Your business’s sales funnel shows each stage of the customer acquisition process—from when your customer becomes a prospect to when they become your repeat customer or need after-sales support. If you want your business to be successful, you must monitor your sales pipeline. To do this, you need to track several sales funnel metrics.
Measuring your company’s pipeline metrics will help you track your team’s performance. The results will then help you understand which marketing and sales strategies can be adjusted and optimized to keep your sales pipeline as healthy as possible.
Identifying the right sales funnel metrics to measure and track will also help you notice successful strategies.Which of your strategies you will learn about digital marketing Bring you the most leads and let your customers choose you over your direct competitors.
Businesses examine and review their sales funnel metrics to understand what is and isn’t working in the sales process.So if you are researching about How to start a businessyou should also understand the sales pipeline process.
So, here are six sales funnel metrics your business should track to improve the effectiveness of your sales and marketing campaigns:
1. Number of qualified leads
The first metric every business should track is the number of qualified leads. Anyone who interacts with your business is considered a potential customer. However, a qualified prospect is someone who could be your prospect based on the criteria your business has set to define the ideal customer. Additionally, qualified leads have buying intent.
You won’t be able to achieve your sales goals without a large pool of qualified leads. Therefore, you should track your total inbound and outbound leads. This way, you can rest assured that your sales team has enough qualified leads to meet your revenue goals.
If you find that your sales department is not getting enough qualified leads for the next quarter, you should act quickly. Increasing your marketing resources is one of the ways to attract more potential customers. Other strategies include investing in training your staff and new software that tracks the lead lifecycle.
2. Customer acquisition cost
Customer acquisition cost (CAC) is another sales funnel metric you should track. CAC describes the cost of acquiring a new customer to purchase a product or service.
To determine the average customer per acquisition, you can use the formula shown in the image below:
Your customer acquisition cost = sales and marketing costs divided by the number of new customers acquired. Understanding CAC will give you an idea of whether your sales funnel is working.
If you notice that the CAC is higher than standard, you should adjust your fee. Even small modifications, such as allowing only business expenses associated with the prospect of a certain deal size, can have a significant impact.
Another strategy to reduce customer acquisition costs is to automate as many processes as possible. Automating marketing and sales processes can mean hiring fewer people and paying less. It increases efficiency and allows you to reach more qualified leads.
To reduce customer acquisition costs, you should focus on your repeat customers. Reward your loyal customers with special offers and an affiliate program for your promoters.
Rewarding loyal customers to bring you new customers may be cheaper than spending on paid marketing to attract the same customers.
Finally, you should constantly track, monitor, and optimize your customer acquisition strategy. Whether it’s an e-commerce or SaaS marketing strategy, evaluate your techniques regularly to make sure they’re still working.
3. MQL to SQL conversion rate
The MQL to SQL conversion rate is the percentage of your marketing qualified leads that move down the funnel and convert into sales qualified leads. This is a great indicator of how successful your lead generation strategy is.
MQL to SQL conversion rate is one of the most accurate ways to check the quality of leads. It also shows how well your sales and marketing teams are working together.
The best MQL to SQL conversion rate is 13%. So for 100 MQLs, each campaign should bring you at least 13 successful SQLs. If the ratio is low, it probably means you’re not bringing in leads that might make a purchase. Or there is a disconnect between your marketing and sales teams.
So, an effective way to improve this metric is to make sure your marketing and sales teams are aligned on who qualifies as a “qualified prospect.”
To increase the amount of SQL you get, you can also investigate if you get fewer leads. For example, your landing page may no longer be optimized well enough, or you need to validate your email list to get more leads from your email campaigns. Sometimes small tweaks are enough. Or, an entirely new digital marketing strategy may need to be developed.
Finally, you should keep tracking your MQL to SQL conversion rates to see if your changes are effective.
