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Understanding Sales Performance Metrics - Part 2

Furniture World Magazine
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See additional articles in this Furniture World Magazine Series below


Article Summary: The second article in this series takes a detailed look at close ratio and average sale. Joe Capillo explains how you can use these two measures as part of a system to promote continuous sales improvement.

View all articles by Joe Capillo


Calculations that retailers can and should use to foster continuous salesperson improvement.

Managing This Range Of Performance is one of the key jobs sales managers should perform. The goal should be to reduce the range from low to high while maintaining or increasing the high.


This important series on sales performance metrics began in the February/March issue with information on how to calculate the retail sales equation, revenue per up and related issues. This month the discussion is expanded to look at specific ways to use sales metrics to encourage continuous sales improvement.

DEFINING CLOSE RATIO
If someone told Sam Walton that he’d only be able to sell something on two of every ten customer visits, he probably wouldn’t have opened for business. Furniture stores live with this kind of Close Ratio every day. The good news is that if your store is closing 20% of its opportunities now, all you have to do is sell ten more out of every one hundred customers to increase your business by 50%. Ten out of a hundred doesn’t sound so difficult, but how will you know you’re doing it unless you are able and ready to measure it?

Close Ratio measures the number of shoppers who buy TODAY as a percentage of the number who visited the store today. It is a comparison of sales made, to customer visits made today. Why the double emphasis on the word today? If a customer comes back tomorrow and buys; the purchase should be counted then. The reasons for this are simple:

•Once a customer leaves, she may never come back, so every visit is a new opportunity.

•Every time she comes into the store you have to provide her with a salesperson

What does Close Ratio mean to performance improvement? Why is it one of the three most important metrics in sales management? What can sales managers do to continuously improve it?

Close Ratios among your salespeople will show a performance range from high to low. The “high” is simply the high for your store – for your sales team. There is no industry standard for Close Ratio partly because there is no industry standard for counting opportunities.

Managing this range-of-performance is one of the key jobs that sales managers should perform. The goal should be to reduce the range from low to high while maintaining or increasing the high. Keep in mind that your highest performer experiences the same conditions as your lowest performer.

Close Ratio is a function of several important personal selling skills that help influence customer buying decisions:

•Greeting skills and the ability to engage customers fully.

•Focusing on customer needs; understanding the products being sold; helping customers to furnish entire rooms; dealing appropriately with other
customer motivations.

•Closing skills.

•Follow up skills. Be-Backs are 3 times more likely to buy than new customers.

•Competitive issues, price, availability, and quality.

Close Ratio is the factor in the sales equation that, by improvement, will provide the largest sales revenue improvement over time.

DEFINING AVERAGE SALE
Average sale is a more useful measurement than average ticket. Here’s why:

Average sale measures the total amount purchased by a customer TODAY. This visit, this purchase. Your goal is always to sell as much as you possibly can to each customer today.

Average ticket measures the average dollar volume of each ticket written. Many stores have systems protocols that cause different categories or classifications of merchandise to be written on separate tickets. One customer may have several tickets for one purchase. Measuring average ticket may have some application for systems analysis, but for measuring sales performance or effectiveness it is not a useful measurement.

For example, if your system protocol dictates that accessories be written on a separate ticket from furniture, you will likely see higher average tickets for those salespeople who do not sell accessories well. You might also have higher average tickets for those salespeople who avoid smaller, single item sales because it lowers their average ticket.

IMPORTANCE OF AVERAGE SALE
Selling effectiveness is a result of two important knowledge factors:

•Knowledge of the customer’s total, underlying needs relative to the purchase being considered. Sometimes other influences, exclusive of product attributes,contribute to the purchasing decision. These include information about an entire room and its place in the home as well as other more personal information.

•Intimate knowledge the salesperson has of all of the store’s product offerings.

Uncovering information about, and dealing with those influences that stem from the customer’s room or home and using that information to provide customers with more informed, complete solutions is the most important skill a home furnishings salesperson can develop. The result of attention to developing this skill results in better customer relationships, higher Close Ratios and bigger customer purchases. These are not “add on” sales, but rather they are “add in” sales occurring as a result of high-level analysis skills by salespeople. Average sale is the metric that shows how effective a salesperson is in dealing with total customer needs.

Average sale can also be a reflection of how well a salesperson sells non-furniture products and services such as fabric protection, warranty plans, mattress pads and other add-on items you might offer. However, to audit this you must also be acutely aware of each salesperson’s category performance.

Two salespeople with the same relatively high average sale can get there by taking two different paths, one by performing well in add-ons and the other by performing well in add-ins. The good news is that there is room for improvement by both people – even when they’re performing at the high end of your range. Only by measuring everything can you determine the correct way to deal with these performance improvement issues.

Average Sale is the performance indicator that, when steps are taken to improve it, offers the most immediate return in sales revenue generation.

THE VALUE OF PERFORMANCE IMPROVEMENT INITIATIVES
Reports generated by a sales tracking system can help you to determine the potential value in sales volume and profits of your efforts to improve performance in the three areas discussed so far: UPS (see the first part of this series in the February/March issue of FURNITURE WORLD, posted to the Operations Index on www.furninfo.com), Close Ratio and Average Sale. With accurate and detailed information, you can identify the salespeople who are likely to benefit from personalized training and coaching plans designed to improve specific selling skills.

Ideally, reports should tell you which salespeople perform below your historical average in Average Sale and Close Ratio. By continually working to bring below average performers up to your historical average, you can produce continuous improvement in sales volume without investing in additional advertising to increase store traffic.

How you actually do this will be the subject of future articles, but put simply, you need to design and implement strategic initiatives to improve sales volume and net profits. The building blocks of such an initiative include:

•Installing and institutionalizing a sales management measuring system.

•Implementing new ways to deal with customers to improve your store’s Close Ratio.

•Implementing new ways to deal with customers and manage salespeople to improve your Average Sale

•Establishing new follow up strategies to bring more customers and non-buyers back to the store.



 


Joe Capillo is a 41 year career veteran, experienced in managing and consulting with furniture retail operations. He is also a contributing editor for Furniture World Magazine. He is a contributing editor to FURNITURE WORLD and a frequent speaker at industry functions. See all of Joe’s articles on the furninfo.com website.

View all articles by Joe Capillo

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