Sales Conversion Assumptions

Over the last two weeks I have shared some thoughts regarding a field often referred to as Marketing or Sales Metrics.

My intention was to assist you in gaining an understanding of the costs of your Sales Team and also estimating projections for sales activities and outcomes.

Why calculate Marketing and Sales Metrics?

Marketing and Sales Metrics involve calculating the key numbers associated with your sales costs, volume of sales activities, conversion efficiencies and ultimately the value of your sales.

Getting your head around your Marketing and Sales Metrics will help you make better decisions regarding your investment in sales activities

For example, if your Sales Person has a sales conversion rate of 10% and they are implementing 330 unique Face-to-Face Sales Presentations per year they would achieve 33 sales per year. Your Marketing and Sales Metrics will help you decide if this is a profitable way for you to generate increased sales and growth.
Marketing and Sales Metrics we have covered previously include:

  • Total cost of your Sales Team
  • Total days spent on selling per year
  • No. sales presentations per day or week
  • Total presentations per year
  • Total unique presentations per year
  • Average cost per sales presentation

In this article I address the following key Marketing and Sales Metrics:

  • Average sales conversion rates
  • Total No. of sales converted
  • Total value of sales converted
  • Average value per sale converted
  • Average cost per new customer converted

Calculating your Average Sales Conversion Rate

Many business operators find that calculating their sales conversion rates is often quite difficult due mainly to a lack of robust historical data.
Naturally, if you have reliable historical sales data then this is a good reference point from which to start and will make this task much easier.
Historical sales data that is highly useful would include:

  • Total No. of sales presentations for a given period
  • Total No. of sales converted for the same period

Your Sales Conversion Rate would then be the Total No. of Sales divided by The Total No. of Sales Presentations.

Your Sales Conversion Rate equals the Total No. of Sales divided by the Total No. of Sales Presentations

The example used earlier was based on your Sales Person implementing 330 unique Face-to-Face Sales Presentations per year per and achieving 33 sales per year. If this was the case you would calculate that you have a sales conversion rate of 10%.

Variation across Industries

It is not always useful to use data from different industries or even different companies from within the same industry.
Sales conversion rates vary dramatically across different industries, products/services themselves, price points and the performance of individual sales people.

Sales conversion rates of, for example, 1 in 10 or 1 in 20 may be quite impressive (or depressing) depending on the industry or specific product/service

Sales Assumptions

In the absence of reliable historical sales data, calculating projections of sales conversion rates is often the multi-million dollar question.

If you do not have historical data and you want to calculate your projected sales conversion rates then you have no choice but to make ‘Sales Assumptions’

To determine your projected sales conversion rates you need to gain some sort of insight or ‘gut-feel’ for existing or expected conversion efficiencies. This is usually best gained from market research and good judgement.
To bring your sales projections to a conclusion you need to arrive at an estimated or calculated sales conversion rate (your ‘sales assumption’).

Capturing Marketing and Sales Metrics

Moving forward, Marketing and Sales Metrics can then be measured and monitored on a weekly and monthly basis. Your Sales Assumptions can then be adjusted to be more accurate as you collect increasing volume and history of reliable sales data.

How much does each Sale cost you?

From the examples above you would calculate that based on total costs of 150k per year your average cost per sale is $4,545.45 (i.e. $4,4545.45 for every new customer).
Key variables that impact on this final figure include:

  • Total costs per sales person per year (i.e. 150k per year)
  • Total number of unique Face-to-Face Sales Presentations per year per sales person (i.e. 330 per year)
  • Average Sales Conversion Rate (i.e. 10% resulting in 33 sales)

Disclaimer!

Please note that the estimates that I have used in the above calculations are simply examples. There will be significant variations for each company.  I suggest the total cost will be much higher than my examples for many of you.

What do Marketing and Sales Metrics tell you?

Equipped with the information of the average acquisition cost per new customer you may need to implement one or more changes to your business. Below are four of the most common areas for improvement that our clients identify after calculating their Marketing and Sales Metrics.

Love the One your With

Firstly, love your existing customers even more (now that you know how much new customers actually cost to acquire!).

Targeting

Secondly, become more targeted in terms of where you allocate your sales resources (now that you realise how much each individual sales presentations costs you).

You may need to review your overall marketing strategy and make sure your Sales Team is focussing on the No. 1 high-priority market segments

Invest

Thirdly, invest in your Sales Team. This increased insight into how much each sales presentation costs you and your Sales Team’s sales conversion ratios may prompt you to invest in sales skills development and improved sales support tools.

Modify

Lastly, do some things differently. Such as identify different and possibly lower cost methods of generating new customers. This is most likely to be the case with low-value products/services but may not be an option for high-value and high-involvement product/service decisions (examples may include electronic newsletters as follow up or increased networking to fill the pipeline).

 
In future articles I will provide suggestions regarding what to do with this information now that you have calculated it and also methods for maximising the outcomes from your investment in your sales team.

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