One of the most important metrics for sales teams is the close rate. Once a conversation with a sales lead starts, the aim is to close every deal. Get them to say yes, sign on the dotted line, and buy what you are selling.
Every salesperson, sales manager, and sales leader wants close rates to be as high as possible. Higher close keeps sales teams on track to hit targets.
However, as every sales manager, director and VP of Sales knows, salespeople don’t hit targets every month. Very few people in sales have a year whereby they hit targets consistently. Performance goes up and down, and sometimes that’s out of the control of individual salespeople and teams.
This is why you need to do everything you can to ensure your team hits targets, as consistently as possible. In this article, we take a look at how to calculate close rates, how this metric varies across sectors, and how to improve close rates.
How to calculate close rates?
Close rates are pretty simple to calculate. Within a CRM, the total number of active sales leads should be visible in real-time. Don’t count those that either didn’t close, or have gone quiet and dropped out of the pipeline.
So if you have 100 leads and 20 of them convert into customers, then the close rate is 20%.
Here’s how it’s calculated:
100 sales leads ÷ 20 conversions = 20% close rate.
Now let’s imagine a business development team or outsourced team, or a new marketing campaign generates more sales leads. Next month you’ve got 300 leads in the pipeline. But they’re not all ready to go ahead, and too many of them aren’t ideal customers (e.g., no budget, no need for your product or service). The close rate drops. For example:
300 sales leads ÷ 40 conversions = 7.5% close rate.
As great as it might sound, to have 300 sales leads in the pipeline, quality always matters more than quantity. Otherwise, salespeople are trying to convert the wrong prospects, who aren’t ready or don’t have the budget for going ahead.
Having a higher close rate and a stronger ratio of more viable prospects (known as Sales Qualified Leads) is much more useful than having hundreds of poorly qualified sales leads.
What is a good close rate?
A good close rate depends on a wide number of factors. Numerous things influence this metric, including the sector(s) you operate in, geographic economic variables, seasonality, and sales team activity and performance.
Naturally, sales leaders want this figure to be as high as possible. If you have 100 leads in the pipeline and 30 of them convert into clients, then it’s better than having 1000 leads and only 100 converting into customers. But, of course, sector-specific variables influence this metric.
Sector-specific close rates
Every sector has different averages and ratios when it comes to close rates. Breaking it down further, every company does too. It depends on a wide number of factors. Such as the number of leads in your sales pipeline, how many of these leads are qualified, ready to go ahead, sales agent activity levels, proficiency at closing, and numerous other things that influence every sale.
Each sector has unique sales cycles, processes, timescales and seasonal/time-based variations. As a general rule, bigger ticket items take longer for a sale to close than smaller ones. If you are selling a fleet or planes to an airline, or a commercial real estate development, that’s going to take longer than selling software to a small business.
Everything is relative, of course. As a sales leader in a multi-billion dollar company, selling a product or service worth millions to another equally large company (such as planes to an airline), you can expect it to take a year or two. Whereas, if a relatively small software package takes 3-months to close, it’s going to feel long a prolonged sales cycle.
Now let’s take a look at average conversion rates across 10 sectors, and then 10 ways you can increase conversion rates across your sales team.
- Biotechnology: 15%
- Industrial: 27%
- Software (SaaS) & Web/IT development: 22%
- Computers & Electronics: 23%
- Financial Services: 19%
- Professional Services: 9%
- Marketing Agencies: 3%
- Travel: 5%
- Legal Services: 2.5%
- Cosmetic & Dental: 2.5%
Now let’s take a look at 10 ways to improve sales conversion rates.
10 ways to improve conversion rates
#1: Ask the right qualifying questions
Qualifying questions play such an important role in the sales process. Unless you qualify a lead early into the pipeline, there’s no way of knowing if they’re viable, making them a Sales Qualified Lead (SQL). Asking the right questions also means you can more accurately identify pain points, provide solutions, and provide a proposal that meets the needs of each potential client.
#2: Encourage sales leads to think, “What happens if we don’t do this soon?”
As a salesperson, you naturally want every lead to convert as quickly as possible. Unfortunately, potential clients aren’t always in the same hurry. Aim to encourage action in a timely fashion, so that prospects see the value of moving forward sooner rather than later.
#3: Sell the benefits, the added value/ROI clients can expect
During sales calls, meetings or demos, the focus should be on the value/ROI your product or service creates for clients. Features and capabilities are great. But features aren’t why clients purchase. Clients say yes for the value you create; so make that as clear as possible.
#4: Be prepared for every call/demo
Preparation is essential. Do your homework before every call. Research potential clients using their website, social media, press releases, and anything else you can find. Being ready for every call makes it easier to identify pain points, ask the right questions, and present solutions that address those pain points.
#5: Use words effectively
Words are powerful. Use the right words, active, positive, encouraging, and energy-transmitting words to encourage a prospect to take the action you want.
#6: Practice active listening
Active listening plays such an important role in sales. Ask smart qualifying questions, and then listen to what a prospect is saying, rather than just waiting for your chance to speak. It will make the whole sales conversation move forward more smoothly.
#7: Don’t dodge questions or objections
Always aim to ask every question a sales lead asks. If you don’t know the answer, never make something up. Tell them you will get back to them with an answer. The same goes for objections. Handle them as effectively as possible, to overcome them, and move closer to winning the sale.
#8: Use an impactful presentation and proposal
Presentations and proposals need to make a positive impact. CrankWheel customers, for example, can present an instant online demo without prospects needing to download anything, and engage with it wherever they are, on any device. Presentations provide an advantage, as a way of showing prospects what they can expect from your product/service.
#9: Show them the product/service
Always take any chance to demonstrate a product or service. This way, you can actually show a potential client, making them more likely to want to go ahead.
#10: Don’t give blind quotes, or discount quickly
Whenever you can, always avoid giving blind quotes. Meaning, if a prospect asks for a price (unless you’ve got a pre-prepared price list), say you will get back to them with a proposal. Include the price in that. The same goes for giving discounts. Try and avoid discounts at all, if possible.
When it comes to conversion rates, you want them to be as high as possible. As the data shows, conversion rates vary widely across different sectors. There is a wide number of variables, such as seasonality, sales cycles, sales goals and the performance of sales teams. The good news is, there is also a wide range of things sales teams can do to increase conversion rates, including the following:
- Ask the right qualifying questions
- Encourage sales leads to think, “What happens if we don’t do this soon?”
- Sell the benefits, the added value/ROI clients can expect
- Be prepared for every call/demo
- Use words effectively
- Practice active listening
- Don’t dodge questions or objections
- Use an impactful presentation and proposal
- Show them the product/service
- Don’t give blind quotes, or discount quickly