Service excellence has its own unique currency; it generates, retention, referrals, wallet share and the highest margins
Fortunes are spent on generating new prospects to drive sales growth. Companies must measure the cost of their lead acquisition to ensure ROI.
This presents a minefield of challenges: What works today might not work tomorrow, and you can’t control the dumb things your competitors do to reduce prices. However, one area you can have significant control over is your prospect conversion rate. This is very much in your hands and can be one of the highest profit strategies you focus on.
The great unknown
What defies logic is the fact that very few companies can accurately measure and report their conversion rates. So much money is invested in bringing leads in the front gate, only to let them walk out the back gate.
Here’s some simple math to prove the power of conversion rates. If, out of 10 enquiries, you currently convert two, you have a 20% conversion rate. If your average new customer sale value is $1,000, you have $2,000 in new sales. If you convert just one more (three out of 10), you have just increased your conversion rate by 50%. You have also increased your revenue from new customers by 50%, to $3,000, which is massive.
Don’t spend money generating more leads until you master the conversion rates of the ones you already have.
It’s essential to make your sales team responsible for measuring and reporting their conversion rates. Make sure you have trained your team in the optimal sales process to convert leads – and make sure it’s not linked to discounting. Any hack can sell on price; true professionals sell on value and quality.
Once you have this in play, set a target of what the conversion rate needs to be and segment leads into groups such as referrals, walk-ins, web inquiries, lead gen strategies, etc. – all of these will have varying levels of conversion rate. Referrals, for example, should be your highest conversion rate, as a trusted friend has recommended you. Set targets for conversion rates based on specific types of leads.
Given that referrals are the greatest and most profitable conversion rate, you’d think companies would invest heavily in being able to generate referrals. A big mistake companies make is having a process to buy referrals via rewards programs. These can generate the wrong type of lead, and often they are linked to discounting. They require very careful planning and monitoring to ensure they don't cost more than they generate.
Smart companies operate differently – they first ensure their service excellence standards are optimal and predictable. The reality is that if your service is excellent, you will receive many referrals that won’t cost you a cent – we all refer those who look after us. Service excellence has its own unique currency; it generates, retention, referrals, wallet share and the highest margins.
Every company in a competitive market will have a marketing budget. However, very few companies have a client retention budget. We all know it’s at least six times more expensive to buy a new client than to get an existing one to return, so why don’t more companies invest in their retention by training their team in service excellence?
The ability to deliver the highest standards of service has a compounding effect. It optimizes the original sale conversion rates at the highest margins, it causes repeat transactions, it optimizes average dollar sale values and wallet share, it causes referrals with the highest conversion rate, and then the cycle repeats, causing revenue to spiral upwards.
The opposite is a certainty: Treat your clients with average service standards, and you’ll find yourself in a price trap, with no way out other than discounting, and now your conversion rate is linked to price instead of being linked to value.
What you can’t measure, you can’t manage. Having accurate conversion rate data is critical if you want to optimize revenue from your marketing investments. Most importantly, ensure conversion rates are linked to revenue and margin. It’s easy to sell the cheap stuff; it’s a lot harder to sell the best solution.
Darrell Hardidge is a customer experience strategy expert and CEO of customer research company Saguity, which specializes in driving revenue growth from customer appreciation. He is also the author of The Client Revolution and The 10 Commandments of Client Appreciation. To find out more, visit saguity.com.