(The movie was released in 2011) The concept of Moneyball is subjective player evaluations made by scouts were often flawed and an analytical, evidence-based, sabermetric approach to assembling a baseball team was a much more cost effective and winning approach.
Today, organizations across the globe are looking at metrics in a new way. In fact, The Director of Sales Operations is probably trying to figure out how to do this right now at your organization. But how do you get started? What data do you need? Well it all starts with determining how to benchmark your organization and enabling you to increase your return on Sales.
The 4 step process to Sales Benchmarking
1. Provide a defined taxonomy
To perform successful benchmarking, organizations must focus on establishing a common language of sales metrics. Too often sales organizations let terminology develop organically and do not proactively develop a taxonomy. A while ago I was working with a client who felt they had a cleanly defined sales process. After spending some time with their Account Executives I found out that no one was defining the sales stages in the same way. When you begin to define your organizations taxonomy make sure you communicate and engage with the field to ensure everyone is on the same page. Focus first on areas including sales processes and definitions, metric definitions underneath those processes, metric formulas, and data inputs and their definitions.
2. Chose Metrics
There are numerous sales metrics to evaluate your sales organization but which ones actually tell us what I want to know. I align specific metric to certain types of activities. For example, if you are evaluating your sales compensation program there are three primary metrics to obtain for a proper benchmark. These include: sales quota attainment, total addressable market and variable compensation rate.
3. Form peer groups
Peer group selection is always fascinating to me because it says a lot about what kind of organization you are and what kind of organization you want to become. Best practices around peer group selection include selecting companies that are similar in terms of firmographics. Firmographics includes items like revenue, geography, number of employees, industry segment and sales channels to market. Taking organizations that have similar firmographics is because they keep things in perspective. If your organization currently is a $100 million manufacturing company benchmarking against a company like Costco does make a whole lot of sense.
If you find yourself struggling to determine who should be in your peer group the best place to start is your organizations proxy statement. In the proxy statement the board of directors establishes a peer group for executive compensation purposes.
4. Determine World Class: Return on sales
World class is defined a lot of different ways depending on who you ask. Some people need to see world class while others look to industry leaders as being world class. In the world of benchmarking world class is defined as the organizations in the top quartile in terms of return on sales. Return on sales is the combination of operating income, SG&A expense and revenue growth.