Sales Funnel Conversion Rate: A Simple Formula

The Klog metrics series details three key sales metrics: Sales funnel conversion rate, stage tenancy, and stage discounting.

In Europe, we're still fairly fresh on our journey into data-driven insights. Yet, we outspend our US counterparts on sales enablement and acceleration products by over $1,000 per salesperson.

These tools and investments define our coaching, sales enablement strategies and sales acceleration methodologies. But something really eats away at me. Are we doing the basic analysis to determine what we invest in, in what order, why, and what ROI we could realise?

Let's begin with the first metric, sales funnel conversion rate.

When it comes to revenue, we all want to be a hero and prove we’ve moved the needle for one of the three sales levers: volume, value, and velocity.

Our businesses want to sell more, quicker, and for bigger values. Sales funnel conversion rate, if explored and leveraged thoroughly, will have the greatest impact.

I’m going to experiment a little here and use a “real life” business as an example, below:

Company: ReachOut&TouchBase.io
Average Order Value: £10,000
Win Rate: 22%
Average Sales Cycle: 41 days
Monthly Revenue: £200,000
Monthly Pipeline Generation Target: £910,000

Now, let’s dive straight in.

Step 1: The Maths

Calculate the % conversion rate between each sales stage. In the case of ReachOut&TouchBase.io, let’s look at the conversion from In Discussion to Proposal.

Calculation:

Number of opportunities that got to "Proposal" / number of opportunities that got to "In Discussion" x 100
= 200/350x100 = 57%

Let’s also pretend that our calculations yielded something like the below:

Conversion from In Discussion to Proposal (57%) is clearly the biggest bottleneck and the biggest disabler to winning more deals, fact.

Step 2: Granularity

We now need to split this down to region, business line and salesperson level to truly understand where we can actually influence the conversion.

For ReachOut&TouchBase.io, the numbers look like this:

Immediately, we can see there is a 24% difference between Mark and Amir. That’s a huge variance at such a specific part of the sales process. It’s also clear that this is everyone’s worst conversion rate in the funnel, and as such we need to address.

So, what are Amir and Mark doing differently at this stage? How could Amir’s approach benefit the wider team? And, what could we arm the team with to help them at this crucial part of the funnel?

Step 3 – Identify the problem(s)

The list could be endless here and, naturally, will look different depending on your business. However, when it comes to stage conversion, it’s usually one of the following:

1. Speed or quality of documentation for the client
2. Common buyer objection(s)
3. Inability to drive urgency
4. Any sales handover that may take place – i.e. SDR to Sales, Sales to Pre-Sales
5. The conversation moves away from value to something technical
6. The process of rounding up more client stakeholders
7. Buyer internal processes or bureaucracy
8. The sales format moving away from human interaction to documentation

Whatever your problem may be, diagnose and prescribe…

Step 4 – Remedies

We may then want to look at how any of the following could bear an impact or help our situation.

1. Sales Enablement Tools
2. Marketing Content
3. Sales Approach / Value Proposition / Urgency Stories
4. Objection Coaching / Shadowing
5. Data Enrichment
6. Pricing

Step 5 – Results

Without doubt the best part of this whole process, but for some reason a step often missed, leaving us in the dark as to how effective our investments really are.

Based on the above metrics, ReachOut&TouchBase.io requires £910,000 of pipeline to hit their revenue target of £200k. You’ll just need to trust me on that!

Now, if we improve In Discussion to Proposal conversion from 57% to 62%, drum roll please….

The new revenue figure would be £248,622. That’s £50k extra near enough. Not too shabby for a day’s work.

It's imperative you have the tools and mechanisms in place to monitor how these results are changing, justifying and bolstering your remedies.

Step 6 - Repetition

We have steps 1 to 5 licked, so now it’s time to get busy and move to the next stage conversion, which for ReachOut&TouchBase.io, is Proposal to Negotiation.

Summary

In this case, we’ve clearly moved the Volume sales lever by driving more deals through the pipeline. However, it’s highly likely that by addressing this stage you’ll have made a good dent on the Velocity of these deals and the Value.

So now we've handled sales funnel conversion rate, up your sales metrics game even further by calculating your stage tenancy and stage discounting.