Improving Sales Efficiency: The Complete Guide for Sales Leaders
Does this sound familiar? Like most sales leaders, you take time at the start of each quarter or fiscal year to set targets and strategize how you’re going to hit them.
But when it’s go time, things don’t quite hit the mark as planned.
Inefficient sales processes, poor execution, and disheartened sales teams plague the B2B SaaS space—here are some key stats:
- Sales productivity is the #1 challenge for 65% of B2B organizations
- 2/3 of sales reps fail to meet quota
- Most sales reps spend the equivalent of at least 50 full days away from core selling activities each year
Sales efficiency is the opposite scenario, producing meaningful metrics enabling you to spot ways to continuously improve the systems you have in place, serve up more leads (the right ones!), and drive sales rep productivity, ultimately keeping your company ahead of the curve.
What is sales efficiency?
Sales efficiency is the speed at which your sales operations create value. It quantifies how quickly your reps are converting leads into prospects and prospects into customers—and at what cost.
Breaking down sales efficiency into a number is a way to demonstrate the payoff of investing in your sales team.
For example, SaaS companies often prioritize product promotion, events, and sales enablement when it comes to budget planning. This number can help build the case that investing in your sales team will drive X amount of return.
Sales efficiency vs sales effectiveness
“Sales efficiency” and “sales effectiveness” are terms often used synonymously, but they’re not the same.
- Sales effectiveness is your sales team’s ability to convert leads into customers at different stages of the sales cycle. If you have an effective sales process, you’ll see more “wins” than losses at each stage.
- Sales efficiency is how quickly you’re able to convert leads into customers while still bringing in the highest return on your investment.
Your sales process needs to be both effective and efficient to close deals in a reasonable amount of time, at a sustainable cost, and on the right terms.
Why sales efficiency is important
Sales efficiency gives sales leaders visibility into the direct relationship between sales performance and revenue generated.
It’s a nice and straightforward KPI that makes a great starting point for further analyzing your sales operations.
The higher you can get your sales efficiency score, the more time you’ll free up for your sales reps to engage leads, nurture relationships, and drive revenue.
Calculate sales efficiency
Sales efficiency can be calculated with the following formula:
Sales Efficiency = Revenue / Sales & Marketing Costs
Simply divide the gross revenue your sales team generates by the cost it incurs while doing so (e.g. salaries, training, and equipment).
For example, if a sales team generates $2 million in revenue with $1 million in sales & marketing costs, it would have a sales efficiency of 2. In other words, for every $1 your company spends on sales, it would generate $2.
What makes a good score?
Here’s the general consensus:
- Less than 1: Take a deep dive into your sales techniques, including upsell and cross-sell strategies.
- 1: You have yourself a viable business, but just barely—you’ll need to improve efficiency further.
- 1–3: Put yourselves on the back and keep doing what you’re doing.
- Over 3: You’re killing the game. Product-market fit is on point. There’s a good chance you’ll grow even more by adding sales and marketing headcount.
☝️This is based on advice from Tomasz Tunguz of Redpoint Ventures:
"When sales efficiency figures fall below 1 and elongate payback periods, it’s likely time to revisit sales and marketing techniques or explore upsell and cross-sell."
"When these figures exceed 1, it’s likely time for a business to invest more capital into the sales and marketing efforts."
Sales efficiency ratio
A sales efficiency ratio gives you a high-level view of the time it takes for your revenue and sales & marketing costs to break even.
Let’s go back to our previous example of $2 million in revenue at a cost of $1 million in sales and marketing. The sales efficiency ratio here would be costs/revenue so 1/2—meaning it would take half a year for customer revenue to pay back the sales costs.
Gross sales efficiency vs net sales efficiency
Sales efficiency can be calculated in two ways:
1. Gross sales efficiency
Gross sales efficiency looks at incremental increases in revenue over a fixed period:
Gross Sales Efficiency =
New ARR / Sales & Marketing Costs
(New ARR = Ending quarter ARR - Beginning quarter ARR)
2. Net sales efficiency
Net sales efficiency offsets that incremental increase by any loss in revenue from churn during the same period:
Net Sales Efficiency =
Net New ARR / Sales & Marketing Costs
(Net New ARR = Ending quarter ARR - Beginning quarter ARR - Lost ARR)
Here's how how this could look like (and lead to differing interpretations based on the efficiency metric used):
Implication of sales inefficiency
Inefficient sales processes can cost your business a lot of money—up to 20-30% of revenue, according to IDC research.
Here are a few other implications of sales inefficiency:
- Poor closure rates: Because it takes longer to complete the sales cycle, the likelihood of all deals closing decreases.
