Win rate: Why you're probably measuring it all wrong

Let's avoid confusion…

One of the recurring KPIs when we talk about sales is the "win rate" or "closing rate" KPI. However, there can be a lot of confusion about the term "win rate". Typically, the leaders of an organisation have only one number in mind when talking about win rates.

But at Curiosity, one of the key principles explained to sales people is "sell precisely". They need to understand the context of their prospects in detail. The same applies to the analysis of sales performance. Measure precisely. So here are a few things that may be important to understand if you want to develop an approach of excellence within your teams. (I use the term IC = Individual Contributor to refer to each sales person)

… And have some definition

First of all, let's define the starting point. A closing rate is quite simply the ratio between the total number of opportunities opened and the opportunities won. Sounds obvious, you may say. But the definition of what constitutes an opportunity is not necessarily (believe me...). In the world of Curiosity, an opportunity begins when the prospect articulates a phrase like "we need to change xxx by yyy or risk zzz".

One of the things we often do with our clients is to help them create opportunities. What do they need to change about the messaging that's used by the team, what do they need to change about the sales activity that's in place, what do they need to change about the channels that are used, etc. But there are a lot of these activities that you hope to turn into opportunities but never do. That's the nature of things and the importance of qualifying in or out effectively. This is a key task, because otherwise, internal resources are used and invested in opportunities that aren't actually there. So it's through this work of qualification that we create qualified opportunities.

This definition is very important. Too often we see sales teams seeing a deal as "qualified" because the prospect wants to know more about what they do. Prospects who say: "Oh yes, that's interesting, let's talk about it" or "Oh yes, I'm curious". Or any message other than a prospect who wants to be educated - free of charge - because "the desire has been created". This demonstrates, for example, a happy ears syndrome in those sales people who have no healthy scepticism. Or that there is no robust sales process with milestones, just stages - disco / qualified / demo / closing - but no clear underlying milestones that support the process and allow, once again, to qualify in or out and manage the company's resources efficiently.

(Question: are your teams capable of measuring changes in the closing rate for each CI? Because depending on how this rate develops, you need to start taking different actions for different CIs on the coaching to be put in place).

Calculations

So the closing rate calculation we're talking about here is based on real opportunities. Not prospects who want to be educated for free. How is this closing rate calculated? Typically, the evaluation over a given period of the ratio mentioned below for opportunities that have passed over the entire sales cycle (thus excluding opportunities that are "live" or in progress). The prospect has made a decision which is basically of three kinds. Either they work with us. Or it is working with a competitor. Or they have decided to do nothing and therefore remain in a mediocre situation. All deals end up in one of these situations, and it's important for you to know these ratios. Because the actions you take will vary to better coach your sales people.

So if out of 100 opportunities, 30 are closed, then the closing rate is 30%. But that doesn't give you a complete picture of the situation and where to focus your efforts to improve. In fact, the remaining 70% needs to be understood. And there are, as mentioned above, two possibilities: the competition has signed the deal, which is where the real loss lies. Or the prospect has decided not to do anything after all. The abandonment rate. Nobody wins.

Let's assume that the abandonment rate is 30% and the loss rate to the competition is 35%. In some cases, organisations only take the latter into account (editor's note: organisations are often unable to identify what the customer has done and, more importantly, to track it in their CRM, but that's another conversation). So if we don't take abandonment into account, the closing rate would be 46% [30% / (30%+35%)] . Knowing this information is extremely useful, because this dynamic can be incorporated into the process so that corrective action can be taken.

But ignoring and not tracking abandonment rates would also be a big mistake. In this fictitious case, we're talking about 30%. In other words, if the sales staff are able to halve this abandonment rate in their favour, through their approach and the way they sell, this will improve the closing rate by 50%. No mean feat...

Timing

Let's now look at the timing. If you have an infrastructure that allows you to do this (in other words, a well-configured CRM), then it is important to define the period over which you want to analyse your win rate data. Naturally, you need to carry out an analysis over at least one sales cycle. So if the cycle is 6 months, then take the last 6 months. Excluding opportunities that are still in progress.

