficiency matters to your business because it directly ties into revenue generation.

If your sales and marketing teams spend budget and resources on tasks that don’t return value, you’re losing more money than you’re making. Not every dollar is maximized if you’re not running a highly efficient sales and marketing function.

So, what do you do when sales efficiency trends in the wrong direction?

To improve your sales team’s efficiency, here are several ways to improve these important metrics.

5 Tips to improve sales efficiency

1. Tighten up your sales processes

Your sales team needs a predictable and repeatable process to improve efficiency. This includes documented steps your team would take from prospecting to closing a customer.

A well-defined sales process will guide your sales team on what they should be doing, how they should do it, and when. This includes prospecting, qualification, research, discovery, objection handling, negotiations, and closing.

A clear and documented sales process will help your team identify the key stages and the holes in the process. If opportunities drop off at specific stages, a sales process gives you a prescriptive way to diagnose and solve the issue.

2. Focus on your ideal customer profile

The value of having a clear understanding of your ideal customer profile is shouldn’t be understated.

A well-defined ideal customer profile (ICP) will help your sales team spend time on the right prospects and avoid prospects that will never buy. Your ICP will have a real pain point that your solution can solve.

This is important because you don’t want your sales teams spending time on prospects that aren’t interested in your solutions. Or potentially, your sales team runs long cycles that inevitably lead to a “no decision” as a final outcome.

Clear ICPs give your sales team a target of who they should target, ensuring their sales activities are focused and well executed.

3. Leverage technology

Maximizing your sales team’s resources, capital, and time is important to achieve sales efficiency.

One way to do that is to introduce technology, improving your team’s productivity and output. Ultimately, technology will save you and your team time, a very scarce resource. It eliminates all the tedious work and time spent on tasks that don’t help generate new business.

For example, top sellers spend an average of 6 hours researching their prospects weekly. Whether it’s data entry, note taking, or research, these are important tasks that can be effectively done using sales tools.

Technology can help automate and simplify processes which improves sales efficiency over time. By automating research or data entry tasks, sales teams can spend more time engaging potential customers and closing deals in the field.

4. Focus on expanding current customers.

Your chances of selling a solution to a current existing customer is 60-70%, whereas the probability is 5-20% with new customers.

The number speaks for itself. It’s both more efficient and effective to to to existing customers than to find new customers to sell to.

Selling to current customers can mean cross-selling a complimentary product such as an add-on. Or upsell your customer more of what they’ve already purchased, such as additional licenses or storage space.

Happy customers can be an untapped opportunity since they’ve already used your solution and have established a relationship. It’s very efficient to sell to current customers because it can accelerate a deal, and fewer resources can are used for finding new leads.

5. Align your sales and marketing teams

Silos between sales and marketing teams will also cause inefficiency.

The reason is that traditional organizations view the sales process as two completely split functions. Marketing generates a lead, hands it off to sales, and their job is done. Then the sales team works the lead until close.

This method presents several challenges, such as miscommunication, lack of collaboration, distrust, and decreased conversion rates. However, aligning both teams can dramatically increase sales efficiency.

For example, marketing can provide additional support once sales work a lead. Such as displaying targeted advertisements relevant to the lead depending on where they are in the sales process. This can help accelerate a deal and improve conversion rates.

Aligning both teams is key to running a high-efficiency company.

Final thoughts

Sales efficiency reflects how well your sales and marketing machine is running.

It is a symptom of investing in the wrong channels, lack of sales process, or target customers. It’s difficult to grow but not overspend on the wrong initiatives. All of which can negatively impact your company’s cash balance and forecasting.

You can improve this metric with the right best practices and resources. You’ll need to tighten up your sales process and focus on winnable customers to help your company grow correctly.