Close Ratio
Close ratio is a metric related to, but not the same as, conversion rate. It specifically represents the number of sales-qualified leads we’re converting into customers. This makes it a Bottom-of-Funnel (BOFU)-specific conversion rate metric.
What is a Close Ratio?
Close ratio, also known as the win rate or closing ratio, is a sales metric. It is the ratio of deals closed to quotes sent.
Close ratio is used to determine a sales team's effectiveness. It evaluates how many sales-qualified leads (SQLs) end up becoming paying customers. It tells us how good someone a team or person is at converting sales opportunities into actual closed deals.
Why is the Close Ratio Important?
The close ratio tells us how good we are at turning qualified leads into revenue. It serves as a diagnostic tool for a company's sales process. It tells us how good we are compared to industry standards, competitors, and our own past performance.
A high close ratio indicates that the sales strategies work well with potential clients. Conversely, a lower ratio suggests gaps in the sales process or areas where further training is needed.
Once a consistent close ratio is established, it becomes a useful tool for predicting future sales outcomes and strategic planning.
Which KPIs Work Well with Close Ratio to Produce Insights?
Combining the Close Ratio (CR) with other KPIs can offer insights that drive revenue. Here are some good ones to use together with the metric:
- Lead Numbers: Close rates tell us how good we are at converting sales-qualified leads. Keeping our total number of Information-Qualified Leads (IQLs) and Marketing-Qualified Leads (MQLs) can give us additional insight into friction at each stage of the funnel.
- Lead Source: Identifying close ratios across lead sources can improve marketing spend and strategy. Channels and audiences that yield higher close rates should be prioritized.
- Average Deal Size: Are bigger deals closed more or less often than smaller ones? Using average deal size and close rates together will let you know. This, in turn, can help understand the ROI on deals won… And help focus efforts on high-value prospects.
- Sales Cycle Length: A longer sales cycle might be acceptable if it results in a higher close ratio. Conversely, if long sales cycles do not help close more deals, they may be downrated in priority.
What is the Close Ratio Formula?
The close-ratio formula is a straightforward calculation. Divide the number of closed deals by the number of opportunities or leads engaged. The result is then multiplied by 100 to get a percentage.
Example 1
If a sales team engages with 100 potential clients monthly and closes deals with 25, the close ratio would be 25% (25 closed deals ÷ 100 opportunities x 100).
Example 2
If a company interacts with 500 leads in a quarter and successfully closes 150 of them, the close ratio is 30%. This is calculated by taking the 150 closed deals, dividing them by the 500 leads approached, and then multiplying by 100 (150 ÷ 500 x 100 = 30%).
When are High Close Rates Not a Good Thing?
High close rates aren’t always good. For example, a sales team may only engage with sure-win prospects and potentially miss out on broader opportunities. This keeps close rates high but can be detrimental to long-term results.
Here’s another example. Let’s say a product or service is sold at a lower price than it should be, causing a significant revenue loss. This, again, can keep close rates high while reducing profits.
When pursuing growth opportunities, it's essential to maintain a respectable close rate while looking at overall growth and profits. This balance is often challenging to attain, but it is a key to successful sales operations.
