How to Define a Startup’s Most Important Sales Metric

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Discover why identifying and tracking the right sales metrics is critical for startups looking to measure growth and quantify performance.

For startups looking to measure performance and attract new investors (or appease existing ones), it’s critical to identify the benchmarks to be tracking. It’s difficult for any company to set or reach goals with no means of measurement. This is the function of sale metrics, which are various quantitative methods of evaluating accomplishments.

How can a business identify what channels and initiatives are most profitable versus those which are a drain on resources and finances? That’s the primary function of a metric. Here are several of the top sales metrics that startups should be aware of and the insights that they provide into a business.

Annual Contractual Value (ACV)

For products that are available on a subscription basis, annual contract value (ACV) is a critical metric that tracks the company’s account subscription agreements. For a company like Salesforce, ACV is the most important sales metric because it will rise with new and add-on recurring sales.

Pipeline

Pipeline is a key sales metric measured by many top organizations. Most sales don’t close in the blink of an eye, so having a high volume of deals consistently in the pipeline ensures that goals will be met and exceeded in upcoming months or quarters.

Lead Volume

To fill up a pipeline, startups need a high volume of leads from a variety of sources. Record this metric weekly or monthly to gauge the effectiveness of different marketing campaigns.

Leads can also be broken down by source to determine which are most likely to generate qualified leads. Jason Lemkin, co-founder of two successful SaaS businesses, believes that the volume of qualified leads should increase each month (lead velocity), and that marketing should deliver leads that exceed revenue goals.

Cost per Lead

If each lead costs a company a fortune in advertising dollars, the profit margins will look terrible. The cost to acquire a lead includes such things as manpower, time, and capital. To determine this metric, take the total cost of generating qualified leads and divide it by the volume of qualified leads generated.

This is a particularly useful measurement when it is applied to different channels, such as email marketing, paid search, SEO, direct marketing, and social media. When used this way, startups determine which channels produce the best ROI and the most results (volume of leads) for the business.

Close Rate

Not all qualified leads translate into actual sales. This metric measures the ratio of qualified leads that convert to sales and should also be calculated across various channels to determine if there is a difference. Using this sales metric alongside lead volume numbers gives startups a focused idea of which channels impact revenue the most.

Retention Rate

Sales is more than just locating and selling to new clients. Keeping existing clients happy is key to the survival of a new business. Retention rate measures the percentage of customers who renew after their initial purchase. This metric also helps gauge the average life of a customer, giving the company signals when loyalty campaigns might be in order.

Average Sales Value

Are the company’s individual sales derived from just a few large transactions, or are there a high volume of small purchases? Average sales value tracks the average revenue per sale so startups can put a value on each of the leads that the business is pursuing.

Aligning a company’s sales and marketing takes work. Aside from agreeing on what’s important, having metrics for measurement and even some historical data can help a business set goals and remain accountable. The aforementioned sales metrics are the most commonly used by startups to improve the effectiveness of the company’s sales functions.