THIS MONTH, WE’LL focus on estimates versus invoices and what this can tell you about how your sales team is using their time and your resources! This calculation is called “Conversion Rate” because it is about how much of your quote revenues is converted into invoices.
The calculation is simple. Divide total invoices by total estimates to get an average conversion. Calculate over months of time to get a clearer picture of performance. One big order can skew this number for that month.
A typical signshop with a sales team will have some wildly different results by salesperson. Here are some examples.
What is a good conversion rate? I shoot for between 50-70%, but every shop is unique. Some will be higher or lower. What matters is knowing yours and understanding what it says about your team or your sign company.
I would argue below 40% gives you reason to be curious, if not concerned. Here are different reasons why a rate may be that low:
- Pricing too high. Are you staying in tune with your market and doing market-price checks annually? One of my favorite ways is to ask a lost prospect: “Could you help me? I want to learn more about why we didn’t win your business.”
- Quoting badly! This means your quotes might be sloppy, not well explained or not accurate. Are you so busy quoting you aren’t doing it well? Read your lost quotes and be honest with yourself!
- Poor customer care. Is your team “too busy” to follow up? If so, maybe you need to hire help, turn away quotes you don’t have time for, or do some follow-up management to ensure your team is doing what it can to win business.
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HIGH CONVERSIONS – I would argue a conversion rate over 80% can be dangerously high. How can that be dangerous? If you are winning nearly every single project, it could mean one of these issues is at work:
- You don’t have enough new customers. Your client base is loyal, but stale. New customers are harder to win and bring your average down a little.
- Your prices are too low! If you are below market on many products, you are in danger of becoming addicted to low prices. Learning to be comfortable charging what things are worth makes your business healthier and more durable. Being a price seller makes you very vulnerable in the marketplace.
- Lazy salesperson? Sometimes a high conversion rate combined with low sales numbers can point to someone who is “doing the minimum” and taking care of a few cherry-picked clients they can count on.
Some objections I often get:
- “I quote several options, so my estimate number is inflated.” Stop quoting so many options. Do a better job selling up front on needs. (Sounds like a future column!)
- “I quote lots — you gotta take opportunities!” I might agree if your signshop is less than two years old. We’ll address how to be more efficient on opportunities soon!
- “I like to quote, even if I’m too high.” Quoting even when you know you are too high is a waste of both your and clients’ time. Plus, they may never return for a future opportunity. You might be harming your reputation.
- “I calculate based on quantity of estimates and invoices.” Okay, you can. I like looking at dollars because I think larger estimate dollars can point to bigger issues you may not be aware of.
This can be a very hot topic with salespeople and owners! But getting into the data and understanding what is really going on with your team and your clients are very powerful.
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