Is a Good Closing Ratio a Measure of Success?
Good closing ratio! What is it anyhow? Closing or conversion ratios are a part of the language of salespeople and their supervisors, whether it be the business owner or sales manager. 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.”
If you’re looking for an actual ratio, it’s simply the number of sales compared to the number of leads. Very simple.
Going back to the dictionary definition describing it as the success rate of closing a sale. What is included in Success? The actual closing ratio itself is important, but it is not an automatic measure of success. In a for-profit business, success is defined as the bottom line, or profit. Unfortunately a good closing ratio itself is not necessarily an indicator of profit, and therefore not a definitive measure of success.
Where do you get your 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 a higher number of sales or at a higher price. If you are giving leads that cost minimal to nothing, the sales revenues of the next person does not have to be as high in order for your business to profit from those sales.
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 6 to 10 closing ratio, or a 60% closing percentage. 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 percentage. On the same token, if Mark sold 30 leads at $3000 each, he had a 60% closing percentage and gross revenues of $90,000. If we were looking at just the closing ratio or percentage, 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 or percentage itself. That is merely a starting point in a system set up to effectively manage the sales and marketing of your business. Once you have those systems in place, then you can work with your salespeople to find where they are strong, and then really focus to bring them to a good closing ratio in places where they sell strong and are profitable.
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.
So, in answer to the original question, in order for a good closing ratio to mean anything, those salespeople must also be selling those leads at a cost the company can afford, and also at a profitable price point.
George Odiorne once said that if you can’t track it, you can’t manage it. This holds true for closing ratios, too! Tracking will increase gross revenues!
WINNERS KNOW THEIR NUMBERS!
VIDEO: TRACKING CLOSING RATIO FOR SALES PERFORMANCE.
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 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 susan@ProfitFinderPro.com or call her at 1-800-972-6952.