Closing Ratio – Definition

Cite this article as:"Closing Ratio – Definition," in The Business Professor, updated February 2, 2020, last accessed October 25, 2020, https://thebusinessprofessor.com/lesson/closing-ratio-definition/.

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Closing Ratio Definition

In sales, the closing ratio measures the number of business proposals and presentations by salespersons that are converted into actual sales. It is also a measure of the number of business deals that sales experts close which is used to evaluate how effective the salespersons are. The closing ratio is calculated by measuring the number of deals closed and the business proposals and presentations made.

Organizations calculate the closing ratio to determine the number of sales representatives that are performing up to the task. It also measures how well the organization is scaling in comparison to competitors.

A Little More on What is Closing Ratio

The closing ratio is calculated as the actual sales made by sales representatives as compared to sales proposals sent out. This ratio also compares the number of deals closed by the possibility of all the sales proposals being closed as deals. The closing ratio is an important metric that gauges the efficiency of salespersons, it also measures the success rate attained by sales representatives when closing a sale. For instance, if a sales representative sent out 10 business proposals and only 4 of them are converted into actual sales, the closing ratio is 4/10 which gives the salesperson a 40% success rate.

Lost Sales Analysis

It is vital to know that the closing ratio is not sufficient to evaluate the efficiency of a sales rep, there are other factors that must be considered. However, the closing ratio is a determinant of the lost sales of a rep, which can accurately measure sales performance and effectiveness.  Lost sales refer to the business deals sales rep fails to close or business proposals that are not transformed into actual sales.

Paul DiModica, an author and sales expert noted that lost sales have a significant effect on the potential annual sales business can record. This is because one sale lost does not just mean a customer lost but other customers and referrals that ould have come through the customer.

Tips for Improving Closing Ratio

The closing ratio is not just dependent on the performance of a sales representative, there are certain external factors that affect this ratio such as trends in an industry, market changes, competition level, and others.

However, there are certain ways a salesperson can improve his closing ratio, the most effective ones include;

  • Having excellent leads
  • Optimizing those leads
  • Gathering as much information about clients as possible
  • Engaging clients intellectually with the aim of meeting their needs
  • Strategic follow-ups.

References for Closing Ratio

https://smallbusiness.chron.com/definition-sales-closing-ratio-24985.html

https://smallbusiness.chron.com/definition-sales-closing-ratio-24985.html

Academic Research for Closing Ratio

The effects of empathy on salesperson effectiveness, Dawson Jr, L. E., Soper, B., & Pettijohn, C. E. (1992). Psychology & Marketing, 9(4), 297-310. Empathy can be defined as the trait of a successful salesman. Empirical research that uncovers a positive relation in sales and empathy has failed. This paper uses the BLRI (Barrett-Lennard Relationship Inventory) which is an instrument of clinically acceptable empathy measurement. The authors examine the relation between empathy of a salesman and sales performance.  The new-car customers determine the salesmen’s empathy levels. Then, they compare the empathy ratings of sales representatives with their sales performance. The results are contradictory in the sense that empathy has a positive relationship with sales performance. Finally, the authors conclude with the empathy effects on salesmen and discuss their effectiveness.

Evaluating promotions in shopping environments: Decomposing sales response into attraction, conversion, and spending effects, Lam, S. Y., Vandenbosch, M., Hulland, J., & Pearce, M. (2001). Marketing Science, 20(2), 194-215. This research offers a framework that takes into consideration 3 marketing objectives of retailers, i.e. attraction effects (emphasizing on the store-entry decisions of consumers), conversion effects (relating to decisions of consumers on whether to buy something from the store or not) and spending effects (representing transactions and value of the dollar). The authors evaluate these effects on the performance of the store. Especially, they break down the store sales into 4 components: store-entry ratio, average spending, front traffic and closing ratio. They propose a set of 12 hypotheses on the basis of promotion and economics literature. The findings are that there is a little effect of price promotions on front traffic, but a positive effect on store entry.

Adaptive selling and sales performance: An empirical examination, Pettijohn, C. E., Pettijohn, L. S., Keillor, B. D., & Taylor, A. J. (2000). Journal of Applied Business Research, 16(1), 91-111. There is a popular belief among the researchers that the key to effective selling is the ability of a salesperson to adjust and adapt. This article evaluates the relationship between adaptability of a salesperson in a field setting and his productivity. The authors measure the productivity by evaluating born sales manager and salesperson reports of a salesman’s performance. They assess the adaptability with the help of the versatility scale of Merrill & Reid and ADAPTS scale of Spiro & Weitz. The participants are retail salesman, customers and sales managers. The results of this study have consistency with the prior research which shows that queries about the efficiency of adaptive selling keep existing.

