Did you know that there’s a ratio that could estimate the number of prospects engaged by your sales team in comparison to the number of deals won? If not, you should know that there is one indeed. It’s called the sales closing ratio, and it’s meant to analyze how effective your sales funnel is.
Would you like to find out more about it? The paragraphs below will tell you what you need.
What is the Sales Closing Ratio?
The Sales Closing Ratio is basically a metric that calculates the number of prospects your sales team engages with compared to the won deals number. In other words, its aim is to analyze the effectiveness of your sales funnel. For instance, it should account or measure how many formal quotes were sent out by your team vs how many deals were signed.
To be able to calculate the sales ratio of your business, you will have to identify a discrete stage in your sales process’ later stage, like sending out a quote, for example. As a result, your analysis will be focused on a certain event, and concentrate on qualified prospects within your funnel.
The ratio is used by executives, sales managers, sales reps and sales directors.
What is the Formula?
The sales closing ratio has a specific formula that will let you calculate it. So, here is how it looks:
(Number of Quotes sent to Qualified Prospects/Prospects who converted) x 100
Closing Ratio – What is it?
Basically, a closing ratio for sales indicates how many closed deals there are in comparison to how many formal quotes were sent by your team. For instance, if your business sends 20 quotes this month, and you successfully converted only 5 of those people, you will have a closing ratio of 25%.
The key when it comes to calculating the closing ratio is benchmarking your performance against the business targets and historical trends. This is very important if you engage in sales forecasting activities, especially revenue predictions and sales force effectiveness.
What is the Sales and Marketing Alignment Using the Sales Closing Ratio?
The sales closing ratio can show a key point of intersection between marketing and sales. Whereas sales have the responsibility to close and qualify prospects, marketing has to attract quality leads. So, sales and marketing are measured through conversion rates.
Let’s say that you have a team that receives the task to hit a target like the number of leads. It may motivate your team to seek a new vein of marketing leads, thus hitting their target. Although this looks good on the outside, the sales team will notice something that’s not in place: the closing rates are dropping, and the lead quality is down. So, while sales representatives complain that marketing can’t provide good quality leads, marketing specialists feel like they are good to go by hitting the target. So, that may become an environment with problems.
Therefore, if the teams can be aligned around sales closing ratios, they can work towards hitting the same target, instead of being separate and competing.
To sum up, the sales closing ratio calculates the number of prospects engaged by your sales team in comparison to the number of deals won. It’s an important metric if you want to know how effective the sales funnel is. Having this in mind, this article was hopefully helpful to you.