Many of us train our salespeople to close every deal they can at any cost. Many times, the senior people behind the organization also subscribes to the same mindset. But what if, this mindset is not entirely correct, not every deal deserves to be closed!
There are many organizations closing many of the deals and feel very proud of their conversion ratio. However, there is a catch. In order to close the deals they are making promises they cannot fulfill, leading to loss of face and reputation in the market.
Alternatively, they somehow manage to fulfill the promises but the costs required to fulfill them are so much that their margins become nonexistent or the deal even ultimately become unprofitable.
So, what is the alternative? This may not greatly increase turnover but it will definitely make you much more profitable. Profit is the ultimate judge of the health of the organization, not merely turnover!
Instead of closing more deals, let’s focus on closing better deals. It is perfectly possible for an organization with a 20 percent conversion rate to be much less profitable than an organization with a 5 percent conversion rate. How so? Maybe the first organization is closing deals at terrible margins or even losses. Maybe, because it makes unrealistic promises to get more customers, it has a lot of dissatisfied customers!
On the other hand, the organization with a 5 percent conversion rate may be spending a lot less on marketing but targeting only high-end prospects. The deal size could be much higher and at much higher margins. The conversion ratio may be much lower but the profit will be better for every deal. They could be focusing a lot on customer happiness and as a consequence would be getting a lot more repeat business. Consequently, they are a lot more profitable.
I am not advocating that this is an approach we can use in all situations. A lot of it depends on our personal preferences on what kind of business we want to build and the market we are in. It is evident that closing more deals is not always the answer to get more profitability. Sometimes, the answer is closing less, but better deals.
Prasant Saha | CEO