Some business people tend to be unrealistic about the response to their quotes. Whilst some people expect a response rate of 90%, the reality is that even the best quotes usually only return half that (of course it depends on the industry, and the number of competing companies). No matter how good you are as an organisation, or how good the deal you’re offering is, there are some factors you can’t account for – personal relationships with other suppliers, cash problems etc.
So is a 40% conversion rate unsuccessful? Not usually. Basically any quoting process that pays for itself can be considered successful. Here’s a more in-depth guide judging the success of your quoting procedure …
- Work out your costs. This includes the cost of advertising, staff, phone calls, offers etc.
- Know your margins. You need to know the net profit you make from anyone who buys your product or service. By understanding how much you actually make from each sale, you’ll be able to work out how the % response required to cover your costs and make a profit.
- Lifetime Value. Don’t view each new customer as a once-off sale. Depending on the industry, you may lose money on the first sale to a new client. The average business will need to sell to a client 2.5 times before it begins to make a profit from them. Of course, if you’re selling larger items, it can be a different story.
The response rate is largely irrelevant – in some cases, a 1% response rate is something to be proud of. Here’s an example that shows you why.
Let’s say you run an ad that costs $400 – it gets you 100 calls. To sell to those 100 people, it costs you £200 in phone calls and letters. Let’s also imagine that the product you’re selling is priced at £23,000, with a margin of 40%.
You’d have to be pretty happy to convert 1% of those 100 calls, wouldn’t you? That means, for every £9200 you earn, you have to spend £600. That’s a pretty good return on investment. At the end of the day, that’s all that matters.
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