How many of your leads should turn into jobs? Can your close ratio be too high? Professional Remodeler's Tom Swartz talked to remodelers Todd Newman and James Wiese about identifying and achieving the right close ratio. Highlights of that conversation appear here. To listen to the full discussion, click here.
TOM SWARTZ: Todd, I'd like to start with you and actually define your interpretation of closing ratios, and not necessarily get into the specifics — we'll probably do that in a little bit. But define closing ratios and what they can do for you as a company.
TODD NEWMAN: We close about probably 75 to 80 percent on our projects but we get the inquiries, and we try and weed out the projects that don't necessarily line up with what our company does.
SWARTZ: I just want to be specific on this because when we talk about closing ratios, it obviously has to be based on an event that happens. We do a closing ratio on the lead that comes in, but then we do another closing ratio on the job that we actually estimate. Based on those two different areas, your 75–80 percent is based on what?
NEWMAN: On the projects we actually estimate.
SWARTZ: James, define closing ratios for your company.
JAMES WIESE: We do it very similarly. If we are to talk about the closing ratios of the calls that come in, we only close about 10 percent of those. For every 10 people that call us, we probably close only one of those calls. For the actual estimates and the leads that we go on with the customer, when we are looking to have a project done, our closing ratio is 24 percent. We are much lower than Todd.
SWARTZ: OK, one in four. That's good. Why do you track closing ratios?
WIESE: We think it's important to see where we are marketing and where we are advertising, and if it is worth it or not. Also, we are closing at a high percentage. Our price is probably too low if we are getting 50 percent or more of the jobs we are bidding on and we feel we're not doing something correctly; we are probably bidding the job too low, and if we are not getting enough of the work, then the bidding is too high. So we need to track how many jobs we are closing so that we can adjust our price to stay competitive in the market.
SWARTZ: Todd, why do you track the leads that you have?
NEWMAN: We track a lot from the standpoint of knowing where we need to spend our time. If we are getting in the south end or the north end, we track the zip codes of where we are at, where we get the leads from. We find out who has actually recommended us or what association recommended us. And we also track by the type of project — whether it's a room addition or kitchen remodels or bathroom remodels — and when we do that we also know which ones we make a higher percentage on. We know if one comes in, we aggressively follow that closely, as you are always going to go after something that gets a higher margin than something that is questionable.
SWARTZ: James, let's talk about what are closing ratios; in other words, using specific number, can you talk about what is a good closing ratio? And are they different for different products?
WIESE: Not just different products, but different leads. If it's a referral, we expect to close that at a much higher percentage. We try to be over 50 percent on our referred leads. But if it's someone just calling us from a direct mailer, then that lead is obviously not as valuable as a referral — then it drops usually to below 20 percent. Yellow Page ads are above 20 percent. Every lead that we get is a little predetermined what the ratio is if we are going to sell it or not sell it.
SWARTZ: James, can you have a bad closing ratio? Is there such a thing as a bad closing ratio?
WIESE: I believe there is. If your closing ratio is under 15 percent, that's a bad closing ratio, and if it's above 50 percent, unless it's a referred lead, then I also think that's a bad closing ratio.
SWARTZ: Why do you think above 50 percent is a bad closing ratio?
WIESE: Because you're not selling your services, you're just giving away the work. Most consumers today are going to shop. They're not just going to get one lead or two leads, whether they're referred or not. If we are closing over 50 percent of the jobs, then we are not charging enough.
SWARTZ: Todd, you have different numbers. Can you have a bad ratio?
NEWMAN: Well, if we're falling below 50 percent, then I would say that we've got an issue. Ours is all relationship. A lot of ours is design/build, so ours is a larger project — it may be a $180,000 to $200,000 project. Well, not everyone is going to be able to bid on a project like that.
SWARTZ: That brings me to the next question: what's the difference between specialty and full-service? In this particular case, you actually have totally different guidelines on it. So Todd, what's the difference between specialty and full-line?
NEWMAN: Most of ours comes down to reputation. We've got a very good reputation for the quality of work that we put in, the type of products that we're using and the special details we try to put into every project that's custom to the homeowner. So like I said, it comes down to the design. I mean, everyone is going to look at a project and design it differently. If someone wants to do a room addition or a whole-house remodel, every person is going to have a different idea.
WIESE: Well, when you're talking about remodeling and doing a design/build project, like Todd is, you're going to spend a lot more time with the customer; you're not going to go in and close a job within three to four hours like we're used to. For roofing, siding, windows, the average salesperson will spend three to four hours with a homeowner, and they have to make a decision in a very short period of time. If you are doing a design/build project, where you are designing the addition, picking out selections and pricing it out for them, you are going to have a much better relationship with that homeowner.
SWARTZ: James, how are we going to improve our ratios?
WIESE: The best thing we can do to improve our closing ratio is to better inform the consumer. We want to give them as much information about our company and the product and services that we are going to give them, to have them make a better informed decision on what contractor they're going to go with. That's the only thing we can do, and try to teach them that price is not everything.
SWARTZ: Todd, if you were to be asked to give advice to remodelers on why to track leads, how to track ratios and how to get the best benefits, what advice would you have?
NEWMAN: I would say tracking leads gives you a great way of knowing who your customer is, knowing how many you're closing — whether you need to adjust those numbers. And, like I said, our biggest thing is that you know exactly where your customer is and where you need to spend most of your time.
SWARTZ: James, what advice would you give to the contractors on why to track it or how to track it to help their companies?
WIESE: Ah, that's a tough question. Knowing the people who you are dealing with, what they are looking for and how they heard about you will definitely help you in the long term with your business, especially for marketing and knowing what areas to market towards your company. It's basically that.