At the level of a salesperson, sales is about trust,
relationships and influence. However, at the strategic level it is
about numbers. It is about understanding and managing the sales
pipeline.
For a business, the most important financial number is
its return on investment. If the money invested in the business is not
getting an adequate return, a decision will be made by someone,
sometime to invest the money somewhere else.
For sales to
contribute positively to a target return on investment the key broad
measures are the total level of sales and Sales' costs as a percentage
of revenue.
Both of these numbers are heavily influenced by conversion rates of prospects into paying customers.
This is not news, but what I find is news to many people is the leverage on sales results that can be achieved by increasing conversion rates by small increments.
Assume that our sales pipeline consists of the following simplified customer buying process:
- Become aware that I have a problem
- Become convinced I have a problem requiring a solution now
- Search for alternative solutions
- Confirm budget capacity
- Select favoured solution
- Select favoured supplier
If we assume that we have used direct mail to make
prospects aware of the problem they have by means of "white paper" and
an incentive such as an industry survey or a free seminar, we can
expect between 7.5% and 9.8% response.
We can assume that of
those who positively respond to our direct mail, 50% will become
convinced they have a problem worth solving. Assuming 90% of those
search for alternative solutions, 50% of those confirm budget capacity
and then 90% select their favoured solution with 60% of those choosing
us as the company which sparked their interest in the first place, our
sales pipeline would look like this for 1000 prospects:
- Unaware: 1000 prospects
- Aware of problem: 90 prospects
- Problem needs solving now: 45 prospects
- Search for alternatives: 41 prospects
- Confirm budget: 20 prospects
- Select favoured solution: 18 prospects
- Select favoured company: 11 customers
Our sales pipeline converted 1000 prospects into 11 paying customers. That's an overall conversion rate of 1.1%.
If,
by understanding why the 989 prospects left the pipeline, we changed
our tactics at each stage of the buying process such that it increased
conversion rates which are below 10% by 1%, which were between 50% and
90% by 3%, and those above 90% by 1% each, our sales pipeline would
look like:
- Unaware: 1000 prospects
- Aware of problem: 100 prospects
- Problem needs solving now: 53 prospects
- Search for alternatives: 48 prospects
- Confirm budget: 25 prospects
- Select favoured solution: 23 prospects
- Select favoured company: 14 customers
Our sales pipeline has now converted 1000 prospects into 14
paying customers; an increase in sales of 27%, and an increase in the
overall conversion rate to 1.4%.
Adjusting tactics so that a
small incremental percentage of prospects are prevented from leaving
the pipeline at each stage of their buying process has a huge impact on
sales.
Building a picture of your customers' general buying
process and hence your sales pipeline is the first step in
understanding how you can dramatically improve sales.
Once a
picture is established, discussions about tactics will begin to
concentrate on specifics such as, "What will entice people to come to
our seminar?", "What will be the cost?", "Would it be worthwhile if we
could improve response rates by 0.5%?", "1.0%?" etc.
More challenging questions may also be asked such as, "What if we could eliminate a buying process step altogether?"
A
tool with which you can rapidly change the buying process, conversion
rates and average sales volumes makes this "what if" analysis helps to
facilitate a brainstorming session by allowing quick results to be
calculated with each new idea or thought.