4. Customer lifetime value
Customer lifetime value, or CLV, represents the total revenue your business can earn from a single customer. This is a key metric for many businesses, especially SaaS companies. The CLV metric is also important if you run an e-commerce business because your business depends on repeat sales from the same customers.
Calculate CLV using the following formula:
Customer lifetime value = average sales value × number of transactions × retention rate over time
Customer lifetime value should be evaluated along with customer acquisition costs. If your customer acquisition costs are higher than your customer value, you are most likely losing money.
The longer a customer is retained, the greater the lifetime value. Therefore, focusing on retaining existing customers and increasing their CLV can lead to steady, predictable revenue growth for your company.
To improve CLV, improve your onboarding process. It is critical to make onboarding your clients as easy and fast as possible. This is especially important for SaaS companies. You can create content that helps customers, such as guides, tutorials, or how-to videos.
At the same time, e-commerce sites can use promotions such as upsells and cross-sells to increase customer lifetime value.
You must also attract customers by sending regular emails. Email marketing is one of the best ways to retain customers. Focus on demonstrating the value your product or service brings to customers. Continue to educate your customers. Provide the latest information on your products and industry news and make announcements about new product launches.
Maintaining good customer relationships is critical to improving CLV and the continued success of the business.
5. LTV to CAC ratio
LTV stands for customer lifetime value and CAC stands for customer acquisition cost. Therefore, the LTV to CAC ratio compares the value of your customers over their lifetime to the cost of acquiring them.
You need this sales funnel metric to measure the return on investment of every dollar your company spends to acquire customers.
So, for example, if your LTV to CAC ratio is 5:1, that means for every $1 you spend, you earn $5 back. A 1:1 ratio means you are less likely to make money. A 5:1 ratio means good returns.
If you have a low LTC to CAC ratio, you need to generate more leads for your business. This can be achieved with more marketing campaigns. You may also want to increase CLV to increase this ratio.
The Corporate Finance Institute sets the industry standard of 3:1 for LTC and CAC.
Several factors can affect the LTV/CAC ratio:
So, if you want to improve this metric, you should increase your customer retention rate or ARPA. ARPA is the average revenue generated by a single customer in a given year (average revenue per account).
6. Sales Velocity
The final sales funnel metric you should track is sales velocity. Sales Velocity measures how quickly transactions pass through your sales funnel and generate revenue. In general, the faster a prospect moves through your sales funnel, the better. The faster your leads convert, the more free time you have to research other possibilities.
You can measure sales velocity using the following formula:
Number of deals in the pipeline x Total Win Rate (%) x Average Deal Value (in USD) / Sales Cycle Length (in days).
For example, let’s say you have 100 opportunities in your sales pipeline. Your average win rate is 30% and your average trade size is $5,000. Your company’s average sales cycle takes 20 days.
Your sales funnel velocity = 100 x .3 x 5,000 / 20 = $7,500.
That means your company has $7,500 going through the sales funnel every day.
This metric allows you to see how much revenue your sales strategy is bringing in on a daily basis. To increase your sales funnel velocity, you need to increase your win rate, increase your average deal size, or shorten your average sales cycle.
Choosing the right metrics to measure your business performance is the key to getting the most relevant data to make informed business decisions.
In summary, the basic sales funnel metrics your business should track include:
- Number of qualified leads
- customer acquisition cost
- MQL to SQL conversion rate
- customer lifetime value
- LTV to CAC ratio
- sales speed
Use these sales metrics to measure the success of your marketing and sales teams and track your business performance. This way, you will have a healthy sales pipeline and good prospects to make your business a success.
About the author
Austin Andrew Katis, Entrepreneur Leadership Web Writer
Austin Andrukaitis is the CEO of ChamberofCommerce.com. He is a seasoned digital marketing strategist with years of experience in creating successful online campaigns. Austin’s approach to developing, optimizing, and delivering web-based technologies has helped businesses achieve higher profits, increase productivity, and enable organizations to accelerate sustained growth