Every manager knows the truism that “what gets measured gets managed.” In the past, analyzing performance metrics with any accuracy was difficult at best. To determine whether an originator was good or not, managers have traditionally relied on month-end loan volume as an indicator. Today, with CRMs and other sales technologies, senior management can measure anything they want. Rating originators primarily on volume is outdated. So what should be measured when evaluating originators today?
Let’s start off with recognizing that monthly sales volume based on closed transactions is a lagging indicator. In the Harvard Business Review article “Find the Right Metrics for Your Sales Team,” Frank Cespedes observes that while lagging indicators are important, “they can’t be used by the salesperson or sales manager to improve future outcomes.” Why? Because lagging indicators such as as revenue, profit, volume and costs are the results of activities the salesperson performs.
What is a leading indicator?
Leading indicators are better in helping an originator improve because they help predict which activities will produce results. For instance, activities such as how many presentations were made to referral sources, phone calls and face-to-face meetings with prospects can give managers an idea of what month-end volume will look like well before the end of the month.
According to Cespedes, leading indicators provide real-time feedback on whether originators are spending their time and efforts in the most productive way. The bottom line is that originators are in control of these activities. As any good sales manager knows, top producers spend their time on revenue-generating activities while average or sub-par sales professionals are busy with activities that do not produce income.
Cespedes recommends that to improve sales performance, it all starts with knowing your sales conversion funnel. While it is true that companies and originators can have different funnels, the key is to determine what activities make up your sales funnel and align performance metrics to it at the individual level.
When analyzing an originator’s sales funnel, start with recognizing the typical flow of activities in a pipeline. For example when prospecting for referral sources, the sequence might be: Determine unique market opportunity; identify targets; contacting them via phone, email, cold calls; set up a meeting and receive a customer application.
During the engagement part of the sequence, originators can chart what they have achieved. This information then becomes an equation that allows both the originator and manager to know the likelihood of achieving the month-end volume goal before the month is out.
The benefit of managing to leading indicators is that it allows originators to take corrective action if they are not hitting incremental benchmarks. Let’s say, an originator is working hard and appears to be making a lot of calls but does not have any new referral sources. By tracking their phone calls, the manager can direct the sales person to increase the number or to revise a sales pitch that is not effective.
From a company’s perspective, tracking leading indicators solidifies the standards for all originators and addresses the hit-or-miss approach of what is wrong with origination when volume is off. When senior managers don’t use leading indicators, they can focus on the wrong metrics and not correct the problem.
Finally, as Cespedes points out, if sales professionals have leading indicators information and personalized scorecards, the company is empowering the individuals to know where they stand and where to focus. More importantly, it allows the company and its sales staff to emphasize what they can control — their own selling behaviors.
Doesn’t it make sense to hold managers accountable on the metrics that matter so their originators can engage in the right behaviors needed to be successful? Isn’t that why we have managers in the first place?