YOU MIGHT READ THAT The sales close rate IS BETWEEN 20% TO 30%, BUT THE TRUTH IS THAT IT IS OFTEN MUCH LOWER THAN THAT. READ ON TO FIND WHY THAT MIGHT BE OK. 

In the well-known demand waterfall parlance, up to 86% of marketing qualified leads put into the top of the funnel leak out before they are considered sales qualified. 

Do the math and you’ll find that sales reps are expected to work 100 marketing qualified leads down to 14 sales qualified leads and close 20% or 30% of those leads respectively; and end up with three to four deals. Not very efficient, right?

The reality is that sales won’t touch 100 marketing qualified leads if the outcome is just 14 sales qualified leads. They don’t have the time or interest (or the DNA).

What does happen? The leads are cherry-picked and most end up going into the black hole called CRM.

IMAGINE SPENDING $208,350 ON MARKETING LEADS THAT ARE TRASHED IMMEDIATELY   

One of the biggest software companies in the world has a division that spends over $200,000 per year on leads that sales refuses to follow-up.

Why don’t they follow-up? Because it turns out that only 1.8% of these so-called leads are even with qualified companies. None are actual leads. The sales close rate on $208,350 worth of leads is zero percent. What a waste.

CLOSE RATE EXAMPLE

It’s amazing how low the close rate can drop to break-even on converting marketing qualified leads to sales qualified leads via lead qualification and nurturing. As a result, the return on good sales lead management is enormous. Of course, good sales lead management is rare today (and yesterday for that matter).  

ASSUMPTIONS:

Here are a couple of inputs to demonstrate the point: 

Margin is 60% (probably conservative for software and services)

Cost per sales qualified lead is $1,250. 

Assume that the deal size is either an on-premises license sale or a SaaS solution (or a services sale) with the net present value calculated—for this example we want to make the math easy. The break-even analysis goes as follows: 

• For a $300,000 deal ($180,000 in margin) the close rate would need to be .694% (not even 1%).

• For a $100,000 deal ($60,000 in margin) the close rate would need to be 2.08%.

• For a $10,000 deal ($6,000 in margin) the close rate would need to be 20.8%.

If 50% of the leads provided were with not qualified companies (only the best companies achieve this), the necessary close rates would double to roughly 1.4%, 4.2% and 42% respectively. Lower quality leads cause the necessary close rates to go up even more. At some point the average deal size does not support generating the leads in the first place.    

If the average company could, in fact, close 20% of sales qualified leads the ROMI would be $28.80 for every $1 invested (again based on 60% gross margin). With effective segmentation and nurturing (using a professionally developed playbook), excellent sales lead management would lead to substantially higher return than most companies suffer from today. 

When I ask sales executives what percent of sales qualified leads they can close their answer is generally in the 60% to 80% range. What they mean is that they will close 60% to 80% of what they thought they would close. Happy ears syndrome. Close rates probably can be a lot lower than most people think. Not that they should be. But they can be.

Finally, no sales executive wants to admit that they are closing 1-out-of-10 opportunities (as an example). So, they don’t provide visibility into the pipeline until late in the game which causes inaccurate forecasts and other pain. This forecasting challenge, like the other challenges covered in this blog can be fixed. Why not reach out for a consult to find out how. 

RECAP

What is a healthy close rate for your solution(s) and/or service(s)?

How much money could you save and how much more revenue could you generate if you understood the optimal close rate and provided sales with sales qualified leads?

Did you know that leads cost more than you think, but probably a lot less than you are currently paying?