Bragging Rights: Is Close Rate a Meaningful Metric?
Scroll down to the end of this page to download a PDF of this article as it appeared in the December 2015 issue of Professional Remodeler.
Say you’re a home improvement company owner, or the sales manager of a home improvement company, looking to hire a salesperson. You want someone who knows his or her way around a kitchen table, as you’ve watched one newbie after another wash out in six months within the last year. Your candidate arrives, oozing confidence. The first thing he announces, without being asked, is that he is a 40 percent closer.
What Does That Mean?
Chances are good that what that means to you, the owner or sales manager, and what it means to your prospective candidate, are different things. Though the concept is the same, the criteria for defining it will likely vary from one home improvement company to the next. “On the surface, that’s impressive,” says Charles Gindele, president of Renewal by Andersen of Orange County, in Calif. “But you don’t know how they’re measuring that close rate. If he’s at 30 percent at a company where the standard is loose and performance isn’t closely monitored, it’s hard to know.” That’s because you don’t know how many appointments the salesperson ran or what the source of those appointments was (repeat or referral leads vs. nebulous show/event or canvassing leads) or, for that matter, the product he or she was selling, since the lower the cost, the higher the close rate probably would be. How that’s measured is “a cultural thing,” says marketing and sales consultant Tony Hoty, based on business model, which is why it varies.
Many Metrics
Of the various metrics that sales managers use to evaluate sales efficiency, the number of times that the salesperson departs with a lead and comes back with a signed contract—the latter measured as a percentage of the former—should be as straightforward, simple, and clear as a full moon on a cloudless night. It’s certainly simpler than the metric many owners favor, net sales per lead issued (NSLI), which divides an individual’s gross sales by the number of “sales opportunities” (that is, appointments) he was given, to calculate the exact dollar return per lead dispatched. Salesperson and trainer Tommy Steele, in Baltimore, likens selling to an iceberg, with sales rate as the proverbial tip. That metric is just a glimpse of the much bigger whole.
Salespeople don’t talk about NSLI. What they do talk, or brag, about is metrics, typically citing their “close rate.” And that, Hoty says, is because “they love to hide in the shadows.” That is, by defining performance strictly in terms of close rate, they can push aside certain issues and revel in the fact that they closed X percent of the appointments they ran—regardless of the number of leads discarded or the actual amount of retained business (revenue) they ultimately contributed to the company’s balance sheet. Close rate as such doesn’t take stock of the size of the transaction or the number of appointments that the salesperson was handed vs. the number where a price was issued and a contract on the table.
The Whole Truth and Nothing But
So if you own a company that sells short-cycle residential construction projects—windows, roofing, siding, gutters—how should you define close rate so that you’re being both honest and accurate? Rodney Webb, an outstanding salesperson, then home improvement sales executive, and now one of the industry’s preeminent sales trainers, keeps it simple. “I define close rate as the number of times you have opportunities vs. the number of times you make a sale,” he says. His example: A salesperson who sells a roofing job on the first night has a close rate of 100 percent. If he has to get back to the customer with different pricing, his close rate has dropped to 50 percent. “I’m looking for efficiency,” he says.
Close rate and NSLI are only two of the metrics that company owners and sales managers use to evaluate sales effectiveness. For some, the percentage of issued leads that are actually priced proposals put before a homeowner for signature—demo rate—is at least as important. But whatever metric matters most, their function is to let the business owner know how efficient his selling (and marketing) are at bringing in profitable business. “If I’m the owner,” Webb says, “I want to be able to look at every single number and know everything about that sales rep and that sales organization.”
And, he counsels, be clear about what these metrics mean. Some company owners, for instance, figure cancellations, even credit rejects, into a salesperson’s close rate—a method that Webb says defeats the purpose of metrics and can demoralize salespeople. “You should never go back and change that number,” Webb says. “If you do, you conceal your problem,” which may not be that salesperson’s inability to close. The problem could be with the quality of the sales appointment, and thus with the confirmer in your office, or it could be with the salesperson’s inability to really build value or tie down the sale once the sale has actually been made. In either case, you won’t know by looking at the tweaked “close rate” number. And, most importantly, Webb says, “you will not be able to understand how to help people. You have to figure out what they’re doing wrong.”
