What Is Close Rate? Definition, Formula and Examples
Generating sales and creating relationships with potential customers is important for all business operations. Sales staff and marketing professionals often calculate the close rate of their sales efforts to evaluate the effectiveness of their sales methods. The close rate shows how many potential leads purchase goods or services from the organization.
In this article, we discuss close rate, including what it is, how to calculate it and examples of uses.
What is close rate?
Close rate refers to the percentage of sales leads and outreach efforts that produce customer conversions and sales. This measurement represents the ratio of closed sales to sales contacts and can convey the results and value of sales methods or marketing efforts. Industries and occupations in the sales and marketing fields use close rates to determine the effectiveness and rate of sales efforts and advertising content.
What is the close rate formula?
Managers and sales representatives calculate the close rate by dividing the number of customer conversions by the total number of leads and then multiplying by 100 to achieve a percentage value. This simple calculation provides a quantification of sale rates and displays the effectiveness of sales methods and marketing materials. Here is the formula:
Close rate = (Conversions / Total Leads) x 100
How to calculate the close rate
Follow these four steps to calculate an accurate close rate for sales and conversions:
1. Select a time frame
The values used in the close rate formula occur within a set time frame. Many sales professionals and marketing managers use monthly, quarterly or annual sales numbers to calculate the close rate of sales. All values in the formula refer to the actions and totals from the same period to create an accurate rate of conversion for that period.
2. Total the number of leads
Calculating the close rate requires you to provide the total amount of sales leads you interacted with during your sales period. This number of potential leads refers to the clients and individuals who received your sales pitch and marketing efforts. Typically, sales representatives and managers create a list of leads who fit the organization's consumer demographics and are most likely to purchase products or services. You can use this list or a call record to count the total number of clients and leads that you contacted.
3. Count the number of conversions
The close rate formula also uses a provided number of lead conversions. Customer conversions refer to the clients who purchase products or services after receiving a sales pitch or marketing outreach from the organization. The closing of the sale with final signatures, payments or contracts signifies a conversion for the sales representative. You can keep a record and total of your conversion numbers for easy reference when calculating a close rate.
4. Apply the formula
After determining the time frame and gathering the proper data, you can apply the formula to determine your close rate. Insert each number into the appropriate portion of the formula and perform the calculations necessary. The result of the formula provides you with a close rate you can use to quantify and evaluate the effectiveness of your sales tactics, marketing strategies and business goals.
Examples of close rate uses and calculations
Here are some examples of situations and calculations that use the close rate formula to determine the percentage of sales conversions:
A sales representative calls 20 potential leads over a week. During that week, 12 of the calls result in the closing of sales contracts for the company. Using the close rate, the sales representative calculates the close rate of his sales efforts:
*Total leads: 20*
*Formula: 60%= (12/20) x 100*
The sales representative's close rate is 60%.
The marketing director creates an email sales message and sends it to a total of 150 potential sales leads over a sales quarter. During that sales quarter, the email returns 25 sales conversions and purchases for the company. The marketing director uses the close rate to determine the efficiency and effectiveness of the marketing message:
Total leads: 150
Formula: 17%= (25/150) x 100
The marketing message returns a close rate of 17%.
A sales team contacts 300 potential leads during a one-month period. During that month, 90 of those leads become a conversion and make a purchase. The sales team leader uses the close rate to calculate the ratio of sales for the team:
Total leads: 300
Formula: 30= (90/300) x 100
The sales team has an overall close rate of 30%.
A digital marketing team creates a social media advertisement that reaches 1,000 target demographic consumers. 250 viewers click through the ad and make a purchase or close a sale. The marketing team uses the close rate to evaluate the efficiency and output of the advertisement:
*Total leads: 1,000*
*Formula: 25%= (250/1,000) x 100*
The close rate of the social media advertising is 25%.
Tips for using close rate
Here are some helpful tips you can use when calculating and analyzing your close rate:
Record sales and leads: Keeping a constant written or digital record of your leads, sales efforts and closed sales as you work ensures you can easily and accurately gather the values and data necessary to calculate your close rate at the end of the quarter or sales period.
Use digital tools: Digital tools and services can make it quick and easy to perform calculations, track changes and chart progress for close rates. Using a spreadsheet or tool to track your leads, conversions and close rate creates an accurate and organized report of sales and changes.
Compare data: Comparing your close rate to other competitors, organizations or representatives can help you evaluate whether you achieve good numbers and can show areas for improvement.
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