Lead conversion is crucial for a business revenue. As soon as your leads turn into customers, you earn money. The more leads you close, the more money you earn.
To know how well you’re converting leads, you want to know what your lead conversion rate is.
Lead conversion rate measures how well you can convert your prospects into customers.
In this article, you will learn everything you need about lead conversion rate, including what it is, how to measure it, and the best practices.
What is the lead conversion rate?
The lead conversion rate is the metric that shows the proportion of qualified leads that resulted in sales.
The lead conversion rate is calculated by dividing the number of converted leads by the total number of leads and multiplying by 100 to get a percentage.
It can also measure how many website visitors your sales team can convert into leads.
For example, if a company receives 500 leads in a month and 50 of those leads become customers, the lead conversion rate would be (50/500) * 100 = 10%.
In practical terms, the conversion rate helps businesses evaluate the effectiveness of their sales and marketing strategies.
For instance, a software company might determine that it has an 8% lead conversion rate by analyzing that out of 1,000 potential customers who sign up for a free trial, 80 of them eventually purchase a subscription.
This metric helps the company assess the efficiency of its trial-to-subscription conversion process and identify areas for improvement.
A high conversion rate indicates that your sales pipeline is effectively moving leads through the stages of interest, evaluation, and decision-making to become paying customers.
What is a high lead conversion rate?
In the B2B industry, where conversion rates often range around 5% to 10%, a rate of 15% or higher indicates effective lead conversion tactics.
What is a low lead conversion rate?
A low lead conversion rate indicates that a small percentage of leads are being converted into customers.
It can happen due to several reasons, such as poor lead quality, lack of lead nurturing, ineffective sales pitches, lack of timely follow-up, or high friction in the purchasing process.
For instance, if the average conversion rate in a software-as-a-service (SaaS) industry is around 7%, and a company is experiencing only a 2% conversion rate, this would be considered low.
A low conversion rate highlights the need for businesses to:
- reassess their target audience,
- rework their lead qualification processes,
- improve customer engagement strategies,
- rethink their value proposition,
- rework their go-to marketing strategies and communication channels,
- optimize their sales funnel to reduce obstacles that prevent prospects from becoming customers.
Why is lead conversion rate so important?
It shows exactly how well you are turning leads into revenue. For business growth, this is one of the most important metrics.
Moreover, the lead conversion rate is important because it gives you far more insights into how the business is doing. It includes:
- Lead conversion rate as a KPI (Key Performance Indicator). Measure the performance of your sales and marketing teams to determine how effective their strategies are.
- Lead conversion rate as a benchmark. Compare your lead conversion performance to identify the exact areas that need improvement. Allocate your resources accordingly and invest in particular marketing channels for higher conversion rates.
- Lead conversion rate as a long-term strategy. Regularly calculating your lead conversion rate is a long-term revenue strategy that focuses on constant improvement. Set the time frame for your lead conversion calculation and be consistent.
- Lead conversion rate for lead segmentation. Calculating conversions is especially useful if you segment your leads by different criteria like channel, region, age, industry, and so on.
How to increase the lead conversion rate? 7 Best Practices
To increase your lead conversion rate, you have to work on enhancing your sales and marketing efforts to turn more prospects into customers.
Here are 7 clear strategies to achieve this:
- Optimize lead quality: Focus on attracting high-quality leads that closely match your ideal customer profile. Use targeted marketing campaigns and refine your lead qualification criteria to ensure only the most promising leads enter your sales funnel.
- Enhance value proposition: Clearly communicate the unique benefits and value your product or service offers. Tailor your messaging to address the specific pain points and needs of your leads, making it compelling and relevant.
- Streamline the sales funnel: Identify and eliminate any bottlenecks or friction points in your sales process. Simplify the journey from lead generation to conversion by reducing unnecessary steps and making the purchasing process as straightforward as possible.
- Personalize communication: Use personalization to engage leads more effectively. Address leads by name, reference their specific interests or previous interactions and tailor content based on where they are in the buyer’s journey.
- Implement effective follow-up: Ensure timely and persistent follow-up with leads. Use automated emails, reminders, and personalized outreach to keep leads engaged and move them through the sales funnel.
- Use testimonials: Incorporate testimonials, case studies, and reviews to build trust and credibility. Showing real-world success stories can reassure leads of the value and effectiveness of your offering.
- Offer free trials: Allow prospects to experience your product or service firsthand. Free trials or demos can remove hesitation and provide a risk-free way for leads to understand the benefits of what you’re offering.
Other lead conversion metrics you must know
1. Lead to Opportunity Conversion rate
Lead to Opportunity Conversion Rate measures the percentage of leads that progress to become sales opportunities. It shows the effectiveness of the lead qualification and nurturing process.
To calculate it, divide the number of leads that have turned into opportunities by the total number of leads and multiply by 100. For instance, if you have 200 leads and 40 of them become opportunities, the conversion rate is (40/200) * 100 = 20%.
2. Lead-to-Sale Conversion Rate
Lead-to-Sale Conversion Rate measures the percentage of leads that ultimately result in a completed sale.
To calculate it, divide the number of sales by the total number of leads and multiply by 100 to get a percentage. For example, if a company has 500 leads and 50 of those leads result in sales, the Lead-to-Sale Conversion Rate is (50/500) * 100 = 10%.
3. Lead Value
Lead value is the value of the leads to the success of your business. To calculate the lead value, you take the total sales value and divide it by the total number of leads.
4. Cost per Conversion
Cost per Conversion is a metric that measures the total cost incurred to achieve a single conversion, such as a sale or signup, from your marketing efforts.
To calculate it, divide the total marketing spend by the number of conversions achieved. For example, if you spend $1,000 on a campaign and gain 50 conversions, the cost per conversion is $1,000/50 = $20.
5. Conversion ROI
Conversion ROI (Return on Investment) measures the profitability of a marketing campaign by comparing the revenue generated from conversions to the cost of the marketing efforts.
To calculate it, subtract the total marketing cost from the total revenue generated, divide it by the marketing cost, and multiply by 100 to get a percentage.
For example, if a campaign generates $5,000 in revenue with a $1,000 marketing cost, the conversion ROI is (($5,000 – $1,000) / $1,000) * 100 = 400%.
6. Time to Conversion
Time to Conversion is the average duration it takes for a lead to progress from initial contact to signing a deal.
To calculate it, sum the time taken for each lead to convert and divide by the total number of converted leads.
For example, if three leads converted in 10, 20, and 30 days, respectively, the time to conversion is (10 + 20 + 30) / 3 = 20 days.
Key takeaways
The lead conversion rate is a key performance metric that evaluates how effectively a business turns prospects into customers.
It’s important because it gives you insights into the efficiency of your sales and marketing strategies and highlights areas for improvement.
By optimizing lead quality, refining their communication, and streamlining the sales funnel, businesses can enhance their conversion rates.
Metrics like Cost per Conversion, Conversion ROI, and Time to Conversion provide a further understanding of conversion efforts’ financial aspects.
