During my travels, I hear salespeople comparing their closing ratios on quotes. Some boast of rates as high as 90% while others are often as low as 40%. Which would you believe is the better sales rep?
In both cases, these ratios are insignificant at best and misleading at worst. Assume both salespeople are median-level performers in their markets putting up identical sales numbers. If this were the case, I’d argue that the salesperson with a 40% closing ratio is prospecting more and, in spite of lower ratios, might be a better performer in the long run.
Conversely, let’s say that two different people are at the highest levels of sales and margins in their markets. In that case, I’d argue that the 40% ratio is a symbolic of poor time management skills.
Closing ratios on “bids” is not a strong standalone indicator of sales excellence, if only because the bidder involved can range from a loyal customer down to someone you've never met. My studies have shown that attrition rates--the pace at which customers will stop buying from existing customers--range between 10% and 20%. Therefore, it's likely you will close deals with existing customers eight to nine out of every times you deal with them. Conversely, you should expect that closing ratios of targeted new business from prospects will come in as a reciprocal of the loyal factor, i.e. you'll close on only 10% to 20% of your opportunities
To accurately track closing ratios, divide your quote activity into three categories:
- Repeat sales of a product to an existing customer. If you truly believe your company delivers service and value, as nearly every company boasts, then loyalty is a given. Expect to retain 90$% of your business from existing clients in a given year. But don’t get caught up in this ratio as a symbol of sales excellence. Instead, recognize it as an indicator of service excellence.
- New product sales to existing customers. Everyone knows it’s easier to sell a new product to an existing customer than to a cold prospect. Your closing ratios in this category will vary based on many factors, such as sales expertise in a product category and service levels. Closing ratios here will likely be much lower than repeat sales of a product to existing customers, but greater than cold prospect leads.
- New products to new prospects. The toughest sale to make is a new product sale to a prospect who has never purchased from you. Your closing ratios in this category will be lowest--just one or two successes for each 10 bids--but sometimes you just have to try.
These concepts are only the beginning of an exercise that will reap huge rewards in your sales methodology. Young salespeople at the outset of their careers will have a lower blended closing ratio because their focus is on new customers. Closing ratios when selling new products to existing customers can be a powerful indicator of cross-selling effort and teamwork. You should even start to recognize that closing ratios produce cycle time measurements and quality of prospecting while revealing much about the quality of selling skills during client interactions. You will discover the difference in sales performers is not measured by the closing ratios they deliver, but by the quality of closing analysis.