Key learning outcomes:

  • Learn to use the generation ladder to pinpoint the sources of your most valuable customers.
  • Determine your rate of conversion of opportunities into new customers.
  • Analyse the different sources of customers and seek ways to improve conversion rates for each source.
  • Create an action plan to increase the number of new paying customers.

Article

If you want to grow your business it is essential to continually generate new business opportunities. If you can do this effectively, while also maintaining a high customer retention rate, you will be guaranteed of business growth. It is important to regularly review where your new business opportunities come from, and remember that not all sources of business are equal in value. The most valuable are those where the rates of conversion from prospective customer to paying customer are highest.

We have developed our generation ladder to allow you to easily identify those sources of new customers that are most valuable for your business. The tool can be applied to your entire business and is also highly effective when coaching individual salespeople within your organisation. In this article we illustrate how to use the tool with a case study of a real estate agency sales department.[wlm_ismember]

Using the tool

We have provided you with a blank worksheet to download, which will enable you to complete the generation ladder so it is specific to your business.

Step 1 – Source identification

You will need to identify the various sources of new customers in your business. The sources of business for the real estate agency’s sales department in our case study are as follows:

Step 2 – Rating of source

The next step is to rate each source by looking at the conversion percentages. To do this you need to determine the total number of potential new customers that were converted to paying customers and divide this by the total number of opportunities driven through each potential source of new business.

For example, in the case study, the agency converted 14 new customers out of 62 opportunities:

14 new customers/62 opportunities = 22.5% conversion rate

Once you have calculated the value of each source of business, insert each source in your generation ladder. Place the source with the highest conversion rate at the top and the lowest at the bottom.

Refer to the completed generation ladder for our case study below:

Source

New customers

Opportunities

Conversion rate

Referral

8

9

89%

Current clients

10

13

77%

Nurture

15

47

32%

Call in

8

26

31%

Buyers

14

62

23%

Door knock

2

27

7%

Letterbox drop

1

14

7%

Cold call

0

5

0%

TOTAL

58

203

29%

Generationladder

Step 3 – Analyse the sources

The next step is to analyse the current conversion rate for each of the sources and determine whether there is an opportunity to improve it. You will see that the generation ladder tool has arrows on the left-hand side. When looking at the sources of new customers for our case study business, the conversion rates were higher when the customers were closer to the top of the red arrow. These customers knew the brand or salesperson, liked the company and had a high level of trust. Conversion rates were lowest at the bottom of the blue arrow, which is where potential customers did not yet know the brand or salesperson. Let’s look at each of the sources in our case study:

Referral – Not unexpectedly, referrals had the highest conversion rate, at 89%. When a third party refers someone to your business, their trust in you passes onto your potential customer. This type of new business opportunity is always the most valuable as you have been put forward as someone of authority in your field. This is one of the keys to influencing others. Our article “Six Principles of Influence” explains this concept in detail. In our case study, the conversion rate is high, but the number of opportunities is low; therefore, the business needs to work on building referral opportunities in order to increase the number of new customers.

Current clients – The conversion rate for people already dealing with the business is much higher than the overall business conversion rate, at 77%. Once again while the conversion rate is high, the number of opportunities is low; therefore, work needs to be done to increase the number of potential customers coming into the business from this source.

Nurture – The conversion percentage is just above the overall conversion rate at 32%. The number of opportunities was the second highest at 47; this would suggest that the service being given to those people who have been identified as future customers is of a high standard. More investigation needs to be done for this category to determine if the remaining prospective customers chose another agent or whether they are still in the nurture stage. If you learn that they chose another agent, then there is an opportunity to improve the team’s sales skills.

Call in – It is likely that when someone calls a business directly, they are in a position to make a decision quite quickly as they are looking for a solution to a specific need. This source conversion averages 31%, indicating that the business is winning one-third of the business opportunities that come directly to them. To increase conversion rate of new customers in this category, the business should look at either building their brand awareness through marketing to increase the number of new business opportunities or improving the sales agents’ listing skills to increase the conversion rate.

Buyers – the conversion rate for opportunities sourced through buyers is 23%. Further investigation would need to be conducted to determine what percentage of buyers chose another agent and what percentage was still in the market for a property but did not yet need an agent’s selling services.

Door knocking – the conversion rate of 7% is much lower than the overall rate for the business. This is not unexpected as this type of activity relies on being in the right place at the right time. The number of new business opportunities was relatively high in comparison to all other sources indicating that this source may have potential; however, further investigation would need to be done to determine how much time is being spent on this activity and whether it might be better spent building up another sources that have higher conversion rates.

Letterbox – This source of business also has a low conversion rate, of 7%. The number of opportunities is also quite low indicating that this source of business is not as valuable as some of the others. One thing to consider is that this type of activity also relies on the expectation that the person has a need when the direct mail arrives in their letterbox; however, it will build brand awareness and this might help to support some of the other marketing activities.

Cold call – For our case study business this was the least effective source of business. There was a limited number of opportunities sourced and the conversion rate was zero. Time would be better spent working on increasing activity levels across the other sources of business.

Step 4 – Action plan

The final step is to determine the actions required to increase either the number of new business opportunities or to increase the conversion rate of potential paying customers. In our case study there is work to do in both areas, but this will vary from business to business. The key is to look at where the highest level of return is likely to be.

When developing an action plan, it is important to start with a broad list of what could be done and then narrow your focus down to the most important activities or those that are going to provide the greatest impact on your business. Our article “Action Planning” will give you a detailed guide to creating an effective action plan.

In the case study, the plan’s three key focus areas are as follows:

Referral

Clients

Training

Summary

The generation ladder is a highly effective tool for improving your business growth opportunities and conversion rates. It is equally effective when used for the business as a whole, for a department, as shown in our case study, or for individual salespeople. The key is that knowledge is power – the more that you know about where the business is coming from, the easier it is to find ways to improve your results. It is essential to redo the activity on a regular basis to monitor the success of action plans that have been implemented and to continually look for areas of improvement.[/wlm_ismember]

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