- Less deal flow: If sales reps are spending too much time on admin tasks, they have less time to spend on prospecting and customer care.
- Lower service resolution: Customer issues take longer to resolve, hurting your FCR and NPS scores.
- Unhappy sales reps: If reps are forced to spend too much time on non-sales activities, their sales performance and morale can take a hit, ultimately leading to a higher turnover rate.
How to improve sales efficiency
1. Set SMART goals
Clarity is key. You need to clearly define what you want to achieve and share these goals with your reps so you’re all on the same page when they’re out in the field.
SMART goals can help you do that. It stands for specific, measurable, attainable, relevant, and time-based.
With sales efficiency, the "measurable" piece is especially important.
In other words, having the right sales efficiency KPIs in place as benchmarks for how your reps are performing and what’s expected from them.
For example, what should the Lead Response Time be? Or Number of Sales Calls Per Rep? Is there a minimum number of deals they should be closing each month? Do they have individual revenue targets?
SMART goals provide your reps with the necessary guidance to work as efficiently and effectively as possible.
But how you break these goals down the way you track them plays a role as well. Some of the things most sales teams care about are:
- Sales effectiveness by vertical
- Sales effectiveness by region
- Sales effectiveness by product
- Sales effectiveness based on rep tenure
- Individual rep effectiveness (against the average)
2. Know who you're selling to
Once again, clarity is key. Clearly defining exactly who your target buyer is equips your reps with the context they need to sell their best.
Better yet, provide your team with guidelines on how to best approach this audience, how and where to reach them, and key messaging that aligns with what these buyers care about the most.
This level of clarity will help streamline your sales efforts and give your reps time to do what they do best: Sell.
3. Work according to a sales process
A sales process is a series of actions that a sales team uses to turn a lead into a customer.
It breaks the entire buyer journey into stages: Prospecting, qualifying, researching, presenting, handling objections, and closing, for example.
Ideally, a sales process should be tailored to your company's target demographic, buyer journey, and individual sales reps’ strengths and limitations.
This will let reps know whether or not prospects are worth pursuing and how they should go about doing so.
You might use bits and pieces from various sales frameworks to create a tailored sales process.
We’ve put together several guides that break them down for you.
Here’s a list of recent posts:
- Customer-centric sales
- Sandler Sales System
- Triangle Selling
- Target Account Selling
- MEDDIC Sales Process
- MEDDPICC Sales Process
- Question-based Selling
- Value Selling Framework
- GAP Selling Framework
- SNAP Selling
- Challenger Sales Process
- SPIN Selling Questions
- Champ Sales
4. Maximize rep productivity
According to one study, sales reps spend just 37% of their time on revenue-generating tasks.
The rest of their time is spent on things like meetings, checking email, or other admin activities.
Maximize the amount of time sales reps spend actually selling by automating routine sales tasks wherever possible.
There’s a lot of tools out there to help you do this. For example, Weflow can improve productivity by helping update your pipeline faster and organizing all your notes and to-dos in a modern workspace - auto-syncing with Salesforce (it's free!).
5. Prioritize sales coaching
Sales coaching is a continuous process in which sales managers actively help, engage with, and advise sales reps while reinforcing what they learned in training.
It's an iterative, customized, and consistent approach aimed at developing reps' abilities.
Sales coaching starts at new sales rep onboarding and evolves into reviewing sales calls with your reps and talking about what went well and where they could improve.
Another example would be reviewing and offering constructive comments on reps’ email discussions with prospects at different stages of the buyer journey or sales process.
When done right, sales coaching helps you get the most out of your training budget.
In fact, companies that use sales coaching programs have much greater win rates than those that don't—improving your sales efficiency as a result.
6. Join forces with Marketing 🤝
Sales and marketing are stronger, together.
Sales reps rely on Marketing departments to provide them with quality leads. Marketers need to understand what Sales needs to most effectively deliver a pitch and help create the necessary enablement content.
Despite this, many marketing and sales teams operate in silos, with little or no communication between them.
One way to solve this is by designating a sales liaison. This is someone who acts as an intermediary for the two departments, transmitting information between them to improve sales efficiency.
Ready to boost sales efficiency?
Sales efficiency gives you vital insights into how effective your sales efforts are and how quickly your organization can grow. By regularly reviewing your sales efficiency score, you can continuously grow, maximizing revenue.
Weflow is a Salesforce productivity workspace. We enable sales teams that use Salesforce to efficiently manage their sales processes and perform fast pipeline, notes, and task updates. Use for free