KPIs 101.1: How Big Is The Deal?
As discussed in KPIs 101: How Much Can Your Business Improve?, every quantifiable Key Performance Indicator that has ever been devised falls into the following categories:
Size - how big is the deal?
Count - how many deals are on the table?
Velocity - how fast does the deal take to work through?
Capacity - how many deals can we actually do?
Statistics - averages, conversion rates, ratios, standard deviations, skew, correlation etc. etc. etc.
If you use them together, you can quickly work out how much your business can improve.
Today we will discuss #1: Size - How Big Is The Deal?
Deal size is a pretty simple concept - it is an easy to derive number. However, what we are looking for are some statistics around deal size e.g. the average deal size, minimum deal size, and maximum deal size.
The key to understanding the impact of deal size on your operation is in understanding how it interacts with #4: Velocity - How Fast Does It Take The Deal To Work Through?
For example, if an average deal takes 3 hours to work through, and this time does not change much based on the deal size, then your profitability is more or less dependent on the deal size.
On the other hand, if the minimum deal size only takes 25% of the time of the maximum deal size to process, your optimal operating rhythms need to be assessed a little more closely.
Let's do some numbers...
Assuming your team has 2000 days p.a. to process deals, and
the minimum deal size is $500, and takes 1 day to process, your possible revenue is $1m p.a.
your average deal size is $1,000 and takes 4 days to process, your possible revenue is only $500,000 p.a.
your maximum deal size is $10,000 and it takes 6 days to process, then your possible revenue is $3.33m.
On these numbers, it would make sense to construct your business around getting the maximum number of minimum and maximum sized deals possible, and to stay away from the average sized deals as much as possible.
The questions then become how many of these types of deals are out there, and how frequently can we get them?
Even so, the profitability of the deal is dependent on both the size, and the time taken to process it.
If you provide face-to-face services, which require documents to be signed and executed (lawyer, accountant, financial planner, mortgage broker, real estate agent), the simplest and cheapest way to speed up processing time is to use Suitebox.
If you need to quote from building plans, then the quickest way to speed up your quoting is to use Planswift.
If you are a business that wants clarity around who does what, when and how, and how much time deals actually take to process, then you will love Xsol.
If you are looking for help to quickly and easily derive your KPIs from your business data, then check out the leader in Gartner's Magic Quadrant for Business Intelligence for the last 5 years - Qlik.