Sales Conversion Rates. How to measure and use the data
Most KBB business owners will tell you if prompted what their conversion rate is; but perhaps fewer than you might expect can do so based on calculation rather than gut feel. Does it matter? Well, it should- using your data well can help you make better decisions such as:
- when and how to invest in your business
- Help you forecast future revenue from present pipeline
- Help you evaluate the effectiveness of different salespeople
- Help you understand which market price segment you are most effective in, and which you should abandon
In this article we’ll look at the basics of conversion rates and then look at some of the more advanced concepts.
How to calculate sales conversion rates
Before we look at the expression of conversion rates, we must be clear about what data we are going to use and how ensure we use it consistently to reach sensible conclusions.
First, you must decide which data to include in your chosen time window. You can either look at the value of business you closed in quarter versus the total you quoted in the quarter, or you can look at the present status of the business you quoted for in that same quarter- i.e how much of that business have you closed by a given point in time. With the first calculation, you may include a deal that closed recently but you originally quoted for 12 months ago- potentially skewing your data. With the second approach, you might skew the data as many of the larger projects you have quoted for will have longer lead times, and thus wouldn’t count in the data.
The point is you must be aware of the choices you make and be consistent to ensure time series-data is comparable.
Once you have the data set, here is the formula you need to calculate a basic conversion rate:
Total value of secured orders/ total value of quoted opportunities x100 = sale conversion rate
| ALL | |
|---|---|
| Closed Won | £4,490,913 |
| Closed Lost | £7,158,026 |
| Total | £14,289,901 |
| Open | £2,640,962 |
| Current CVR Rate | 31.4% |
| Still Open | 18% |
A few crucial points:
- Total value- not the number of quotes; if you go off number of quotes you could skew your data if you sell ‘add ons’, extras or parts etc.
- This is secured orders- that you have an inalienable contract for.
- Again, total value for the same reason.
- Most importantly this is ‘quotes’. You can’t win business you haven’t produced a quote for and neither can you record the value if you haven’t quoted.
Ideally you would do this in a Customer Relationship Management software package like Salesforce, Anthill or Hubspot; but perhaps you can rely on exporting data from Winner into excel- what matter is catching it all.
What to do about a lot of your quotes still being open?
If you took an export of your data from today looking back twelve months, you might find a lot of the quotes are still ‘open’, that is to say the client hasn’t yet made a decision, or at least hasn’t told you of the decision. If that’s 35% of your database and you’re just looking at ‘closed won’ opportunity value and dividing by total opportunity value, you’ll mark down your conversion rate. There are a few things you can do to make sure this impact is mitigated:
- Work a quarter or two quarters in arears
- Adjust the data by applying your historic conversion data to the open segment of you calculation
You can augment the conversion rate by working out what your win/loss ratio is and applying that to the total number. In the above example, that would be 38.6%- however, experience demonstrates that this will be an overestimate. The ‘open’ pipeline always includes some of the people who’ve gone cold/ projects delayed etc. Better to look back for enough that the ‘open’ pipeline accounts for a much smaller percentage of your data, work out what your conversion rate is, and then apply that to factor your open pipeline.
For example, if historically your conversion rate was 34%, you would calculate your conversion rate as per above, but with the following adjustment
Open (£2,640,962) *.34 = £897,927
Add this to your closed won total, (£4,490,913 + £897,927) = £5,388,840
Then divide by the same total £5,388,840/ 14,289,901 = 37.7%
You can use this number to forecast the future revenue you’ll generate from your existing pipeline, or you can use it to work out what your revenue would be if you grew your pipeline by investing in increasing your marketing. Perhaps most useful, you can monitor this number in time series which will inform you if your sales capability is improving or reducing.
Once you have the data and know how to work out your sales conversion rate, you can use filters in excel to give you more sophisticated insights.
Evaluating sales conversion rate by market segment
Most retailers will sell their products into several different pricing segments. This could for example mean that you sell kitchens between £10,000- £80,000. These are very different market segments. Segmenting your data by price, lets you see your effectiveness in each segment. For example:
| Price Segment | Opportunity Value | Closed Won | Conversion Rate | No. Of Opps. | Revenue Per Opp. |
|---|---|---|---|---|---|
| £30k + | £1,590,944 | £998,894 | 63% | 43 | £23,230 |
| £25k – £30k | £1,571,257 | £571,720 | 36.4% | 59 | £9,690 |
| £20k – £25k | £3,542,396 | £1,318,883 | 37.2% | 163 | £8,091 |
| £17k – £20k | £2,919,933 | £807,942 | 27.7% | 160 | £5,050 |
| £13k – £17k | £3,282,941 | £919,694 | 28.0% | 221 | £4,142 |
| £10k – £13k | £2,190,767 | £545,964 | 24.9% | 189 | £2,889 |
| <£10k | £1,062,754 | £375,386 | 35.3% | 148 | £2,536 |
Clearly, this retailer is far more effective at higher price points than lower. In fact, you can see that in the lowest two price bands, which account for 34% of their quotes, produce just 17% of revenue. Conversely, the top two price band equate for just 10% of the number of quotes, but 28% of revenue.
This is the type of data that can really help inform business strategy.
Using conversion data to evaluate salespeople
You know who your top salespeople are in the terms of the value they sell, but is that the whole story? What if you had data that gave you more insight that could help you ensure the whole team is being utilised in the best way, to drive an overall increase in sales.
| ALL | Karl | James | Leone | Tara | Stephen | |
|---|---|---|---|---|---|---|
| Closed Won | £4,490,913 | £1,130,960 | £666,296 | £1,003,904 | £786,616 | £896,939 |
| Closed Lost | £7,158,026 | £1,782,933 | £1,356,207 | £1,532,521 | £1,435,424 | £928,439 |
| Total | £14,289,901 | £3,631,343 | £2,512,170 | £3,143,533 | £2,357,739 | £2,493,525 |
| Open | £2,640,962 | £717,450 | £489,667 | £607,108 | £135,699 | £668,147 |
| Current CVR Rate | 31.4% | 31.1% | 26.5% | 31.9% | 33.4% | 36.0% |
| Still Open | 18% | 20% | 19% | 19% | 6% | 27% |
If all you knew was the total sales number, you’d conclude Stephen was the third most capable salesperson. With this data, you can see that Stephen doesn’t just have the highest conversion rate, but also has the highest value of quotes still open- meaning his conversion rate will get better still versus the others in the team. You can also see that despite having high conversion rates, both Stephen and Tara have the smallest value pipelines… are the opportunities being distributed between salespeople in the best interests of the business? It doesn’t appear so.
You can further analyse the individual salespeople’s performance by breaking down market segment as shown above. In doing so you might find that some salespeople are far more productive in some market segments than others- by having them specialise, you may see their individual conversion rates increase, leading to a significant increase in the overall conversion rates.