Evaluating sales personnel: An attribution theory perspective, Dubinsky, A. J., Skinner, S. J., & Whittler, T. E. (1989). Journal of Personal Selling & Sales Management, 9(1), 9-21. This paper investigates the effect of internal (salesman) and external information on causal attribution of sales managers with the help of attribution theory and their response to the failure of a salesperson to close a sale. The findings are that when the salesman has a poor work history and low task difficulty, the sales managers tend to make internal ascription for failure. Similarly, the sales managers tend to make external ascription when the salesman has a good work history and high task difficulty. Lastly, sales managers react to failures when they direct their attention to the situation or the salesman.

Sales drops from closing shops: assessing the impact of store outlet closures on retail chain revenue, Haans, H., & Gijsbrechts, E. (2010). Journal of Marketing Research, 47(6), 1025-1040. This paper explores how the closure of a specific store influences the multi-outlet retailer’s chain sales. The chain sales closure loss across outlets is from 30%-80% of the closed outlets’ income. It not only depends on the format of the closed store and distance to rivals but also on the shopping trip type and clientele profile. The authors propose an approach to predict these losses magnitude for certain store closures. They guide to retailers to decide whether the closure of a specific store is advantageous for the chain or if the goal is to prune a heavily dense network, which local outlets set is the best for closure.

Retail sales force scheduling based on store traffic forecasting, Lam, S., Vandenbosch, M., & Pearce, M. (1998). Journal of Retailing, 74(1), 61. This research presents a model that sets sales potential of a store as a store traffic volume function, type of customer and his reaction to the availability of sales force. The authors test their model for a sales force schedule which is profit-maximizing with store traffic, staff headcount and store sales hourly data. They provide a solution to this optimal schedule which shows that there may be less staff in the store and increasing the number of salesmen will yield higher profits and the customers will be able to get better service. This approach also provides a technique to recognize the time periods when the customers most heavily demand the service.

The formulation processes and tactics used in organizational decision making, Nutt, P. C. (1993). Organization Science, 4(2), 226-251. This research explores 163 decision cases to analyze how managers follow up formulation when the organization is making decisions. The author identifies 4 kinds of formulation processes, i.e. issue, idea, reframing and objective-directed, also the techniques applied by decision makers to implement every type of process. The author uses merit, decision adoption and duration to estimate the success of every process and technique. Finally, he discusses the implications of these results for researchers and decision makers.

A re-examination of B2B sales performance, Zallocco, R., Bolman Pullins, E., & Mallin, M. L. (2009). Journal of Business & Industrial Marketing, 24(8), 598-610. This paper makes a re-examination of Business-to-Business performance of sales. With the help of in-depth interviews, the authors examine the relationship between salespersons and sales managers and their views on performance measurement. They create the questionnaire using data collected from a focus group of sales executives. They conduct interviews with a total of 8 salespersons and the same number of sales managers from 8 organizations. They offer a new method to organize the performance measures types crossing efficiency with internal and external measures. The findings are that a gap is there between the performance attributes focused by the researchers and what happens in the sales world.

An empirical analysis of sales-force compensation plans, Coughlan, A. T., & Narasimhan, C. (1992). Journal of Business, 93-121. The sales-force compensation is in the array of indirect and direct approaches to control and motivation to the sales manager. This research has been carried out to explain theoretical predictions from accounting, marketing, economics and finance studies on the structure of optimal compensation plans of sales-force. With the help of these insights, the authors build the statistical models for quantifying the impacts of multiple sales-force factors, product factors, market factors and firm factors on compensation. They use data from two hundred and eighty-six firms in thirty-nine industries and evaluate the incentive components determinants, overall pay and for incentive pay, the optimal horizon.

Explaining sales pay strategy using agency, transaction cost and resource dependence theories, Tremblay, M., Cote, J., & Balkin, D. B. (2003). Journal of Management Studies, 40(7), 1651-1682. This paper collects data from three hundred and twenty-five French Canadian organizations and aims to investigate the effect of key constructs concerning resource dependence models, agency and transaction cost on the salary proportion in sales compensation. The usefulness analysis depicts that the constructs of performance information (9%), uncertainty (8%) and dependence resource (5%) considerably contribute to sales compensation increasingly. The findings are that the financial resources, observing behaviour capacity, and team sales are linked to high use of salary. Contrarily, it shows that adaptability of resources, the high marginal productivity of sales-force and sales-force experience are linked to less use of salary.

Going, Going, Gone-Real Estate Auctions in the 90s, Kravets, A. R. (1993). Prob. & Prop., 7, 38. In this paper, the author focuses on the real estate auctions made excessively in the 1990s by many businesses and it was on the fast track, facilitating the seller as well as the buyer, who got benefits as a result of his real estate auction. Still, the real estate businesses are using this slogan of ‘Going, Going, Gone’ to recall the memory of successful auctions in the 90s.

 

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