On today’s episode, we are talking about conversion.
Conversion rate is one of the most important numbers in your business. It helps you understand if your sales function is performing properly. I want to share a conversation that I had with a client today. We were looking through their KPI dashboards, looking at the targets they needed to achieve, and we started getting into the conversation around what I thought was conversion rate, and it turns out they were talking about conversion values. There’s been a huge misunderstanding here, everybody.
So, what’s the difference, and why are these two numbers important? Well, your conversion rate is the number of opportunities that you convert out of the number of qualified opportunities that come into your business. For example, if 10 opportunities come into your business this week and you convert five of those, your conversion rate is 50%. Conversion value is more about the value of opportunities that you win from the value of opportunities that you propose or quote. So, for example, if you put proposals, estimates, and quotations out for a million pounds and you win six hundred thousand of the million pounds, that means that your conversion value is sixty percent.
Now, these two numbers are really useful when you look at them together, which is why I suggest you look at these in your KPI dashboards. If your conversion value is higher than your conversion rate, what that is telling you is, as a business, we are better at winning the bigger stuff. If your conversion value is lower than your conversion rate, you are better at winning the smaller stuff. If you are purposely trying to drive up the value of newly converted work, then obviously, you do want your conversion value to track a little bit higher than your conversion rate. If you feel that as a business, you actually like the small stuff because you find it easy to resource or easy to convert or it converts fast, then that’s also okay.
But looking at both of those numbers together gives you insights into what’s going on in your sales function. So, a couple of things for you to reflect on: number one, do you have proper visibility of conversion rates and conversion value in your business? And “proper” means weekly. Do you understand, as a company, what kind of work you want to go after? Are you happy with the smaller stuff, or are you happier with the bigger stuff? And what can you learn from looking at those numbers and understanding how you’re dealing with those different opportunities that you might be able to roll forward across all of your opportunities to get even better at converting?
Conversion rate is really important, and it’s really important you have visibility so that you can understand if these numbers are off track, so that you can do something about it in good time.
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