The Endowment Multiplier: The North Star Metric of Sales

The Endowment Multiplier: The North Star Metric of Sales

Not all salespeople may be familiar with the North Star Metric (NSM). If however you’ve worked closely with a Growth and/or Product team, chances are you’re well aware of this powerful concept.

The NSM is the single metric that best captures the core value that your product delivers to customers. Optimising your efforts to grow this metric is key to driving sustainable growth across your full customer base.

To put this in context, here are a few examples:

AirBnB: number of nights booked.
Medium: total time spent reading.
Intercom: number of customer interactions.
Facebook: monthly active users.

Isn’t this powerful? One single metric that aligns the entire organisation and tells everyone how the company is performing. One KPI to rule them all!

When it comes to Sales metrics and KPIs, there are a million things you can track. Number of dials, talktime, emails sent, demos booked, conversion rates, you name it. As no two sales teams (and products) are the same, different sales leaders choose to track different things.

And this makes perfect sense! Comparing the win/loss ratio of a B2C2B freemium sales team to that of a B2B Enterprise sales team for example is simply nonsensical. Activity metrics are also tricky - number of dials is a necessary, but not a sufficient condition for strong sales results.

Having said all that, there’s a single metric in Sales, that you can use to immediately assess the overall efficiency of a salesperson/team/organization. This metric is the Endowment Multiplier (EM) and is the closest you’ll ever get to a silver bullet sales metrics-wise.

This post, we will tell you exactly what the EM is, how to calculate it and how to use it as a powerful sales diagnostics tool. We’ll also look at a number of derivative metrics that you should keep an eye on (dead deals, delinquent deals,etc.) in order to ensure your EM stays within a healthy range.

What is the Endowment Multiplier

The EM looks at the average time it takes your team to successfully close a deal (i.e. the duration of your sales cycle) and compares it to the time it takes them to declare a deal lost.

It should come as no surprise that salespeople take longer to declare a deal lost than it takes them to win it. That’s only natural - grit is one of the strongest characteristics of good sales people. If you gave up as soon as you encountered an adversity, than you’d not do too well in Sales. What however makes great salespeople is knowing when to move on and pursue other more tangible opportunities, rather than overbetting on opportunities that will never close (more on this here).

And this is exactly what the EM tells you.

How? That’s the best bit - it’s very simple! Just divide your average time to lose a deal by your average time to win a deal and voila! You’ve got your EM.

As a rule of thumb you don’t want your EM to exceed 2.7.

An EM higher than that indicates that you’re holding on to “losers” for longer than you should. The higher the multiplier the more deadweight you’re carrying in your pipeline. The more deadweight you have in your pipeline, the less time you have to work deals that can actually close in the current forecasting cycle. The less deals you can close, the higher the likelihood you’ll miss your target.

It really doesn’t take a genius to figure out that the best way to set yourself (and your sales team) up for success is to ensure that you get rid of any deadweight in your pipeline. Again - easier said than done. I’ve been is Sales long enough (both as an individual contributor and sales leader) to know just how hard it is to let go of a big shiny logo and/or a six figure deal. That’s precisely the reason why in Heresy, we alert you as soon as a deal becomes dead. And even then, it could be hard to cut your losses. What you really want to do, is to ensure you don’t end up having any dead deals in the first place.

The next post in this series will look at exactly how to do that. For now, just be sure to keep on top of your/your team’s EM. If you’re a sales rep and you’re not tracking your EM, start now! If your sales manager/VP doesn’t have this as one of your team’s KPIs, talk to them and have them add it. That’s the North Star Metric the entire sales org should be guided by...not number of dials.

I know the maths involved for calculating the Endowment Multiplier for a large sales team could be rather cumbersome. If that's the case, but you'd like to know what your team's EM is, you could just use the widget we built.