Raising the Rate
Close rates apply two ways. First, to the individual salesperson; second, to the sales organization. Naturally, if you’re an owner who is dissatisfied with your salesforce’s close rate, you can’t change that without changing the individual performance of the people who belong to that sales team. Many companies establish a minimum close rate on leads issued (confirmed appointments) below which salespeople dare not descend.
Andy Lindus, chief operating officer of Lindus Construction, in Baldwin, Wis., has no such floor. Lindus, who a decade ago had no selling system, now swears by the 10-step method his company uses. The 23-person Lindus Construction salesforce in the Twin Cities (50 reps total at its branches) closes at 45 percent, thanks to the tens of thousands of dollars a year it spends on training; that level that makes substandard performers instantly obvious. “If you’re close rate is off,” Lindus says, “it means you’re not following a system.”
All Systems Go
When it comes to selling, home improvement company owners face a basic choice: hand an untrained salesperson a lead, which can cost upward of $300, and cross your fingers. Or train, train, and train again in a methodology that enables salespeople to proceed, step by step, from introducing themselves at the door to closing business. A company owner who sells has the advantage of believing passionately in what he’s selling because the company is who he is. That’s why a salesperson, Webb points out, who will have a different kind of passion and conviction, needs a selling system.
One of the essential purposes of a system—the industry has several competing consultants and organizations, each offering his/its own—is to counter objections raised by the homeowner. Such objections can stop the unprepared salesperson in his or her tracks, keeping that close rate low or, if it’s acceptable (read: mediocre), keeping him/her from being able to raise it, that is, sell a larger percentage of appointments. “I’ve got to get other estimates,” is well-known as one of the biggest homeowner responses. The adroit salesperson, Webb and others say, is one who anticipates such objections before they’re raised, instead of allowing them to cloud the issue of whether or not the job is worth it to that homeowner.
Be an Instigator
A few years ago, Gindele had a situation in which an obviously talented salesperson turned in a mediocre performance, disrupted sales meetings, and complained about leads. Gindele says, “I fired him twice,” but he ultimately gave the rep 30 days to turn it around, and the rep went from closing 25.2% in 2013 to 31.6% this year. That salesperson went on to be one of the company’s leading closers, Gindele says, because he became “humble” enough to take RBA/Orange County’s sales system seriously. When a salesperson is willing to commit in that way, “it’s all a numbers game.” Put all your energy into that particular sales call and the outcome becomes more predictable and your income as a salesperson becomes simply a matter of how many sales presentations you do in a week and a month.
If you’re a sales manager with the aim of raising close rate across the salesforce consider these steps.
1) Find a system so reps can readily respond to typical objections designed to stall a decision. Insist on its use. Then practice, rehearse or role-play that system regularly. Lindus Construction, for instance, has three sales meetings per week. The third, on Friday, is for those who need to work on some specific part of their presentation.
2) Once you have a system, work to perfect the basics. Those include, Steele says, “establishing credibility, building value, eliminating alternatives, making what you offer something unique.” If all that happens, the close will be logical and feel inevitable. “Don’t waste your time memorizing 20 closes,” Hoty says, “when you should be getting them to fall in love with your proposal so that when it hits the table, it’s a foregone conclusion that they will sign.”
3) Use close rate along with sales metrics, such as demo rate, to tell you who is falling short and how they’re falling short, one part or piece of the system at a time. “The bottom line is,” Webb says, “you have to be able to figure out what they’re doing wrong.”
Now it’s up to you, the sales manager or company owner, to instigate change. Role-playing one on one or in the context of a sales meeting is the natural remedy for those shortcomings. Ridealongs are another method of diagnosing and addressing weaknesses in the sales presentation. But there’s more you can do besides that. Andy Lindus, for instance, does strategy calls with some reps prior to having them show up for the appointment. That is, he coaches the salesperson through the specifics of that particular house and the homeowner’s product need and as well as potential objections. For instance, a salesperson recently indicated that the appointment was a no-go because there was only one buying party present. “He said: ‘I can’t pitch this, it’s a one-legger,’” Lindus recalls. A closer reading of the lead sheet showed that, in fact, the house was owned by a widow. That widow ended up spending about $50,000 with Lindus Construction on necessary home improvements. “If you don’t strategize with the sales guys,” Lindus says, “then you’ll have someone giving the same presentation every month and every year, with the same results”—whether you’re satisfied with those results or not. PR
