Your conversion rate is the percentage of prospects that actually buy from you.
So if you have 100 prospects and 10 of them buy from you, your conversion rate is 10%.
But here’s what you do need to know (yet many entrepreneurs don’t know)…
Part of your job as a business owner is to improve your conversion rate. Try to grow that rate by closing more often. Instead of closing 10/1000 customers, try to close 11/100. Then 12. Then 15. Then 20. Etc. This is a smart move because it’s more profitable (and less work!) than just increasing the number of prospects.
It’s important to always push that rate higher. But there is a limit.
There is a point at which your rate is too high. At that point, people are becoming customers in droves (which seems good) but it could hint at something seriously broken right now and something terrible is about to happen in your business.
1. SOMETHING IS BROKEN RIGHT NOW
If your conversion rate climbs and climbs and reaches a point that is too high, it can often suggest one of the following things:
- That your marketing overpromises the value of the product or service.
- That you have incorrectly priced your products or services and the value you offer is far greater than the price you’re asking. Note: The value you offer should be higher than the price you’re asking but if it’s too high then you might end up with too many customers — and possibly too many unprofitable customers.
2. SOMETHING TERRIBLE IS ABOUT TO HAPPEN
A too-high conversion rate means bad things are about to happen in your business:
- Perhaps you will end up with a customer service issue if you overpromised something in your marketing and after your customers purchased your product or service they discover that it doesn’t do what it’s supposed to do.
- Perhaps you will end up with a cash flow issue as you dump all of your revenue into growing your infrastructure to handle the influx of customers.
- Perhaps you will end up with a big stockpile of inventory if your conversion rate is a spike that decreases as quickly as it increases.
(On a related note, this is one of the reasons why many new businesses fail: They get customers but don’t have the cash flow or infrastructure set up to handle those customers).
With conversion rates that are too high, you’ll end up with dissatisfied staff, dissatisfied vendors, dissatisfied customers, balance sheet problems, income statement problems, cash flow problems, procedural/infrastructure problems, and more.
WHAT YOUR CONVERSION RATE SHOULD BE LIKE
Your conversion rate should start low and grow steadily. It should grow with your business as you improve your skill set and infrastructure, and as you staff up. You can test your ability to handle more customers (in smaller spikes) as you try out new marketing methods or selling methods or technology.
In other words, your conversion rate should steadily improve through intentional scaling rather than as a wild and unpredictable growth
ONE OTHER REASON WHY YOU WANT TO LOSE A SALE
There is another reason I haven’t mentioned: As your business grows and your conversion rate climbs, you should be worried if you start closing nearly every sale.
Because you learn just as much — or more — from the customers you don’t serve as the customers you do serve. The ones you don’t serve will tell you why they didn’t buy (sometimes you have to ask) and you should listen. If enough of them are asking for something that you can deliver, you can offer products or services to serve them.
If many are looking for a cheaper price, consider establishing a budget-friendlier service you can offer them (or a layaway plan or something like that). If many are super-users and your product or service is for the average user, consider a higher-pried, higher-functionality version of whatever you’re selling.
Just recently, one of my subscribers at an email newsletter unsubscribed. He was kind enough to email me why. Turns out, he’s not in my target market. We’ve had a great conversation since and he’s become a good contact I will rely on in the future. He’s just one guy. But if more of my subscribers (or UNsubscribers!) tell me the same thing then I’ll need to adjust my newsletter to match their request. I plan on using a survey shortly to see if there are others who are like that first subscriber. If so, it’s an easy fix!
THE QUESTIONS I HAVEN’T ANSWERED YET
So I haven’t yet answered some questions and you’re probably wondering about the answers: “What’s the right conversion rate for my business?”, “What rate is too high?”, and “How fast is too fast for a conversion rate to climb?”
You’re going to hate my answer but the answer is: “I don’t know.” Conversion rate ratios and speed are going to be different for every business. It depends on a million factors including your business model, and what infrastructure you have in place, and your relationship with customers and vendors and staff, and your own personal ability to deliver (or manage staff) while scaling up.
But here are some tips to help you find the right conversion rate for your business:
- See if you can get access to average conversion rates in your industry. Those numbers won’t be perfect but they are a start.
- Know your current conversion rate (many businesses don’t know what their conversion rate is) and use it as a baseline.
- Figure out what factors will increase your conversion rate. (It usually has to do with the marketing and sales efforts in your sales funnel but sometimes other factors like the time of year will impact it too). Then do your best to master those factors — either by systematizing them or predicting them in your sales funnel.
- Ask yourself how you would handle the growth in customers if you intentionally increased your conversion rate to 5%, 10%, 25%, 50%, and even 100%. How would your business handle it? What changes would you need to make throughout your sales funnel? Build checklists and flowcharts to help you be intentional.
- Build contingency plans to handle unexpected spikes in your business. Start with figuring out WHY the spike is occurring and then plan how you would scale up quickly to handle the sudden burst. (There are lots of things you can do: Staff up quickly, have technology researched and ready-to-implement, discount prices for delayed delivery, set up a waiting list, etc.