Article: Understanding Your Sales Closing Ratio
As a business owner, you’ve probably grown accustomed to measuring metrics with your parts and service department. To get to that point, you must first look to where it all begins, and that’s the initial sale.
To get a true indication of how your sales department is doing, you need to know your sales closing ratio. Before you determine your closing ratio, dealership expert Bob Clements advises that you first need to take a look at who comes through your door.
There are two distinct types of people which you should be able to qualify within the first 15 seconds of meeting them:
These are people that have a pulse, but are unlikely to ever become a customer. They like to come into a dealership, kick the tires, and have no need or desire to buy your product. Bob says, on average, 20-30% of the people who come through your door can be placed into this category.
The other 70-80% of people who come through your door are prospects and each has an opportunity to buy from you. While many think that price is the biggest factor in a prospect’s decision to purchase, Bob believes this isn’t the case.
“If someone comes into your dealership, they are at least neutral in their decision to buy from you,” said Bob. “Roughly 20% of people make their decision based solely on price. The rest are looking for something that brings value to them. Often times if they don’t end up buying, the decision is based on the person not liking the dealership or salesperson.”
Evaluating your sales closing ratio
Once you’ve distinguished the prospects from the suspects, you can now work on evaluating the correct sales closing ratio. Clements defines the sales closing ratio as:
For example, if you generate 20 sales from 70 qualified prospects who come through your business, that’s a 29% closing ratio. While 29% may seem low, Clements says most dealerships average around the 30% range.
Once you have determined what your sales closing ratio is, you can now budget and plan ahead. If your closing ratio averages at 29%, you’ll know that bringing in an extra 3 people a day through the front door of your dealership or about 1,000 prospects can generate another 290 sales each year.
How can you improve your sales closing ratio?
One key area that Bob believes will bring in more prospects into your dealership and can close more sales is branding your business. First impressions can be everything and all too often Bob sees dealerships get caught up in manufacturer branding, which is a distraction from the dealership.
“I believe dealerships have to give themselves a unique identity,” said Bob. “Too many dealerships rely so much on manufacturer branding to where they all look the same. If dealerships would just take the time to brand their business and give prospects a unique reason to come into your dealership, you could quickly work that closing ratio number up to 40%.”
One way to help make your dealership unique and more inviting is to turn your showroom into an interactive environment. Invite people to sit on and get a good feel for your products. You can also offer free coffee or popcorn or fresh chocolate chip cookies. The idea is to create a unique and warm environment that anyone would feel comfortable walking into.
Bob suggests another way to improve your closing ratio is by conducting additional training with your sales staff to get them excited about the products you sell. If the salespeople are passionate about the products they sell, customers are more receptive.
By gaining a true understanding of your sales closing ratio and developing ways to bump that number up, you’ll quickly be able to boost profitability in your business.
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