Posted by LinkedSelling in Uncategorized
What percentage of prospects will you turn into clients?
Almost without fail, business owners, entrepreneurs, marketing and sales leaders will over-estimate.
They'll say 25%, when in fact the real number might be 5%.
More seasoned businesses with a lot of sales history typically don't have this problem to as severe an extent, but they DO still have this problem.
Why? How could a business with clear history still over-estimate the number of prospects they'll be able to close?
It's called “Overconfidence Effect“ and it's a disease that, unfortunately, the big pharmaceutical companies are not currently working on a cure for. So you're stuck with it, at least for the foreseeable future.
Overconfidence Effect is “a well-established bias in which a person's subjective confidence in his or her judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high.”
Most people think their intuition is good, but it is not.
And when it comes to predicting sales performance, most people have terrible intuition. People think they are going to see fantastic close rates, but it is almost never reality.
Add to the Overconfidence Effect all the other cognitive biases that you're potentially going to succumb to, and it's tough to maintain objectivity!
Here's the implication for your business.
For starters, it's likely that your projected close rates are too high.
And thus, you need more activity at the top of the funnel. It's almost impossible for you to overcome these cognitive biases. So the best way to live with the reality, AND still achieve your sales goals, is to plan for way more marketing and lead gen activity than you think you really need.
You are right – no matter if you work as a manager in a company or just execute project as freelancer – people tend to be more optimistic than realistic. This is also my own experience. I used to think “my project” will be as essential to others as it was to me. 🙂
I believe that the majority of the marketers turn surely 5% of prospects into client and spend a lot of money to turn at least the 30% of prospects into clients. Also another 30% of prospects probably will not turn to any marketer at all for different kind of reasons. The biggest problem is how a marketer will be able to turn from 5% to 40% of prospects into clients. I think that every marketer will be able to succeed in the market if he ask himself some question like for example :
•Does what I am offering look interesting for the customer?
•Does it make the customer to want to buy it?
•Is what I am offering a really good deal for the customer?
•Are you visible for the customer in the market?
•Have I created I good image to the customer?
Josh, may I add that never venture into ‘unknown zone’ where you are not familiar with the work.
As they say ‘fools rush in where angles fear to tread!’
In the ‘safe zone’ one becomes the ‘specialist’ and know the matter at hand well.
That is what the client is looking for- not some novice who will screw up the matter and leave the client seeking another advocate.
I will say ‘never bite more than you can chew’
It is better to have less clients but the ones who remain keep coming back and are confident in your ability as an advocate of long standing and is trustworthy.
That is what my practice is about and it is worldwide.
Trust and the ability to handle the matter at hand well is built over time.
If I have 5k+ people in my network only 250 will get the job I send them? Or if I have the same group of people that I sell products to only 250 will buy something. I wouldnt survive with those estimates. Thank goodness that’s not the case for my start up.
Certainly there are many businesses with a close rate higher than 5%. The key is not to confuse “hot leads” with top of the funnel “suspects.”
Josh,
So true. For lots of Professionals, it’s an ego thing. You can never have too many prospects in your pipeline.
At any given time, there’s a client looking to fire you … or you should be thinking about replacing certain clients with more profitable clients.
Great points Walt. No client lasts forever. Thanks!
Josh,
Better to underestimate what prospects will do than overestimate.
A rule of thumb that I have found pretty accurate is to cut the number of prospects that I’m absolutely certain will end up being a customer in half.
Josh – excellent point. It’s one I’m guilty of too.
At one point I was able to close 70%, then it dropped to 50%, now hovering closer to 1/3 opportunities close. Fortunately for me the value of those deals is 4x what it was a few years ago.
As my proof continues to pile up that we’re good at what we do, the rates go up and the quality of client goes up.
But at the top end of the 80/20 equation, where you “disqualify” anyone who’s not an “ideal client”, the number of sales will go down.
Good stuff Scott. Absolutely agree that increasing close rate is a worthy objective. Not that many businesses are actually good at doing it though. Lots of talk, not much achieved.