Adjusted Opportunity Value

Adjusted Opportunity Value is a KPI that is monitored in conjunction with Opportunity Value. The measure Probability of Closure plays an important role in deriving Adjusted Opportunity Value.

Opportunity data is be baseline for computing Adjusted Opportunity Value. Only open opportunities as of the selected date are considered for calculation. Each stage of the Opportunity is assigned with a probability value that is indicative of success rate of winning the opportunity. Adjusted Opportunity Value is the sum product of total opportunity value across all stages of the opportunity with probability of closure.

Stage Opportunity Value Probability of Closure Adjusted Opportunity Value
Review  $25,000  80%  $20,000
Quotation  $30,000  60%  $18,000
Prospect  $45,000  30%  $13,500
Lead  $60,000  10%  $6,000

In the example above, the Adjusted Opportunity Value is $57,500 against the Total Opportunity Value, which is $160,000.

Total Opportunity Value gives the total potential of the pipeline whereas Adjusted Opportunity Value provides the expected yield.

Net New Interactions

Net New Interactions is a KPI that is monitored for each and every personnel in the sales team. Significance of this metric is very high because it gives a glimpse into the future status of the sales pipeline. This KPI is similar to New Opportunities for a given time duration with slightly different context.

Sales team in a company pursues multiple opportunities and any activity undertaken related to a sales opportunity is tracked in a CRM system in the form of Calls.

A Net New Interaction can be identified as an activity with a Lead or Potential Lead that materialized for the very first time. It is an indication that market is exhibiting interest in the company and roughly suggests the quantum of new potential customers that could become part of the pipeline in future. Another angle to look at this KPI is from Marketing perspective, wherein Net New Interactions is a measure of effectiveness of different marketing initiatives.

Net New Interactions is essentially the number of activities made during a specific time period. Computing this KPI is tricky due to nature of data capture in the CRM system. Only activities against potential customers that happen for very first time during the same period should be considered. If a potential lead is already available in CRM system, it does not fall under this category. Moreover, the definition and data capture mechanism varies widely across companies.

Net New Interactions KPI in CRM dashboard is a high visibility and high impact KPI that can give all levels of sales personnel quick insight into future pipeline inflow and the direction marketing efforts are taking the company forward.

AR Days Sales Outstanding (DSO)

DSO i.e. Days Sales Outstanding is undoubtedly the most popular KPI in Accounts Receivable and has visibility right from CEO to operational managers. It can be seen as a “High-Impact” metric for monitoring, wherein a small deviation gets noticed along the entire management hierarchy. Incidentally, this KPI is also used by external investors to evaluate financial health of a company. DSO is similar to AR Turnover Ratio wherein it indicates average time taken for the company to collect payments from customers and expressed in number of days. 

DSO is derived partially from financial statements for a specific time period and it goes without saying that the measures are semi-additive in nature and time context is mandatory. The formula is very simple and all values are derived for a said period.

DSO = (Ending AR / Total Credit Sales) * Number of days

The key here is “Credit Sales”, which cannot be derived from financial statements, but has to be computed from sales orders booked with different credit payment terms. Numerator indicates the quantum of actual collections made against receivables and denominator indicates the quantum of receivables that were introduced.

For example, for the month ending March-2016, if the AR Balance is $15,000 and Sales was $10,000 the monthly DSO would be 46 days. Assume the quarterly credit sales was $35,000, then quarterly DSO would be 39 days. As you can see, the length of time context can have a considerable impact on the value of DSO and has to be handled carefully because reporting with partial context will convey wrong message to the user.

Since Days Sales Outstanding represents effectiveness and efficiency of Accounts Receivable function in a single KPI, it goes without saying that any AR dashboard is incomplete without DSO.

KPI Context – Sales or Revenue or Both

One often encounters the scenario above while developing dashboards or reports. It is easy to be confused because many times these two terms are used interchangeably but essentially mean two different things.

Only difference between a measure and Key Performance Indicator is the meaning & context attached to it.

Depending on the audience the KPI Sales and Revenue will mean two hold different scales of importance, for example a CEO is interested in Sales first and Revenue second whereas CFO looks at Revenue first and Sales later.

kpi_sales_revenue_differenceSales and Revenue are interlinked measures. Sales as a KPI indicates the amount of “Expected Revenue” in the forthcoming future whereas Revenue as a KPI indicates the actual amount of “Sales Realized”. For example, A sale made for $10K in Jan-2016 might be fulfilled shortly, but actual money collected i.e. realization might happen in Feb-2016 or later. Due to this time difference, while reporting both metrics together time context plays an important role.

Sales is precursor for Revenue, which is monitored closely but not disclosed to public whereas Revenue is actual money in the pocket and disclosed to public through financial statements.