Use Your Customer Conversion Rate to Improve Your Marketing
Among the most important metrics in any business is the prospect-to-customer (P2C) conversion rate. In simple terms, it's the ratio of the number of customers acquired to the total number of prospects they were acquired from:
(Number of customers / Number of prospects) x 100 = P2C conversion rate
If you make 68 sales calls on prospects in a month and convert 28 of them to customers, your P2C conversion rate is slightly more than 41% (28/68 x 100 = 41.18%).
The whole process of selling is about increasing the P2C conversion rate, and by doing that you also increase your profitability. A 4% increase in the P2C conversion rate may not sound like much, but if your current conversion rate is 10% and you can increase it to 14% with the same number of prospects, you'll have a 40% increase in business.
There are two very good reasons for improving your P2C conversion rate:
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To maximize the return on investment from your marketing spend
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The larger your customer base, the larger the lifetime value of that customer base will be to you
The prospect-to-customer conversion rate is one of the easiest statistics to gather and also one of the most useful. It's a quick indication of how effective your business is at convincing prospects to actually become customers.
There are a number of ways you can use the P2C ratio. It can provide the basis for setting goals such as 'improve the P2C conversion rate by 2% each month'; then create a strategy to achieve this in conjunction with other business improvement measures.
By going into some additional detail, you can use the P2C conversion rate to find out things such as which marketing channel is most successful for you (is it advertising, promotions or publicity?); and the most cost effective advertising medium (is it the Yellow Pages, radio advertising or your website?).
To do this, identify where it was your prospects saw the marketing message that got them to contact you. Then you can do some comparisons among the media you use. For instance, if the $2000 you spent on the Yellow Pages ad got 200 prospects interested, and you turned 50 of them into customers, your P2C conversion rate is 25% and your acquisition cost is $40 per customer. If you spent $1000 on radio advertising to attract 300 prospects and converted 100 into customers, then your P2C conversion rate is 33% and your customer acquisition cost is just $10.
If the advertising medium that delivers the highest P2C conversion rate also delivers the greatest total number of customers, you should consider directing more promotional funds there and away from less effective media.
In any business there are several things that can be done to improve the P2C conversion rate, including sales training, redirecting marketing expenditure, and adding new products with greater appeal. Some of these cost little or nothing to implement and can be very effective. Regardless of which approach you use, be sure to only change one thing at a time. That way you'll know what gives you the best results.
In our previous example, radio advertising produced the greatest number of customers, the highest P2C conversion rate and the lowest customer acquisition cost. You might decide to increase spending on radio advertising by 10% and see if it increases the number of prospects and customers by an equivalent amount. If it does, you might then see if changing the offer you make in the radio ad generates more prospects and a better P2C conversion rate again.
Keep experimenting, and if what you do isn't successful, go back to what you were doing and try something else, always keeping an eye on the conversion rate or rates you're working with. It's a great way of gauging just how effectively you are spending your marketing budget. |
