Dear David: How to accurately calculate close rates

Home Columns Dear David: How to accurately calculate close rates

October 24/31, 2016: Volume 31, Number 10
By David Romano

Dear David:

I am trying to do a better job calculating my close rates but I am not sure what to do. I hear you are supposed to count everyone who walks in the door, but I’m also told you need to leave out any return customers in the denominator. Doing it either way will make a big difference in my numbers when comparing to everyone else. Can you please provide some direction?

Dear Owner,

For many retailers, attaining accurate traffic counts and true close rates are some of the most challenging initiatives they will face. A process that seems so simple on the surface has proven to be the Achilles’ heel of many retail managers who are desperate to track the results of their sales team. The funny thing is, if you ask your sales associates what they think their close rate is, most of them will say 80%—and we know that is simply not true.

Truth be told, it doesn’t matter how you calculate your close rates as long as you are consistent. How you handle return customers is irrelevant as long as each calculation is derived from the same set of rules. Don’t worry about how other people calculate close rates, because what is most important is for you to compare the performance of each member of your sales team to the average of your entire team. Your internal metrics are much more important than the metrics of your peers.

I understand you want to compare the performance of your sales associates against national averages, but the truth is those averages are riddled with people who calculate close rates very different from one another. Many companies count return customers as an “up” while many track them separately. Some companies count those who came in just to pay an invoice or make a minor change to their order as an up while others choose to leave them out of the equation. Too many variables for me to be comfortable coaching my team to those metrics.

Here is my advice: When it comes to tracking close rates there are three versions that should be calculated. Starting with an opportunity to estimate close rate, an estimate to transaction close rate and then ending with your overall close rate. For the record, I would not include return customers in my close rate calculations. Let me explain the reasons why: Let’s say a sales associate saw a total of 150 customers last month. Out of those 150 customers, 50 were return customers, meaning he had 100 opportunities to sell something to his customers. He was able to talk 60 of those opportunities into giving him an estimate, and of those 60 estimates, he was able to convince 50 customers to buy. That would mean he had the following close rates:

  • 60%—opportunity to estimate conversion
    • 60 estimates/100 opportunities = 60%
  • 83%—estimate to purchase conversion rate
    • 50 transactions/60 estimates = 83%
  • 50%—overall close rate
    • 50 transactions/100 opportunities = 50%

Looking at those three close rates will provide the data required to truly help your team improve. This is much more productive than only looking at the overall close rate, because any advice on improvement is speculative because it is based on incomplete information.

Calculating these three close rates is more work but necessary.

 

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