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Closed Business Is A Horrible KPI

Posted by Doug Davidoff

Jan 21, 2011 4:21:00 AM

I'm a BIG fan of key performance indicators (KPI).  I firmly believe that you get what you measure and track.  My best months, quarters and years always occur when I'm disciplined in tracking my KPI.

It's important to note that the key word in KPI is indicator.  An indicator should be designed to highlight what is likely to happen, not what has already happened.

So far this year (I know, it's only been 3 weeks), we've seen a significant increase in companies asking us how we can help them grow.  When we get to the topic of KPI, they all list a series of relatively meaningless or arbitrary numbers (like the probability of a close based upon the salesperson's gut), and inevitably tell us that the main thing they track, measure, and reward is closed business.

CLOSED BUSINESS IS A HORRIBLE INDICATOR

Closed business tells you what happened, but it doesn't tell why it happened, nor does it tell you what is likely to happen going forward.  It's like saying, "You should buy Enron stock - it was up 75% last year."

There is a simple reason why people use closed sales as an indicator - it's easy to identify and track.  Plus, it feels clear.

It reminds me of the story of the man who was looking under a street light for his keys.  As he was crawling on the ground, passersby asked what he was doing.  He told them he was looking for his keys, so they started helping.  Eventually one of helpers asked where he dropped them, and the man pointed to the other side of the street.  The helper asked why he was looking in a place different from where is dropped his keys; and the man replied, "Because it's light here, I can't see anything over there."

Effective KPI, especially sales and marketing KPI, are difficult to identify.  They need to be focused on the cause of sales or revenue, rather than the result.  Spend the extra time to identify and track true indicators, and your results will multiply.

 

Topics: B2B Sales Strategy