Many small business owners could improve their lead conversion rates dramatically by focusing on it. You need a sales conversion process or system. Here is an example of how a 10% and 30% increase in conversions can impact your total profit.
|Starting Point||10% Increase||30% Increase|
|Conversion Rate||30%||Conversion Rate||33% (10% increase)||Conversion Rate||39% (30% increase)|
|Average £ / $ Sale||140||Average Sale||140||Average Sale||140|
|Profit||£/$ 58,968||Profit||£/$ 64,864.80||Profit||£/$ 76,658.40|
What is the average conversion rate for your business?
To work out your conversion rate, choose a specific time period (day, week, month, campaign) and then divide the total number of sales transactions by the number of people who inquired about your product or service (leads) and multiply by 100. This is a percentage value of your conversion rate.
For example, 50 transactions / 150 leads x 100 = 33% conversion rate.
Now, if I wanted to look at conversions over a specific time period, the rate would vary:
If you’ve been tracking your leads over the past few weeks, you’ll find this is easy. All you may have to do is look at your lead tracking sheet, and divide into it your total number of sales over specific time periods. You’ll be able to analyse what your conversion rate looks like over the course of ad or direct mail campaigns, as well as over various weeks in the month.
If you haven’t started tracking your leads, you need to start in order to understand what your true conversion rate is. In my experience, many business owners overestimate what this percentage actually is, so this is an important step in the process.
Keep track of the following items in your conversion rate measurement sheet:
- Start date and end date of the measurement period (by ad campaign, week, or month)
- Total number of leads (divided by source – telephone, in store, online, etc.)
- Total number of sales transactions
- How trust and qualified lead generation impacts conversion rates
If you’re starting to track leads and sales today, by the end of a week you’ll have a reasonable understanding of where your business stands.
How do you evaluate if your conversion rate is “good” or not?
Once you know what your conversion rate is, how can you tell if it’s “good” or “profitable”?
Unfortunately, the answer isn’t a black and white one. The truth is that conversion rates vary and depend on the product, service and customer base. Different businesses can have dramatically different rates, yet both rates can mean the respective companies are highly successful.
For example, a thriving poundland or dollar store may have a conversion rate of almost 80%, while a profitable furniture store may have a conversion rate of 30%. Other businesses might have rates of anywhere from 4% to 99%.
So, instead of focusing on how close your conversion rate is to 100%, you need to think of conversions as relative to your break-even point – either for a campaign or for regular business operations. To do this, you need more information than the rate itself. You need to know how many leads you need to convert into customers to see a return on investment. You need to know how much money each lead costs you, on average how much they spend, and how much of their spend is actual profit.
For example, if you have £/$ 4,000 to spend on advertising and you want to see £/$ 20,000 in sales, will a 20% conversion rate be enough to do the job?
To answer this, you need more information on other measures in your business. You need to know your average dollar sale and average customer acquisition cost. In this example, let’s say your average sale is £/$ 42 and your average customer acquisition cost is £/$ 2.50
If you take your 4,000 advertising budget and divide by your 2.50 customer acquisition cost, you’ll expect to generate about 1,600 leads.
So 1,600 leads with a 20% conversion rate would equal 320 sales – not bad. Now, take the 320 projected sales times the average dollar sale of £/$ 75, and you’ll get £/$ 24,000 in revenue. That’s a reasonable ROI for a £/$ 4,000 investment!
But is the 20% conversion rate a ‘good’ one? To answer this, you’ll have to factor in your profit margin to determine the answer. You wanted to achieve £/$ 20,000 from your £/$ 4,000 advertising investment.
Let’s say your average profit margin is 45.3%. So, on each £/$ 75 sale, you made£/$ 34 profit. So, let’s look at your actual profit after costs:
320 sales x £$ 34 profit per transaction= “/$ 10,880 in take home profit.
So, when the rest of your business measures are factored in, you actually only achieved a 272% return on investment, which is about half of what you were targeting. Therefore, in this case, a 20% target conversion rate isn’t necessarily a strong one for your business.
Now, before you dive into any conversion rate boosting strategies, focus on building trust and generating qualified leads – the cornerstones of a profitable conversion rate.
