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Sales conversion rate – One of the most important sales metrics

One of the most overlooked sales metrics is also one of the most important.

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Every online sales enterprise will apply some form of conversation rate to its business, whether its owners realise it or not. The concept of the conversation rate is somewhat elusive and is one of the least understood sales metrics people working in our industry can grapple with. Indeed, its intangibility is only matched by its importance.

The sales conversation rate doesn’t need to be complicated however and mastering its importance will significantly improve your business and propel your profits to new heights. Salespeople often focus on other metrics, like calls/meetings per day, profit percentages, personnel targets etc, but the conversion rate offers so much more. This doesn’t subtract from your other metrics, in fact improving your conversion rates will boost your other metrics too.

While we’re on the subject sales metrics are absolutely crucial to understand, they cannot remain the exclusive preserve of the higher ups and IT experts. Every member of each and every sales team needs to understand how to use metrics to their advantage, the sales conversion rate included. We’ll focus on the latter here but you should also study the five other sales productivity metrics that every salesperson should master.

With that being said let’s dive in to understanding the Moby Dick of sales metrics; the sales conversation rate. Don’t worry, you’ll have a far easier time reeling this creature in than Captain Ahab had with his. And it’ll be far easier to understand than the novel…

How do you calculate the sales conversion rate

Simply put, the sales conversation rate tracks how effective your sales team is at converting new leads into new customers. As you can imagine, this means that the sales conversion rates means different things to different companies working in different industries. If you sell low cost products for example your lead to closing ratio target is likely to be higher than if you sell luxury yachts.

Lead generation tactics differ from company to company but let’s say your team works in a separate lead generation department. After a month’s worth of work they generate 100 leads and send them to the sales department. If the sales department secures 15 deals from the 100 leads then you arrive at a sales conversion rate of 15%.

The percentage rate or ratio you choose needs to fit your company’s business model and industry. Just make sure you’re liaising closely with the lead generation team while doing so. They need to be involved at every stage of the process.

Use math to find your golden sales conversion rate

So, we now know what the basic concept of the sales conversion rate is simple, right? Sadly however plenty of salespeople struggle with remembering this simple sales metric. If you’re one of them don’t worry and keep these formulae at hand. Whatsmore, you don’t need to have passed math at school to understand them.

The first example works for e-commerce websites and the second is more useful for websites where revenue is generated via external sources like advertising;

  • (Leads converted into sales / Qualified leads) x 100
  • (Number of conversions / Number of clicks) x 100

Now we mentioned the importance of working with your lead generation department earlier so let’s revisit the issue. Leads are vital important to boosting your sales metrics and you should be using the following formulae to guide your leads too;

  • Lead Value = Value of Sale / Number of Leads

If, for example, you sell a product worth $1,000 and you turn one lead into a sale then the lead has the same value. So if you generate 10 leads for this product and only sell two in the end then you have a conversation rate of 20%. This results in a lead value of 20%, in this case, also a value of $2,000.

Why does the sales conversion rate matter?

Your sales conversion rate matters because it’s one of the simplest and most effective ways to track your sales and revenue. Without it you not only lose control over your sales pipeline, you’ll also find you’re unable to track failures that may arise all the way back in lead generation. This means you could end up continuing with processes that are both inefficient and unprofitable.

Beyond this crucial reasoning there are three other aspects of the sales conversation rate that make it highly important to all sales enterprises:

1. The conversion rate is cheaper than targeted traffic. Having more unique clicks or visits can certainly be lucrative but traffic usually offers a low return on investment. Conversion rates are more beneficial in the long run.

2. Increased efficiency equals more revenue. The money you save by cutting out inefficient practices can be channelled into revenue instead.

3. Improved prediction modelling. Unlike other sales metrics your sales conversion rate allows you to make data driven prediction models. If you use this in conjunction with AI technology you can improve any and all aspects of your business.

Key sales metrics used in conjunction with the sales conversion rate

The sales conversion rate is your most important sales metric but there are others that you should be using. Several key aspects will not only enhance your business in general they will also have a beneficial impact on your sales conversion rate. These key metrics can be used by any business and should be kept in mind during any sales pitch or negotiation;

  • Opportunity Win Rates- This metric measures the accumulated number of opportunities generated by new leads compared with opportunities generated previous or existing customers.
  • Average Opportunity Size – This measures the total average value of deals originating from new leads compared with sales made by existing customers.
  • Customer Retention – By measuring how long you can keep existing customers in your sales cycle you can measure their customer retention rate.
  • Return on Advertising Spend (ROAS) – You should track this metric and compare it regularly with your sales conversion rate to find out which is performing more effectively.

Sales conversion rate – Not so complicated after all

Utilizing and improving your sales conversion rate isn’t so challenging after all, but it’s perfectly natural to sometimes feel overwhelmed by all the sales industry has to offer you. We work in a constantly evolving and dynamic environment, one that constantly embraces change. In order to keep up and stay competitive you need the best support on offer, which is why you should work with Revenue Grid.

Revenue Grid has over 15 years worth of experience in working with some of the sales industries most dynamic technologies. Our tools can help you with every stage of the sales popline and ensure your sales conversion rate is where it should be. Sales metrics are our speciality, as is success.

Make sure you regularly check our blog for more content about sales metrics and about the sales industry in general. We’re on standby at all times to help you with your business, no matter the challenge. Revenue Grid can help lead your sales conversion rate and lead to repeatable revenue, and we’re raring to go.