Of all the deals in your pipeline, what percentage do you actually close?
Sales close ratios let you know how effective you are as a sales rep. And it's a good way for sales managers to measure performance. The higher the close ratio, the better your team is at converting opportunities in the pipeline into revenue. While it's great to have internal metrics, it's also good to know how you and your team compare to other sales organizations in your industry.
Calculating a close ratio is simple, but there are a few factors that can affect this number before you even begin selling. Lead qualification, overcoming objections, and buyer personas are all areas that a great salesperson should master to increase their close ratio.
Close ratio measures how efficiently a salesperson is performing. This metric is used to communicate how well the sales team is closing business based on the leads they’ve worked. It is calculated by dividing the number of actual closed deals by the number of lead opportunities the salesperson had during a given time period.
Let’s calculate an example close ratio.
Alex sells candles for a living. This month, she gave 30 presentations selling the benefits of her candles to customers. Of the 30 presentations Alex gave, 10 resulted in a customer making a purchase. Alex’s close ratio in this example is 33%.
(30 presentations ÷ 10 purchases = 33.3% repeating close ratio)
Simple enough, right? Calculating close ratios usually is. However, things can go awry when other variables appear.
Here’s another scenario featuring our friend Alex from earlier:
Alex has decided to grow her candle business. She’s brought on a friend, Michelle, to jumpstart the marketing effort and help her set more appointments to sell her candles.
Michelle does an amazing job sourcing leads who book presentation appointments on Alex’s website. Michelle’s inbound marketing tactics are working so well that Alex has 50 appointments this month – a 40% increase over last month!
Alex jumps right into her presentations and sells the benefits of her candles as she always does. At the end of the month, she realizes she’s sold only 10 candles – the same amount as last month. Her close rate is 20%. That’s quite a plunge from 33%.
What happened here?
As it turns out, Michelle’s inbound marketing tactics targeted customers who were interested in candles, aromatherapy, and wax melts. Alex only sells candles. The lead opportunities Michelle’s campaign brought in were not the best fit for the product Alex offers even though they were interested in items similar to candles. When Alex gave her presentations, some of the people were looking for wax melts, not candles, and didn’t make a purchase.
This anecdote illustrates an alignment problem qualifying leads between sales and marketing, but this isn’t the only reason that your close ratio might be affected.
Factors that Affect Close Ratio
Close ratios are sensitive to internal and external factors. Something as simple as having an off day or a misalignment among teams can negatively impact your close ratio. Read on to learn more about factors that affect close ratio and what you can do to get ahead of these issues before they arise.
Alex and Michelle’s scenario showed us how marketing and sales teams can be misaligned on qualifying leads. Michelle achieved her KPI. She increased Alex’s lead opportunities by 40%. However, Alex’s close ratio plummeted because not all of those leads were interested in purchasing a candle.
Before you sell anything, take a look at your lead opportunities and see how they’ve been qualified. Are they marketing qualified leads (MQL) or sales qualified leads (SQL)? Perhaps your team has developed a hybrid model for qualifying leads. Regardless of how you make the distinction, the goal is to sell to prospects who are ready to make a decision to buy the product you sell. This requires a partnership between sales and marketing to determine who is ready to speak with a salesperson and who needs a bit more nurturing from the marketing team.
As a salesperson, you’re on the frontline of your company, often acting as the face of the brand and the expert of the product. When customers speak with you, they’re looking for your expertise (even if it doesn’t feel like it sometimes).
Prospects usually have questions before they make a purchase and it’s your job to answer them in a way that shows them the benefits of choosing you over the competition. Leaving an objection unresolved is risky. Prospects may consider an unresolved objection as a reason to choose another product, therefore turning down your proposal. That’s bad news for your close ratio.
It’s imperative that you understand the product you sell and have counterpoints ready for objections. Overcoming objections builds credibility and trust with your prospect, thus earning their business. This is good news for your close ratio!
Researching your prospects is critical to understanding where they are in the buying process. Does your prospect need a solution right away or are they transitioning from one product to another? This distinction will guide your conversation down a path that will solve for the customer and, if they choose your product, increase your close ratio.
If your business doesn’t have buyer personas already, develop a few based on the most common types of prospects you talk to. A good buyer persona will include demographics, motivations, and real customer quotes. Using a buyer persona during your sales conversations gives you a better understanding of the type of product your prospect is looking for. They’re giving you the blueprint on how to earn their business.
Sales Close Ratio by Industry
To help you figure out where you stand, we analyzed the close ratios of over 8,900 companies' sales organizations across 28 industries and multiple sizes to put together a set of sales close ratio benchmarks.
Here are a few sales close ratios by industry:
1. Biotechnology Industry Close ratio: 15%
2. Business & Industrial Industry Close ratio: 27%
3. Computer Software Industry Close ratio: 22%
4. Computers & Electronics Industry Close ratio: 23%
Check out our Sales Metrics Calculator below, too.
Increase Your Close Ratio
When it comes to sales, closing is the name of the game. How you close matters just as much as your close ratio. Calculating your close ratio is simple, but there might be obstacles that make achieving your goal a bit tougher. Align with your marketing team to get an understanding of how the leads you’re working on are qualified. Brush up on your product knowledge to overcome objections. Finally, get a thorough grasp of your prospects with buyer personas to meet them where they are in the buying process. With these tips, you’ll be calculating a high close ratio month after month.
Originally published Mar 4, 2021 1:45:00 PM, updated March 04 2021