So, you’ve finally graduated from the grind of being an early-stage startup. You built out your sales playbook. You got that Series B. You hired a bunch of sales reps.
And now, you find yourselves with a whole new set of problems.
Suddenly, top-line revenue growth isn’t enough. Everyone’s looking at the profitability of your company’s sales activities.
Did you maximize every deal? Did you move fast enough? Did you focus on the correct accounts?
In short, how is your sales efficiency?
Unfortunately, if you’re looking online for tips on improving your team’s sales efficiency, you’re bang out of luck. A quick Google will uncover pearls of wisdom like “Use sales tools” and “Review your sales process.”
So, how can you move beyond the basics to become a truly efficient sales operation?
In this guide, we’ll give you specific, practical tips you can implement today to increase your sales efficiency without compromising your effectiveness.
What is sales efficiency?
Sales efficiency measures the profitability of your sales activities at the team level.
Sales efficiency is typically discussed as a sales efficiency ratio — the comparison between the sales you made vs. how much it cost you to make those sales (i.e., the ROI of your sales efforts).
Sales efficiency isn’t just about keeping your investors happy. If you’re hoping to move from startup mode to long-term profitability, your salespeople must start bringing in more than they cost.
What isn’t sales efficiency?
Some quick clarifications here:
- Sales efficiency is not the same as sales effectiveness. The term doesn’t refer to the talent or productivity of your sales team. It is specifically about how much you spend on sales versus how much you’re bringing in.
- Sales efficiency is not the same as customer acquisition cost (CAC). Your CAC is how much it costs you to gain a new customer. Your sales efficiency ratio also considers revenue from existing customers (like upsells and renewals).
- Finally, sales efficiency is a sales metric, not a marketing metric. It is sometimes described as “how much you have to spend to generate a dollar in revenue.” However, you don’t need to include every marketing dollar spent. (Sending sales reps to a networking event? Probably yes. Logo redesign? No.)
How to calculate sales efficiency ratio
The basic formula for calculating a team’s sales efficiency ratio is:
Sales efficiency ratio = Sales revenue / Sales cost
For sales revenue, you can use new annual recurring revenue (ARR) for a given time period.
For sales cost, you can include everything that goes into your sales process:
- Employee costs (salaries, benefits, bonuses)
- Overheads (rent, utilities, and so on)
- Sales software (CRM, sales intelligence tools, etc.)
- Sales training
- Lead generation activities (like ad spend or purchased email lists)
For example, if your team generated $1 million in new ARR in the last quarter, and you spent $1 million on sales activities, then your sales efficiency ratio would be 1.
It’s also worth bearing in mind that there is a difference between gross sales efficiency and net sales efficiency.
- Gross sales efficiency is the ratio between your gross ARR and your sales spend in the same period.
- Net sales efficiency is the ratio between net ARR and sales spend.
Sales efficiency metrics and models
If you want a more comprehensive model for tracking your sales efficiency, consider adding a few additional metrics.
For instance, when Intercom made the move to add a Sales motion to their PLG model, they decided to use a model of sales efficiency based on three metrics:
The Magic Number is the ratio between how much you spend on sales today and how much revenue you’ll make tomorrow.
The formula for calculating your magic number is:
Magic Number = Gross New ARR in the current quarter / Total sales spend from the previous quarter
Your Magic Number helps give you a short-term view of your sales efficiency.
Customer Acquisition Cost (CAC) payback
Your CAC payback measures how long it takes to recoup the cost of acquiring and retaining a new customer.
To calculate your CAC Payback, you first need to know:
- Your customer acquisition cost, or CAC (how much it costs you to acquire a new customer)
- Average revenue per account, or ARPA (how much revenue you generate from each customer account, on average)
- Gross margin percent (the difference between the two, as a percentage)
Your CAC Payback is:
CAC Payback = Customer Acquisition Cost / (Average Revenue Per Account x Gross Margin Percent)
This figure gives you a medium-term look at your sales efficiency to see how you track over the next 12 months.
Lifetime Value (LTV): Customer Acquisition Cost (CAC) Ratio
Here, you will compare two metrics — the lifetime value (LTV) of each account versus the cost of acquiring each customer (CAC).
LTV is the total you expect you’ll earn from a customer from their first to last purchase. You’ll need to multiply the average customer value by the average customer lifespan to get it.
CAC is the average cost of acquiring a single customer. To get that number, divide your total sales and marketing costs by the number of new customers.
To get your LTV: CAC ratio, just divide LTV by CAC.
If your LTV is $100,000, and your CAC is $25,000, then your LTV: CAC ratio would be 4:1.
The LTV: CAC ratio is an excellent metric to benchmark your long-term profitability:
- If you’re spending more to acquire customers than you are bringing in (your LTV is lower than your CAC), you are making a loss.
- If your LTV is slightly higher than CAC (2:1 - 4:1), you are making a healthy profit.
- If your LTV is much higher than your CAC (5:1 or more), you could be getting more out of your sales and marketing efforts.
What is a good sales efficiency ratio?
According to Scale Studio, the typical SaaS startup has a sales efficiency ratio of around 0.7:1 — meaning that they bring in $0.70 for every $1 spent on sales and lead gen marketing.
- As a general rule of thumb, anything over 1:1 is a pretty solid sales ratio — you are on the right track.
- 2:1 and over is excellent — keep doing what you are doing.
- Anything over 3:1 is outstanding — although if you are much over 5:1, you may be underinvesting in your sales activities.
16 tactics for improving your team’s sales efficiency
To improve your sales efficiency, you need to either sell more or spend less to make your sales.
