The Importance of KPIs in Budgeting and Forecasting for Sales Departments 

More often than not, sales managers realise too late that their sales teams are in trouble. This happens when the manager focuses on the actual sales figures rather than looking at Key Performance Indicators (KPIs), which can help in budgeting and forecasting functions. Once the sales team ends up with no sales closing, the department has completely failed. They have been in trouble for months and the trouble could have been spotted long before it became a crisis.

KPIs are nothing other than important indicators to show the sales manager whether the pipeline is still in good condition and what the future holds. With KPIs the sales team manager gets an objective way to measure sales and do proper forecasting and budgeting before it gets to the point where the team cannot make changes to ensure success.

First, however, comes the identification of the relevant KPIs and the manager also needs to know how to ensure correct measurement. For this it is essential to make a distinction between the sales pipeline and the forecasting process. The pipeline is used for an overview of prospects irrespective of whether closing will take place. The forecasting process should be focussed on prospects expected to reach closure within the specific forecasting period.

It is essential to define the sales pipeline to ensure proper sales process organisation and the development of highly efficient benchmarks and instruments to enable the sales team in closing the sales within the specified timeframe. This also makes it easier to forecast accurately, which will enable the sales manager to always be up-to-speed regarding the sales team’s current performance and possible obstacles to success that lie ahead.

The sales forecasting process is useful for budget and expenditure planning as well for KPI measurement regarding the sales conversions. This allows for measurement of elements such as the lead cost, which can help in accurate estimation of the income that will be generated.

The KPIs, which the manager can select and measure relevant to the sales teams, include from the total number of qualified sales leads identified in the sales pipeline to the total sales cycle period. In addition, one can measure the time it takes for qualification of new prospects and the ratio of the qualified leads to the proposals presented. Also measure the total evaluations for the period and the total of initial first sales meetings in 30 days. Finally measure the cold leads ending in qualified leads and the conversion rates from those qualified leads.

Don’t limit measurement to opportunity to sales close ratios. It is imperative to measure the conversions at every stage of the sale, which will help to identify the weak areas and also help to assess if the sales cycle is too long. The sales team manager must be able to identify the exact problem areas to ensure corrective steps can be taken in order to reach the forecasted income goals.

Important KPIs for client growth and sales account management are that of the average client retention and growth in consecutive years. Also measure the quota based indicators to establish any area of lagging regarding reaching of the yearly quota, the ratio of proposal to closing, total number of sales per annum, as well as the average sales size in addition to first time versus existing sales.

The above are the basic KPIs to measure for a sales team. Every company will have additional KPIs to measure according to the specific business profile. It is essential, however, to measure the KPIs at the various stages to facilitate timely intervention in preventing poor or lagging sales at the end of the target period.

How We Can Help

We help companies to select, define and automate KPIs at three levels including the strategic business unit, department and individual level. As part of this process we offer workshops and information regarding KPI best practice and also assist in the automation of the budgeting, forecasting and planning processes through advanced software.

Through the creation of dashboards we help firms to analyse the business processes and make informed decisions. This is facilitated by the consolidation of data from the relevant data sources. Other areas in which we assist include financial reporting and consolidation, business optimisation, enterprise risk management solutions, and business process management.