In the life of sales we all hear talk about closing or conversion ratios. Maybe a business owner talks about certain sales reps that have high or low closing ratios. Typically, if we hear someone has a good closing ratio, we think that person is a good salesperson.
What is a closing ratio? The dictionary defines it as the “success rate of finishing a sale.”
The dictionary definition is pretty vague. In actuality, a closing ratio is the number of sales compared to the number of possiblities, or the number of leads. As far as measuring success, the closing ratio is important but it is not an automatic measure of success. In business, success is usually defined as the bottom line, or profit. The experienced business owner knows that profit is not always the result of the percent of sold versus the number of possibilities that defines a salesperson’s success.
Lead cost varies, depending on different advertising.
If you have a company that pays for leads, the lead cost varies, depending on where you are advertising. If you have a sales rep that is given expensive leads and a sales rep that is given inexpensive leads, the one given expensive leads will have to either sell at a higher close rate or close at a higher price. If you are giving leads that cost minimal to nothing, the close rate or sale amount of the next person does not have to be as high in order for your business to profit from those sales.
A sales rep who is given expensive leads will have to either sell at a higher close rate or close at a higher price.
Take as an example salesmen Paul and Mark. Paul has been given 50 leads that cost about $100 each, or $5000 worth of leads. Mark has been given 50 leads that cost $50 each, or $2500 worth of leads. If they both close 30 leads, they both have a 60% closing ratio. If their contract sizes are the same, Mark has been more profitable for us because we have spent half as much on advertising for his sales as we did for Paul.
Of 50 leads again, if Paul closed five leads at $30,000 each, he sold $150,000 in gross revenues with a 10% closing ratio. On the same token, if Mark sold 30 leads at $3000 each, he had a 60% closing ratio and gross revenues of $90,000. If we were looking at just the closing ratio, we would say Mark is our high closer. Looking at it from a profitability standpoint, it is our low-closer Paul who is more profitable.
The whole purpose of tracking closing ratios is to measure profitability, but that profitability is not shown simply from the closing ratio itself. That is merely a starting point in a system set up to effectively manage the sales and marketing of your business. When you have the proper systems in place, you can hire, train, maintain or let go of employees based on the knowledge that you have a way to monitor the profitability of your salespeople, or conversely, the lack of profitability.
George Odiorne once said that if you can’t track it, you can’t manage it. This hold true for closing ratios, too! Tracking will increase gross revenues!
WINNERS KNOW THEIR NUMBERS!
Susan Raisanen is in the business of increasing revenues for businesses through the use of an effective lead, sales and marketing management software. She is the President and a Sales professional for Profit Finder Pro Software ( https://www.profitfinderpro.com/ ) who specializes in educating business owners, sales and marketing managers in regards to the very numbers that affect gross revenues. If you want to know more about lead, sales and marketing management tracking made easy, Susan invites you to submit your questions to her at firstname.lastname@example.org or call her at 1-800-972-6952.