Ask The Expert

Q: I know they're very similar, but is it better to measure closing ratio or ROI?

A: You should measure both. But if you had to measure one of the two, I'd suggest focusing on your return on investment (ROI). The closing ratio does have important uses with sales teams, but the ROI provides a bigger-picture view of how profitable certain expenses or investments are.

The main reason I prefer to focus on ROI is because it deals with real money. It measures money spent against money earned. More importantly, it lets you measure different expenses to see how they stack up against their competitors.

As an analogy, poker players like to say that it's not the number of hands you win that counts. It's the quality of those wins. Winning one big ante in poker is usually much better than winning a dozen puny hands.

By the same token, one sale with a big commission beats out several sales with much smaller checks.

You should get into the habit of using ROI to measure your different advertising channels, especially if you have different programs with varying commission levels. The number of leads you get from various sources don't matter as much as the actual revenue those sources generate for your business.

For example, let's say you divide your advertising budget evenly between radio, newspaper, direct mail and pay-per-click advertising. After a few months, you should have enough results to calculate ROI. If one of these channels clearly outshines the others in terms of ROI, you should consider shifting more of your advertising budget away from the low-ROI ads and into the high-ROI channels.

Similarly, you can compare different lead types by the ROI they generate. If exclusive senior leads generate higher ROIs than your investment in shared uninsurable leads, you should strongly consider moving more of your lead budget toward exclusive senior leads.

Closing ratios do have their uses - especially when you're overseeing a sales staff. Salespeople are normally measured by their closing ratios. And if an agent demonstrates a higher closing ratio than others, then you may want to invest your more expensive or profitable leads with that person.

By using closing ratios to guide your distribution of leads and resources, you're practicing the old sales mantra of "feeding your eagles." This approach also ties into and improves your ROIs.