While there are many parts to your sales process, you can’t overlook the importance of improving your lead conversion rates. Too often companies spend money generating leads without concentrating on converting them into sales. The lead quality always plays a part in the conversion rate, but if your marketing team is doing their job, they should be generating leads that have been qualified enough to pass on to your sales team.
For the sake of your future revenue, it’s critical you ensure every lead is followed up to try and convert it into a sale. It costs too much money and time to generate a lead without spending similar effort converting each and every lead that comes through your sales channels. To start though, you need to determine the quality of your leads and how many you’re converting.
The two parts to making a sale
In order to determine your lead conversion rate, you need to break it down into two parts.
1. Leads – the quality and quantity of the leads
2. Sales conversions – the number of sales being made and the time that it’s taking to make a sale (sales lead time).
The reason you need to look at these both separately is to calculate the true performance of each activity, both marketing and sales.
Put simply, marketing is responsible for lead generation and sales is responsible for converting those leads. Of course, they need to work closely together because both teams should know exactly the kind of lead your business needs and all their combined efforts should be going toward attracting and converting that particular target customer.
A good hint to the kind of customer you’re targeting is one who is easy to service, (possibly due to location or access), profitable (you can make a good profit from the sale and or implementation and they don’t require a lot of unpaid effort) and has budget in place. The other factor is the opportunity for that customer to provide repeat business, but that is something we’ll talk more about in future blogs. A one-off sale may cost more in the long run because you have to continue generating new leads, but if your product requires no ongoing service and or, if it is a transaction-based sale they this may not be an issue.
Calculating the lead conversion rate
It’s a pretty simple calculation but it needs to be part of your weekly and monthly metrics. Simply, you need to determine the number of leads you receive and the number of those that turn into a sale.
Number of leads ÷ Number of (new sales) = Lead conversion rate
This number can also be calculated for your website conversions, that is, the number of website hits (visitors) that turn into enquiries and then into sales.
Most websites have contact forms in place which make it very easy to divide the number of visits by the number of contact forms.
Number of website visits ÷ Number of contact forums = Website conversion rate
This percentage is very useful when you are measuring the success of a campaign. For example, if you have run a Facebook campaign which has generated 100 clicks to your site and that generated 4 contacts, then the rate would be 4%.
Lead quality
Determining the lead quality should be reasonably easy. For example, if you have a catering business and you are receiving leads that are within travelling distance, are prepared to spend the money for your advertised packages, and can tell you the event budget they have put aside, then they would most definitely be considered quality leads.
Lead quantity
The number of leads you will need is determined by looking back at the lead conversion rate.
Lead conversion rate X Sales required = Leads required
If you are currently converting 10% of your leads and you have budgeted to cater two events per week then you are going to need 20 quality leads each week, but probably more when you are starting up because the nature of the bookings means your events will have been booked well in advance.
For this type of business, I would recommend offering a discount or special offer for events held in the quiet times or when you are first building your business. This is likely to be the one of the only times I would recommend a price reduction though, because I do not believe you should ever sell based on price.
The other alternative is to ask for a deposit up front if you have a long lead time, although as a word of caution, ensure you account for that spend so when the event rolls around, you aren’t left short because you’ve already used the deposit money for other priorities.
Benchmarking conversion rates
There is not one typical conversion rate you should be aiming for because good rates will tend to be industry or product specific and they will be, in part, determined by lead times. For a digital campaign, you should be aiming for a lead conversion rate of between 5-10%. Again though, this is going to be determined by a whole bunch of factors including existing brand and product awareness, the price and value proposition and the competitive nature of your industry.
If your campaign conversion rate is very low, it is possibly because of the messaging you are using and I would recommend you seek professional help to improve this ASAP. I hate seeing businesses waste money on advertising because they don’t want to pay professionals to be involved. Just because you have a Facebook page, doesn’t mean you are suddenly a Facebook advertising specialist. Same goes for creating campaign content.
Calculating your sales lead time
Some products, especially in a B2B (Business to Business) environment, have a very long lead time, probably because the sale is expensive and complicated. On the other hand, some consumer or simple business products like FMCG products move very quickly (that’s exactly why they are called “Fast Moving Consumer Goods”).
To calculate your sales lead time, you need to look at the date you first had contact with your customer, either they contacted you or you first contacted them, and then count the time until you made the sale with an actual Purchase Order in place. This is not about the promise of a sale but an actual sale taking place.
It’s much easier to be successful if you can concentrate on reducing your sales lead time, otherwise you have far too many upfront costs before you make a sale, and that requires money in the bank and or other revenue coming in to keep your business afloat.
Rhonda Locke is a highly experience marketer and brand champion and is the Founder and Director of Unlocke Creative.