In part 1 of our 3PL sales strategies & processes blogs, we discussed how a properly implemented sales pipeline plays a critical role in an effective 3PL sales strategy. We also discussed some of the 3PL sales processes and stages that must be in place. These help us effectively manage leads and customers as they navigate through the sales pipeline.
In part 2 of this series, we will discuss important conversion key performance indicators (KPIs). These KPIs should be implemented together with the sales pipeline. The pipeline helps us segment and track leads, prospects, and customers as they move through the 3PL sales process. Conversion KPIs help us measure the effectiveness of moving leads, prospects, and customers from one stage to another.
But first, let's understand what sales conversion rates are.
Sales conversion rates measure a salesperson's or team's effectiveness in moving leads and prospects from one stage to the next. This metric is important because it allows us to measure the effectiveness of a salesperson or the sales teams in converting leads to customers (business growth). Sales conversions should be measured from the first stage in the sales pipeline (Leads) down to the last stages (Customer and Lost Customer) – and in between. Conversion rates can also help you identify bottlenecks in the 3PL sales process.
Let's go ahead and review some of the most important conversion KPIs that you should track in your sales pipeline.
Lead-to-customer conversion rate is an essential KPI of an effective 3PL sales strategy and process. It accurately approximates how many leads you'll need to inject at the top of your sales pipeline (sales funnel) to obtain one customer. To calculate the lead-to-customer conversion rate, you'll need to follow these steps. Divide the total number of acquired customers by the total number of leads then multiply by 100. For example, if you converted 3 customers from 100 leads, your lead-to-customer conversion rate is 3%.
(3/100) * 100 = 3%
Consistently measuring this metric and comparing it with industry standards is crucial. It allows you to understand the effectiveness of your salesforce in capturing new customers compared to your competitors.
Customer-to-lost customer conversion rate is another essential KPI. This KPI helps you understand what percentage of customers you lose over time. The key here is to track lead-to-customer and customer-to-lost customer conversion rates to understand if you are growing or shrinking your customer base.
It is very important that sales personnel do not wobble with accounts that are lost. As soon as an account is moved to the lost customer stage, past activities and quotes should be reviewed to understand the potential causes of customer attrition. Failing to do this will result in additional customer losses. Therefore, all emails, calls, notes, conversations, and quotes must be documented in the CRM.
Companies must keep this conversion rate as low as possible.
Lead-to-qualified lead conversion rate measures what percentage of your leads become qualified leads. Remember, you don't want to waste time and resources with unqualified leads. When the source of a lead is correctly flagged in your CRM (ex. tradeshow, website, referral, etc.), the lead-to-qualified lead conversion rate helps you understand which lead source provides you with the highest quality of leads. Once you understand this, marketing and sales efforts should focus on that specific source.
For example, you are obtaining leads from tradeshows and online databases. Your tradeshow leads convert to qualified leads at 39%, while online databases at 17%. You want to increase your participation in tradeshows instead of spending more time and money buying and processing online databases.
Qualified lead-to-prospect conversion rate is another essential KPI of an effective 3PL sales process that allows you to measure how many qualified leads become prospects. In other words, how many of your qualified leads have requested a quote from you. It is important to track this KPI across the entire sales pipeline/sales team as well as at the salesperson level. Why? Because it helps you understand the practices and approaches of the salespeople with the highest conversion rates. Such crucial information allows you to create highly effective sales training for the rest of the sales team. Thus, potentially increasing your total number of quotes/sales opportunities and customers.
The prospect-to-new customer conversion rate measures how many prospects accepted your quote and became new customers. Prospects are the qualified leads that requested a quote. This KPI effectively measures the growth of your customer base. Also, it can be extremely useful in identifying your key sales players (closers) who can share best practices and approaches to closing deals. With this information, you can create invaluable training for the rest of the sales team.
This conversion rate, lead-to-customer, customer-to-lost customer, and new customer-to-customer conversion rates are among the most important KPIs you want to track seamlessly in your sales pipeline.
Finally, the new customer-to-customer conversion rate helps you measure how many new customers become stable/recurrent customers. This is another critical metric that you want to monitor. In the end, it is not how many clients you get but how many times they repeat business with you. As we all know, it is much more cost-effective to upsell an existing customer than to acquire a new one.
Additionally, we have seen that the ratio of won deals/lane is significantly higher for customers that have been doing business with you for one year or more when compared to new customers (customers that have been doing business with you for less than a year).
Lastly, a healthy conversion from new customers-to-customer is a very important KPI of an effective 3PL sales process that tells you about the quality of service your business as a whole is providing to its customers.
As we have seen in this series of blogs, having a pipeline with clearly defined stages and conversion KPIs is one of the most powerful 3PL sales strategies and processes that companies can adopt to grow and retain their customer base. It also allows businesses of all sizes to understand where their sales teams or individual salesperson are failing or exceeding. And it can enable management to assess the organization's direction and predict the growth or decline of its customer base.
If you'd like to track the above-mentioned conversion rates, we have a CRM truly built for 3PLs that provides a sales pipeline and tracks conversion rates.
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