How Your Closing Ratio Impacts Your Shop's Profits
How often have you looked at your shop's profits and wished they were higher? As we mentioned in the last post, 10 Metrics Proven to Boost Diesel Engine Repair Shop Profitability, tracking your key performance indicators (KPIs) can help you identify some strategies to actually move your shop towards its future profit goals. Looking at your closing ratio is one such metric that can help!
Closing Ratio Explained
So just what is a closing ratio? Put simply, it is the percentage of items from a quote that were sold at a given transaction. So if you quote a customer 10 different things in a single visit, and they purchase 7 of them, the closing ratio would be 70%. So the more items sold in one transaction, the higher the closing ratio will be. It follows then, that with consistently high closing ratios come higher profits.
How to Increase Your Closing Ratio
There are several strategies you can employ to raise your average closing ratio. One of the most important things you can do is focus on how your office staff interacts with customers. This helps you to maximize the value of your resource—your staff. To read more about implementing strategic productivity take a look at our previous blog. In their October 2013 issue, Ratchet+Wrench included an article about how to increase your closing ratio through the way the office staff approach each sale.
As they point out, these staff members are your salespeople, the ones with the ability to sell your services to the customer, and it's important that they go into each customer interaction with that in mind. Rather than just acting as a go-between from the technicians to the customers, have them focus on the customer's needs, to better quote jobs to them. This change in mindset helps close sales.
Another way to increase closing ratios is to close more sales. This might seem obvious, but it takes some strategic planning. It's important to look at which items are selling well and which are struggling. Then try to identify why. Are the salespeople not telling the customers why the jobs are being recommended? Are the additional repairs presented in such a way that makes them seem like you're just trying to get more money out of them? Figuring this out can help you form a plan moving forward.
Upselling, or trying to increase the amount of items a customer purchases, will also help your closing ratio. It can be difficult to convince your customer to add on additional repairs if they come in for something specific. But that's when it's important to have your staff build trust with clients. Let the customer know that the additional repairs quoted are a value to them, whether monetary, safety, or both. Try to avoid making them feel like you're just trying to get more money out of them by selling them unnecessary jobs—show them why those repairs are being quoted to them and why they're actually necessary to the overall health of their engine.
Providing comprehensive estimates to every customer can help with this. Do a thorough inspection and provide them with an estimate that includes the work they came to have done, but also any other repairs you find that are necessary to keep them operating at full potential. Again, don't try and sell them things they don't actually need—this will make them lose trust in your staff and drive them away.
Instead, listen to their needs and provide them with an estimate that is in line with their goals. They are more likely to trust the advice and the chances of making the sale increases. This trust will help improve your closing ratios in the present, as well as with repeat customers in the long-term.
Possible Problems with Closing Ratios
While increasing your closing ratios is a good goal, it doesn't mean that it's necessarily increasing your profits. Just because the average closing ratio is high, it doesn't mean that your sales staff is taking advantage of every sales opportunity. It's easy to sell the smaller ticket repairs, especially the ones the customer specifically asked for, but usually the bigger profit comes from bigger repairs. Don't just focus on increasing your closing ratios overall, look at the order types and value to see where you're succeeding and what needs improvement.
So if your closing ratio is lower on the more expensive repairs, you still might have a higher profit margin than closing 100% of the smaller sales. That's why it's important to build trust with your customers. Walk them through why additional repairs are being quoted to them and the value it brings to them in the long run—it might cost them more money now, but it will save them cash in the future. This trust makes it easier to close more of the larger jobs, improving your closing ratio on the sales that can really help your profits.
What Your Closing Ratio Might Indicate About Your Shop
Essentially, it tracks how well your shop is selling itself to potential clients. Monitoring your closing ratio forces you to evaluate not just how well you get clients in the door, but how well you keep them there.
Customers nowadays want to know that the repair work they'll be receiving is quality, and it's your job, or the job of your sales staff, to show them your shop is the one that can provide that. Make sure they get a thorough estimate and explain why you’re recommending certain repairs. Customers want to feel in control, so become their trusted advisor. Not only are you more likely to make the sale, but the chance of gaining a repeat customer increases.
Closely related to the closing ratio is the average order value, which we will discuss in detail in our next post in the RSVP Profit Boosting Boot Camp series. Learn how to increase your average order to help your bottom line.
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