If you were a business owner, would you rather have your sales department closing on average 50% of the leads they run or 35%? At first glance this seems like a stupid question, obviously the higher the close rate translates into more sales, right?
We recently had this discussion with one of our home improvement clients. Last year his company ran 2500 appointments and installed about 1200 jobs — 48% close rate. The sales manager was very proud of the fact that his team’s close rate was as high as it was. This is a home improvement company that does a lot of advertising on radio and outdoor billboards, so the phone is ringing constantly with people looking to set an appointment.
What we realized very quickly was that the company spent a lot of time on the phone with each caller. They were extremely selective about which appointments they set and ran. As a result a lot of potential appointments were never set, because the company determined — over the phone, that the home improvement prospect either “wasn’t ready” or “wasn’t worth running.” We find this over qualification of sales inquiries to be a common practice among too many home improvement companies today.
Sadly, over-qualifying sales inquiries can actually be detrimental to your bottom line! Being overly selective with who you choose to visit means that you might be leaving money on the table.
We showed our client that if he were able to double the number of home improvement appointments he ran (by increasing his appointment set rate), he would sell more business — even if his close rate dropped!
The numbers don’t lie, so here is the reasoning we laid out before them:
Option 1 (Current Operations):
2500 Appointments Issued
x 95% Demo Rate = 2375 demos
x 50% Close Rate = 1188 Sales
x $4500 Average Sale = $5.34 mm in revenues
Option 2: With Increased Throughput
5000 Appointments Issued
x 85% Demo Rate = 4250 demos
x 35% Close Rate = 1487 Sales
x $4500 Average Sale = $6.69 mm in revenues
In this case this home improvement client would sell an additional $1.35 mm annually, by simply running more appointments. The close rate went down, because not every appointment was “ready.”
But as the great coach always said: “you miss 100% of the shots you don’t take” — and through the law of averages, he’ll come out ahead because of the increase in opportunities.
Close rate is important, but if it is too high, it may mean that you are leaving business on the table. A 50% close rate is an indicator that a company may really be missing out on key opportunities to grow their business by not taking advantage of all possible opportunities.
Are you leaving money on the table? Contact us for a free lead generation assessment.