A little improvement can go a VERY long way

I was asked a really good question by a client the other day.

We had been running through their current sales figures and discussing changing the KPI measures for the sales staff to reflect how many leads each of the sales team would need to be successful and how big the database would need to be in order to provide that many leads. It was then that my client looked at me and she asked “So, what sort of sales conversion rate should we expect from our sales team – what would be considered as a good conversion rate? And, on the surface this seems like a simple enough question.

The problem starts when you ask the next question; “which stage of the sales process are you talking about” – “The whole thing” came the answer. “Well what, off the top of your head would you think might be OK for your industry?” I asked, “Oh, as a guesstimate, I would say somewhere around 20%, would that seem reasonable?” she wondered. We agreed that, yes that did (at first glance) seem reasonable for any industry but, just to make sure, we decided we would work through a little exercise and see.

So here is what we did, and the results may surprise you, they certainly surprised our client!!

We divided the sales process into its component steps of;

  1. Suspecting/Database build
  2. Suspecting/Filtering
  3. Approach for meeting
  4. Prospecting meeting
  5. Proposal Presentation

Then we identified the decision points in the process, that is those points at which our future client had to make a decision as to whether they wanted to proceed with our sales process. Not surprisingly they occur at the end of each of our steps and, in its simplest form, it looks like this;

  1. Are they a business in one of our target industries?                            Decision = Yes/No,     If Yes put them in the database, If No, ignore for now.
  2. Do they fit our acceptable client criteria?                                                Decision = Yes/No,     If Yes, warm the lead and schedule approach, If No, add to mailing list but do not approach
  3. Will they agree to a coffee meeting?                                                       Decision = Yes/No,    If Yes, book meeting, If NO, schedule a follow up.
  4. Can we put a proposal to them that addresses their challenges?     Decision = Yes/No,   If Yes, book the meeting & write the proposal,  If NO, schedule a follow up.
  5. Can we work together?                                                                                       Decision = Yes/No,   If Yes, book a time to start work, If No, schedule a follow up.

And next we worked out the most optimistic conversion rates we could expect for each of these decision points and the reasoning behind them. (You will need to think through your own numbers and reasons for them given your own circumstances as they will vary from industry to industry and business to business – the basic idea will remain the same though).

  1. This business purchases semi-targeted lists and finds approximately 70%  suit their database requirements, of these
  2. Around 50% meet all of their acceptable client filters
  3. Roughly 40%  of those approached will agree to a coffee meeting
  4. Their prospecting skills are pretty good so almost 50% of prospects agree to a proposal meeting
  5. And finally there solutions are very attractive to their target market so circa 35% of proposals proceed to sale.

Now when looked at it like this I had to admit that this client’s sales team and the process they took prospects through seemed very effective. Their worst result was at the point of closing which, at better than one in three was still VERY good. But let’s take it one step further. We had been expecting/hoping for an overall conversion rate of around 20%, so how did we go?

Well to work that out we simply start at step one and multiply the conversion rates together all the way through to step 5 to give an overall conversion rate – and it is this Multiplier Effect which reduces our overall sales conversion rate so dramatically.

This is a great example of just how that Mutliplier Effect works,  as this client, whose team was very good at every decision point returned the following result;

70% x 50% x 40% x 50% x 35%  = 2.45%, 

In other words, a mere 1 in every 41 new businesses that this client added to their database would result in a new client relationship. Which is NO WHERE NEAR our original guesstimate of 20%! In fact we missed by a factor of  (almost) 10 times!

So what doe this mean for this business, or any other that comes up with a similar or worse result?  (that is pretty much every business by the way!)

Two key things.

    •  Firstly you need a far far bigger database than you thought you needed. Around 10-20 times larger!!
  • Secondly, and this is the really exciting bit – the Multiplier Effect works in both directions! Therefore, if you can work out which decision points in the sales process are your weakest and you concentrate on improving them, even slightly, you make will see huge improvements in your overall conversion rates.

To highlight the second point, if we can improve our conversion rates above in step 5 from 35% to 40%, and in step 3 from 40% to 45%, (which shouldn’t be that hard, they are very small increases after all) then our overall conversion rate will rise from 2.45% to 3.15%.

Doesn’t sound like much until you realise that it actually represents a massive 30% improvement!!