You likely already know that trust is a huge factor in any exchange with a potential customer. When you first learned about sales and the selling process, you learned about building trust and rapport with the people who are giving you their money.
So, trust is therefore a big factor in having a healthy (and profitable) conversion rate. Your prospect needs to trust in the value of your offering, as well as the credibility of the business and the knowledge of the people who work there.
The issue here, of course, is the length of time it takes to truly establish trust, or credibility. With all your new leads – practically strangers – walking through the door and picking up the phone, you need to establish instant trust and credibility in order to make the most of the time you spend with each prospect.
The other important point I want to make is about the role that qualified leads have in your conversion rate. It’s one thing to have hundreds of leads contact you on a daily basis, but if they’re not qualified leads, they’re less likely to buy from so, and thus potentially wasting your time and squashing your conversion rate.
Here are five ways you can boost your conversion rate with little improvements to your business.
- Build instant trust.
Use testimonials. Ask happy customers to write testimonials about their experience at your business. Use their words (or even their whole letters) in your marketing materials, or post them in your place of business. Testimonials boost confidence in what you’re offering and establish trust in the eyes of prospects.
Showcase your good news. Post awards, accolades, media articles and other ‘proof’ of your credibility around your business and on your website.
- Create an image of quality.(Known as “Moments of Truth”)
Consider the appearance of your staff. How do you and your staff members dress? Does your appearance communicate the right message to potential clients about your offering? You don’t need to show up in a suit every day, but make sure everyone’s appearance is professional and appropriate for your business.
Improve the perception of your business. This includes the physical state of your place of business, as well as the quality of your marketing materials and the quality of the service customers’ receive when they purchase from you.
Give merchandise displays a boost. Can you make your products look more attractive through the way they’re displayed or arranged? Put complementary products together, and create feature product displays to create variety and interest.
- Train and develop your staff.
Give staff conversion targets and incentives. Remember that you’re not the only one who can contribute to an increase in conversions. Involve and support your staff in tracking and boosting conversion rates. Give them individual targets, and incentives for meeting them.
Review and improve sales process. Everyone can improve their sales skills, and refine the process they use to close sales. Take an opportunity to watch and give feedback to your staff members, or hold a brainstorming session to discuss what techniques, phrases, objections are most effective when selling your product or service.
Develop and continuously update scripts. If you’re not using scripts, it’s time to start. If you are using scripts, make sure you’re revising and improving them on a regular basis based on what you and your staff experience during the sales process.
Focus on customer education instead of sales. Face it, no one likes to be ‘sold’ to. Focus your sales process on building a relationship with and educating your customer on the benefits and solutions of your offering. The more they learn, the more they’ll believe what you have to say, trusting the business enough to make a purchase.
- Improve your offering.
Increase quality, exclusivity or range. Can you improve the quality of products or services that you offer? Carry a more exclusive product, or extend your range of products? Take a look at your merchandising mix and service menu and identify areas where you can expand or specialize.
Make great offers. Strong offers can also serve as an incentive for a potential customer to complete the sale. Offer great perceived value, or exclusive and time-sensitive products or services, and you’ll see a spike in your conversion rate.
- Take away purchase risk.
Provide free trials and demonstrations. Allow your customers to test out your product or service for free, with no obligation to purchase. Or, offer free demonstrations so your customer can see the benefit or solution your product or service provides.
Guarantee product or service performance. Take away the purchase risk from your potential customer, and you’ll have a powerful strategy for closing sales and increasing conversions. This is also an immediate trust and credibility booster – you are so confident in your product or service’s results that you’re guaranteeing them.
Work with your staff on a daily or weekly basis to consistently measure and increase conversion rates.
Post a calendar in the staff room or common area, and track your targeted and actual conversion rates on a daily and weekly basis. This will give you and your staff a visual reminder of the company’s goals, as well as an indication of how the team is performing.
You don’t work in your business alone, so involve and motivate your team to support you in growing your business. Give them incentives and help them develop their sales skills, and I promise you’ll see an impact on your conversions.
The next step is about customer loyalty – how to keep your clients coming back to make new purchases, instead of continuously trying to buy new clients.