Having an accurate estimate of the volume of sales that are likely to close, facilitates the smooth operation of many other business departments. The ‘leads to sales ratio’ is a measure that can guide the efficiency of the production and purchasing functions. While it is only ever an estimateand businesses should never completely rely on this figure, it is worth keeping an eye on.
So, how are sales projections calculated? The more historical data available, the more accurate the forecast will be.
Define Your Leads
For the purposes of estimating sales, only count ‘leads’ that have been issued with a quotation. Categorise them further by how ‘warm’ they are in terms of likelihood to buy. You could use a percentage measurement or even colour code them.
Record the number of leads from each stage of the sales funnel that turn into sales and how long they took to do so. As mentioned, the longer that this is done for, the more accurate and valuable the information is.
Note additional trends such as:
- Do lower value purchases convert quicker?
- Is the product more popular at certain times of the year, Christmas etc.?
- Do your customers typically have to spend their budgets by a certain date, e.g. public sector organisations?
Calculate the Ratio
The formula for determining the sales leads to sales closed ratio is as follows:
Total number of closed sales / Number of leads X 100
15 closed sales / 25 leads X 100 = 60%
This means that on average, from 100 sales leads, 60 convert into sales.
If applicable, it may be useful to apply this calculation for various price ranges as the conversion rate may vary depending on the value. For example, you may discover that sales worth under £50,000 have a higher conversion rate than those worth over £50,000.
Past sales are a good indicator of future demand. Once you have determined the percentage of qualified sales quotes that usually turn into orders, you can apply this calculation to your current sales pipeline. Combine the total units of each stock item required for production to enable advance bulk buying.