Closing Ratio - Explained
What is a Closing Ratio?
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Table of ContentsWhat is a Closing Ratio?How is a Closing Ratio Used?Lost Sales AnalysisTips for Improving Closing RatioAcademic Research for Closing Ratio
What is a Closing Ratio?
In sales, the closing ratio measures the number of business proposals and presentations by salespersons that are converted into actual sales. It is also a measure of the number of business deals that sales experts close which is used to evaluate how effective the salespersons are. The closing ratio is calculated by measuring the number of deals closed and the business proposals and presentations made. Organizations calculate the closing ratio to determine the number of sales representatives that are performing up to the task. It also measures how well the organization is scaling in comparison to competitors.
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How is a Closing Ratio Used?
The closing ratio is calculated as the actual sales made by sales representatives as compared to sales proposals sent out. This ratio also compares the number of deals closed by the possibility of all the sales proposals being closed as deals. The closing ratio is an important metric that gauges the efficiency of salespersons, it also measures the success rate attained by sales representatives when closing a sale. For instance, if a sales representative sent out 10 business proposals and only 4 of them are converted into actual sales, the closing ratio is 4/10 which gives the salesperson a 40% success rate.
Lost Sales Analysis
It is vital to know that the closing ratio is not sufficient to evaluate the efficiency of a sales rep, there are other factors that must be considered. However, the closing ratio is a determinant of the lost sales of a rep, which can accurately measure sales performance and effectiveness. Lost sales refer to the business deals sales rep fails to close or business proposals that are not transformed into actual sales. Paul DiModica, an author and sales expert noted that lost sales have a significant effect on the potential annual sales business can record. This is because one sale lost does not just mean a customer lost but other customers and referrals that ould have come through the customer.
Tips for Improving Closing Ratio
The closing ratio is not just dependent on the performance of a sales representative, there are certain external factors that affect this ratio such as trends in an industry, market changes, competition level, and others. However, there are certain ways a salesperson can improve his closing ratio, the most effective ones include;
- Having excellent leads
- Optimizing those leads
- Gathering as much information about clients as possible
- Engaging clients intellectually with the aim of meeting their needs
- Strategic follow-ups.