Why are Sales KPI’s important when you are looking to sell your business?
There are a number of Sales Key Performance Indicators ( KPI’s) you should have operating within your organisation, especially when you are getting your house in order for when it comes time to sell.
These include having pipeline reports which show the value and quantity of all deals in each stage of the pipeline at the moment when the report is run.
You should also have flowcharted your sales process so that it is clear the steps your sales team take towards achieving a successful sale.
You should also be able to identify the lifetime spend of your customers and be able to prepare a Key Customer Analysis.
In addition, an important and often overlooked KPI is a Customer Churn Analysis.
So what is Customer Churn and why is it important?
Customer churn is a concept used to describe how well or poorly a company keeps hold of the customers it acquires – how many stop paying vs how many become long-term customers.
This is an important KPI for any business, whether you are selling or not as it helps you keep track of the effectiveness of your Client Management processes and whether or not you are losing business.
There is no point putting new clients into the top of your sales funnel if you have existing clients falling out the bottom. An incoming potential purchaser will be interested to note how well you retain your existing clients and how robust your Client Management systems are.
How to calculate churn rate
The basic way to understand churn rate is to take the number of customers you started with (let’s say per month) and then track how many of them you lost by the end of the month.
You can also track how many new customers you gained during that month and how many of those new customers stopped paying during the month. You can use that principle to figure out what your average monthly churn rate was for a year, or to work out what an annual churn rate has been if you’re looking at a larger historical dataset.
Churn Rate Formula
The Churn Rate Formula can be calculated as the number of churned divided by the total number of customers:
number of churned customers / total number of customers
Where the number of churned customers is how many people have left your service over the period out of the total number of customers you had during the period.
A discerning potential purchaser will often ask for your Customer Churn rate because it demonstrates to them how effective the business is at holding onto clients.
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If you are thinking about selling your business and need help with developing and documenting your sales processes and procedures then give us a call.
Visit us at www.businessexit.co.nz to make a time to have a free, no-obligation chat about your situation with one of our team.
To your business sales success.