Taking a very long timeframe into consideration is absurd. Some companies take into account 5 or even worse, 10 years. This is obviously absurd because far too many things can change over this long period - the market, the players, external factors such as interest rates or the regulations in place, etc, etc... -. On the other hand, taking two sales cycles or three (if the cycle is short) is perfectly reasonable.

And analysing these three ratios - win/loss/abandonment - can provide powerful insights to take into account. What are the ratios for each CI, and how do they evolve quarter by quarter? What are the ratios per team? How do individuals compare to the group? Are there specific differences from one individual or team to another (for example, if there are several geographies, then the impact of sales management can be clearly identified).

Closing rates in £/€/$?

Now that the basics of what a win rate is have been defined, let's take the exercise a step further. Let's not just focus on mathematical ratios. Let's focus on monetary value. We're in the sales business after all, so talking about money makes more sense.

Let's go back to the previous example of a 30% closing rate. Let's assume that signing the 100 deals represents €/£1 million. If the 30 deals signed (mathematical closing of 30%) bring in €/£200,000, then the closing rate in €/£ is 20%. And not 30% (Editor's note: once again, are you able to measure this information in your CRM? If not, you need to take the necessary steps, because if you can't measure it, you can't improve it).

Another useful piece of information is to measure these closing rates by deal size. Or by region. Or any other angle that can help guide the business. For example, it's not uncommon to observe that, by focusing on deals that went beyond a certain amount, €500k, then closing rates decrease and loss rates to the competition increase. In this case, coaching needs to take account of this situation, for example problems selling on value or access to certain decision-makers.

Depending on the maturity of your organisation, different closing rates can be analysed:

• Net new account win rate. How effective are we in acquiring net new customers/logos? How can we improve?

• Win rate for "corporate" accounts (the definition of corporate varies from one organisation to another). In our "corporate" accounts, we seek to develop special relationships, generating much more activity in the company.

• Retention/expansion rate. We know that we want to keep our customers for life, that they renew, grow and modernise. Are these rates known?

• Success rates by customer size/segment. We can sell to SMEs, large corporations and international companies. We learn more by looking at the success rates by segment than the overall success rate.

• Success rates by product range. We see so many organisations where salespeople make their numbers by focusing on one or two product lines, ignoring the rest. Tracking success rates by product line helps us understand some of the areas where there are huge opportunities to improve success rates.

• Success rates by market segment. Same logic as for products?

• Regional/geographical success rates. How successful are salespeople in different geographic regions? If an organisation has a 60% closing rate in Europe but a rate of less than 35% in Asia, the focus for management will be to maximise this margin for growth in Asia first and foremost.

• Channel partner success rate. Channel sales can be a substantial source of revenue. Although the rates vary, we need to know them in order to know which channel to focus on to obtain the best results with end customers?

• Success rates for new sales staff, success rates for experienced sales staff - how can we develop our staff's ability to succeed? It's logical to think that new salespeople have lower success rates than more experienced ones, so they need more training and support to improve. But if the more experienced have lower success rates, there's a problem.

• etc, etc...

Finally

As you can see, analysing your win rate is a powerful source of information. If you're a young organisation, you might say to yourself "Well, we're not there yet". Which would be a huge mistake. One that you'll regret in a year or 18 months' time. If you're a more mature organisation, you might say to yourself: wow, this is a complicated project given our infrastructure. Which would also be a huge mistake that you're likely to regret much sooner than in a year or 18 months...

Anyway, I hope this has aroused your curiosity. So many companies don't understand the power and information provided by this one measure. There is so much confusion about what to measure. Just as salespeople don't sell precisely, sales leaders don't measure precisely and limit themselves to "What percentage of contracts do we win?".

And by focusing solely on that, they miss out on so much more.

If you want to discuss how to build a culture of sales excellence, let's block off a slot.

Standing on the shoulders of giants

This post is inspired by the (very extensive) writings of Partners in Excellence from Dave B. I highly recommend you read his blog. He's writing a lot, I just don't know how he produces so much content ! :)