When I ask business owners this question, most reply with either “I don’t know” or “What do you mean by conversion rate?” On a macroscopic scale, conversion rate is simply the percentage of sales leads that you convert into a sale. However, there is much more information and value to be gleaned from tracking your conversion rates.
In coaching my clients, I focus on five ways for increasing the profitability of a business:
- Leads
- Conversion Rate
- Number of Transactions per year
- Average value of sales for the year
- Profit Margin
Of these five ways, increasing conversion rate is generally the second easiest and most cost effective area for improving sales. Despite conversion rates being one of the easiest areas on which to focus and improve, from my experience as a business coach, it is also the one most neglected by business owners. Here is how to change that!
Why is conversion rate so important?
First, understand its importance and why conversion rate warrants your focus and monitoring. Do you realize that if your business has a conversion rate from lead to sale of 20 percent and we work together to increase that conversion rate to 30 percent the result is not just an increase of 10 percent. It’s a whopping 50 percent increase! This in turn means that your revenues (on average) would increase by 50 percent! Do I now have your undivided attention?
Test and measure your sales gates
Second, the key to increasing your conversion rate is to test and measure it at every level of your team’s sales process. To do this you need to identify and break-down your entire sales process into the smallest “chunks” possible so that you have a series of standardized “steps” your team performs with clients as it takes them through the sales process. Let’s call these steps “gates within the sales funnel”. The key to closing a sale is to get each prospect through all of the gates within the sales funnel.
For example, let’s say you are in the IT business. Your sales funnel could look something like this:
Gate 1. Initial contact: begin a relationship with a decision maker from a large list of leads
Gate 2. Discovery: invest time learning about prospect’s issues, and how you can help, as well as meeting others involved in the decision, and determining the timing and budget available for purchase.
Gate 3. Demo of Product: get them excited about wanting to purchase
Gate 4. Proposal: include in the license agreement, if not too complex.
Gate 5. Signed agreement: get down payment.
Measuring the conversion rates from Gate 1 to Gate 2, Gate 2 to Gate 3 and so on is key to knowing what your conversion rate is at each critical stage in the sales process.
Work on the bottlenecks
Third, have every sales team member measure their own conversion rates so that you identify the individual conversion rates of each of your sale team members. Then average all of these percentages to obtain an overall team conversion rate for your sales. Finally, identify where the largest “bottlenecks” are for individuals and the team. Then work on improving the conversion rates between these gates first. Innovate and coach your team to dramatically improve the percentage of prospects they get through that gate.
Let’s flesh out this example. Let’s say that out of 1000 leads your sales force, on average, has discussions with 100 decision makers. That is a conversion rate for Gate 1 of 10%. Next let’s assume that your sales force averages scheduling 30 discovery sessions. Your conversion rate for Gate 2 is 30%. From those discovery sessions your team has determined that they can help a certain number of the prospects with your product and are able to schedule a product demo with 15. Gate 3 has a conversion rate of 50%. After providing a demo of your product, your sales team averages 3 who are interested enough to entertain a proposal or discuss making a purchase. Your conversion rate for Gate 4 is 20%. Finally your team is able to convert an average of 1 out of 3 into a sale, resulting in a Gate 5 conversion rate of 30%. What is your overall conversion rate? It is 0.1%! Just increasing that to 0.2% will double your revenue!
Do you see the value in monitoring your conversion rates for every step in the sales process? Where would you focus your attention to dramatically improve your sales? Instead of wringing your hands and saying “I have to get more sales”, you now have the information enabling you to do exactly that!
Rob Garibay is a local business owner and business coach with 30+ years of business experience. Forward your business questions to: 405 573-6537 or robgaribay@actioncoach.com