So, to improve your sales efficiency, you will need to look at ways you can:
- Sell faster
- Waste less time
- Waste less money
- Make more money
Here are some simple ways to streamline your sales processes without adding to your costs:
Speed up the sales cycle
1. Provide a mutual action plan after the sales call.
When prospects know precisely what to do to move forward, the sales cycle progresses more quickly.
2. Use an order form that lets prospects sign a deal inside the proposal.
With Dock, you can easily do this in your digital sales room, so the customer doesn’t have to dig around for forms to authorize the final purchase.
3. Sort out your security reviews ahead of time.
Security reviews can slow down the deal at the last hurdle. Start your security conversation with your buyers early in the deal process, and have your security documentation ready for them in their Dock workspace.
Ramp up your sales reps faster
The quicker your sales reps are up to full productivity, the faster your team can move. To onboard your reps more quickly:
4. Implement a standardized sales methodology.
5. Make sure your sales enablement content is easy to find.
Most sales content goes unused because the Sales team simply doesn’t know about it or can’t find it quickly when they need it.
Dock’s content management system for revenue teams has a robust search function, so your team can find the sales content they need and share it with customers in one click.
6. Create a Dock follow-up template to standardize the quality of follow-up across all your reps.
When Nectar started using customizable Dock templates to elevate the quality of their follow-up, their win rates increased by 31%.
Andrew Hollis, the Director of Sales at Nectar, told us:
“Part of scaling is that now we have this database of Dock templates... And so the first follow-up that a new rep gives is of the same tier as someone that's been here for two years using Dock every single day because they're copying that template.”
Focus on winnable deals
One of the biggest time-wasters for many sales teams — trying to close deals that were never going to close. But how do you know which deals are likely to close and which aren’t going anywhere?
7. Use Dock sales room analytics to identify engaged buyers.
If you have provided your prospects with a digital sales room, you can see when they look at your content, how often, and who’s looking. If your deal’s gone dead, you’ll know quickly and can focus on surer prospects.
“If they're looking at Dock a lot, it's a huge sign they're going to buy,” said Andrew Hollis. “The level of Dock activity was better forecasting than being a green light in HubSpot. It was very predictable.”
Waste less time on calls
Buyers don’t want to talk to salespeople — in fact, they typically spend less than 20% of their buying time talking to sales teams.
8. Prioritize asynchronous sales techniques.
Instead of trying to pester buyers into unwanted meetings, take an asynchronous sales approach.
Give prospects easy access to the content they need to make an informed decision.
Use Dock to create a customizable digital sales room — then slowly add curated information that’s specifically relevant to their use case and priorities.
9. Use async product demos and videos.
Or, instead of insisting on a meeting, create personalized video recordings with software like Loom.
Waste less on headcount
85% of sales leaders say they’re struggling to get a budget for headcount. If you keep your sales team as efficient as possible, you can keep the number of sales reps low. For example:
10. Experiment with how many sales reps you need.
Adding more heads does not always translate into more revenue — and it can hurt your sales efficiency.
Before defaulting to hiring new people, meet with your team to identify ways in which you could make it easier for them to hit higher targets — for example, by automating lead gen or using templates to make follow-up faster.
Reduce marketing waste
Don’t waste your marketing budget on buying endless email lists in bulk. Instead, try to:
11. Get better at converting existing leads.
Only 2% of sales occur during the first point of contact. Instead of spending marketing money on more new leads, increase your conversion rates with better follow-up. For instance, use email automation to track your open rates and optimize your email content for new leads.
We’ve got a guide to improving your sales follow-up game here.
Increase your Customer Lifetime Value
Bringing up your sales efficiency means making the most out of every opportunity. That will come down to truly understanding your customer’s needs and building strong relationships that can lead to repeat business.
To grow your LTV, try to:
12. Move upmarket.
Targeting prospects with bigger budgets can help increase the value of each deal.
We’ve created a deep-dive guide on moving upmarket, but in sum, moving upmarket will involve identifying, researching, and targeting larger companies by adjusting your messaging to address their specific needs and pain points. You may also need to meet more rigorous product requirements.
13. Shift from customer service to customer success.
If you want to increase the value of each account, you need to maximize your upsells and renewals. And that will come down to demonstrating ongoing value to your existing customers.
By proactively engaging with existing accounts and overinvesting in onboarding to ensure they are getting the quickest possible time to value out of your product, you will increase retention and grow revenue.
14. Create bundled product packages.
Incentivize customers to spend more by bundling products or add-ons together. Again, look at how you can give customers more value by grouping products into packages rather than trying to “trick” someone into spending more than they need to.
Boost your close rate
The final lever you can pull to increase sales efficiency is to close more deals. Here are a few tips:
15. Empower your buyer champion.
Make it easy for your buyer champion to advocate for your products internally. For instance, create a shared digital workspace where they can find all the resources they need to make a case for your product without digging around in their inbox.
16. Provide compelling sales assets.
Give your buyer champion the sales enablement resources they need to “sell” to the economic buyer — think cost calculators, an ROI calculator, and competitive comparison sheets.
Improve your sales efficiency with Dock
Sales efficiency is the path that will lead you from the startup scramble to consistent, long-term business growth. These tips should help you improve your sales efficiency ratio by optimizing your sales velocity, deal size, headcount, and time management.
Dock can help. Our platform can help make your sales team more efficient by:
- Making it easier for your customers to buy with a digital sales room that keeps all the information they need in one place.
- Increasing deal velocity, with mutual action plans to make the next steps clear and keep the ball rolling.
- Speeding up new reps’ sales readiness with standardized follow-up templates that can be used company-wide.
- Helping you identify which prospects are most likely to convert with workspace analytics that show you when buyers engage with your sales assets.