KPI Feature Spotlight: Quote Conversion Rates
What can your Quote Conversion Rate (QCR) tell you about your business – and what can you do about it? (Otherwise known as data-driven decision making)
You know that feeling. You’ve got the figures in front of you, and you’re staring at all this lovely information and thinking – now what? What is it REALLY telling you? And How can you USE that information to make changes and do something about it?
Data-driven decision making is incredibly important. It means that the decisions you make in your business are based on what is actually happening – not based on instinct or perception. And the good news is, it’s also easier these days than it ever was before.
These days we have incredible technology at our fingertips to gather, store and analyse enormous amounts of data for us. As a merchant business, if you are using an integrated ERP system, it will be processing a huge amount of data – but it’s up to you to know how to use it. Having the information is step 1 – knowing how to apply it is what will give you the best competitive advantage.
Why do you need an industry-specific ERP system?
There are many advantages to using an industry-specific ERP system to run your merchant business. UT400 is our latest ERP system for merchants and it’s 100% cloud based, so you can access and control your business from anywhere, at any time, on any smart device. It is designed to help you capture and analyse the most relevant and useful pieces of information within your business to help you grow. Without an industry-specific ERP system you are missing out on the customised experience and data potential that can help your business to perform at its best, and you won’t be using information that’s as relevant as possible to your business, stock, suppliers or customers.
UT400 currently has over 110 separate KPIs, giving unbelievable detail about every performance and productivity factor of your business. The potential for making positive changes at every scale from micro to macro is enormous – but only if you know what to do with the information in front of you. We want to deliver unrivalled value for our customers, so as part of that, we are providing a series of KPI Spotlight Feature blogs to get you started.
Applied Analytics 101
Yes, is sounds like a really dull college module, but actually it's pretty simple - we're just talking about how you look at the information in your business and apply it to your processes and systems. Here's a simple guide:
Introducing the Quote Conversion Rate (QCR)
The quote conversion rate, as you might guess from the name, simply tells you how many of the quotes you send out to potential customers turn into actual orders. So, at a glance, it gives you a simple percentage figure.
Great. So far, so simple.
Well here’s where it gets interesting.
Firstly, can you answer a simple question: what is your current QCR?
Chances are, if you’re not measuring it, it’s lower than you might think. It’s really important to know what is ACTUALLY happening in your business, because the reality is nearly always different to the perception. Without having the information in the first place, you can’t even start applying the insights that can lead to dramatic improvements in efficiencies, and even guide higher level decision making about stock lines and customer or supplier management.
Once you have the information, there is a lot you can do with it.
In UT400, every process has a note-making facility. Therefore, a sales rep or account manager can add a note to every quote to say why it was rejected. Of course, we don’t live in a perfect world and we don’t always get told the real reason, but in the instances where we DO know, this enables you to keep track of those reasons and spot patterns.
With UT400 you can drill into the detail really easily to start looking at the reasons for the figures, so you start to build up a really clear picture of what’s happening in your business processes and can then cross-reference with other factors.
One small KPI can relate to so many different areas, and once you start thinking it through, you can start seeing how each piece of information has a bearing on so much else, including
- Delivery options
- Area of service
- Order value and frequency
Whether or not you’re actually given a reason, common themes may well start to emerge when you’re monitoring your QCR over time. There are lots of questions you can ask:
- Is pricing regularly an issue?
- Are you converting loads of quotes at low values, but very few at the higher end?
- Are certain products quoted on regularly but rarely ordered?
- Is availability given as a reason?
- Are lead times losing you business?
- Where are the sweet spots across the year where you’re converting loads of quotes, and where are those leaner months where the QCR is dropping off?
Every single aspect of the QCR can be used to gauge the effectiveness and efficiency of the processes and habits within your business. There are loads of implications for products, but also for customers and suppliers.
Implications for product
If you can clearly see that a particular type or range of products is being quoted on regularly but hardly ever ordered, there is clearly a disconnect and it’s costing you time, effort and resource to continue stocking and quoting those lines. Of course, with high value items where a single sale more than justifies a low QCR that’s absolutely fine, but if you start to spot the trends across lots of lower value items or ranges, you can potentially start to be more efficient about what you hold in stock, and in what quantities.
You can infer all sorts of meaning and information from the QCR – and not just if it’s low! If you’re regularly getting incredibly high QCRs, it’s possible your pricing is TOO competitive and you could be making more profit on certain product lines.
Implications for customer relationship management
Are you spotting particular trends with particular customers? Does customer X always need 12 different quotes several times per year but only ever places ad hoc, low value orders? Does customer Y always bite at the first quote? Maybe there’s room for slightly more profit, or slightly longer lead times if fast delivery is costing you a fortune.
You can also look at related patterns and use the information to enhance your selling and service processes. For example, if you’re noticing a lot of quotes go out but never get a response, you could add a process to chase up after a set number of days, or test different options within your sales team and selling cycle; if there are consistent quotes but low returns on order with no reasons given, perhaps a customer service call or survey to find out why would be in order.
Knowing your QCR means you can work out your cost per order. A fulfilled order doesn’t just cost your business in terms of the materials and delivery; you’re also paying for the admin time of every quote and order fulfilment, so it’s really useful to know how much you’re spending to get a sale. Once you know, you can work on it and create new efficiencies in your processes and systems which will play a big part in overall profitability.
How data drives better decision-making
None of the information alone will tell you exactly what you should do of course, but once you have the statistics at your fingertips and understand the implications and possibilities of how it relates to your business, stockholding and customers, you can make those judgements for yourself and turn the insights into an action plan. You might choose to incentivise your sales team to convert more quotes, increase order value or frequency, or introduce new automated systems to gather feedback and information - the potential for improvement is vast, and when it's based on real data from your own business, you know it will make a difference.
Of course, whether you make changes is always up to you. You might decide it’s worthwhile continuing how are you, because although it’s taking your staff longer to process every order, it’s worth it for your reputation as providing the best service. Or you might stick with that fussy customer because although they only order once for every 12 quotes, those orders are big and they’re a longstanding and influential customer. And that’s absolutely fine - but if you don’t know for sure what you’re dealing with, you can’t make a decision based on your own data, which means you can’t know for certain what the implications of that decision are.
Watch this space
We will be looking at all the KPIs in the UT400 system in the course of this series. If you have any queries in the meantime or specific KPIs you’d like us to cover, do get in touch by emailing email@example.com