Sales Performance: How to measure the effectiveness of the sales department

The performance of the sales department of your organization is probably tied to such measurements as the total revenue or sales revenue per product.  You may even have geographical information such as revenue from the Northwest or the Gulf States.  But in truth, the revenue is not a totally effective tool to measure the effectiveness of the sales department.  As with any key performance indicators, there need to be a combination of measures which take into account by the scope and the quantity. 

Calculating the revenue produced with the existing sales department is simple.  It's a mathematical calculation.  But, by drilling down in the key performance indicators for the sales department, you begin to get a better picture of the effectiveness of the sales department.  For example, if the only performance indicator used for the sales department is the revenue for the company, the changes in revenue may have nothing to do with the sales department at all.  It could be the effectiveness of the marketing campaign, or it could be the fact that the only other supplier of the product just went out of business.  Perhaps the niche group that you're selling the product to just became much larger, such as a product which targets people over the age of retirement. 

The point here is that measuring the revenue is not a complete nor necessarily accurate measurement of the performance of the sales department.

However, if you were to measure the number of new leads developed by the sales department during as specific time period, or the ratio of leads to sales, then you begin to get a more accurate picture of how well the sales department is doing. Once you have developed measurement tools to help you define such statistics, then it is a fairly easy step to defining how effective the sales department is in doing the job of selling. 

While isolating performance indicators so that you're measuring performance in the person or department where the responsibility lies is critical, the company can't lose sight of the fact that many elements may operate to make a successful overall business. 

In setting key performance indicators to measure the company's progress toward reaching its goal, it is the process which is as important as the results.  Using concepts such as the Balanced Scorecard process especially the modified versions which have become popular in the last decade is an excellent tool to first define and agree on goals and objective, then to define the measurement tools which will be used to determine if the objective is being met. 

In the above example, the marketing department may be responsible for increasing the visibility of the product by a marketing campaign, but it is up to the sales department to take those leads and convert them to sales.  Neither department would be effective without the expertise of the other, but at the same time, each must be measured by the effectiveness of what they contribute to the mix.