Traditionally, after gross revenue, tracking win rates is one of the most widely measured metrics in sales. Many studies and research projects focus on tracking win rates as a key performance indicator, and the prevailing vision is “the higher, the better.” And any of my clients routinely track win rates, too.
But what if everyone’s tracking the wrong thing ?
Let’s dig in a little bit.
Not all win rates are created equal.
First off, not all win rates are created equal. Some companies define win rates as “on quoted and/or proposed business” (meaning they track win rates on the proposals they send out). Some look at win rates as end-to-end, tracking the conversion of what goes into the pipeline (mostly leads) to what comes out of the pipeline (wins and losses). Yet others are tracking win rates only on business that is negotiated, not simply quoted (to avoid counting clients who “do nothing” as losses).
The differences between these methods of measurement, and the notion of what constitutes “good” can often be surprisingly far apart.
For example, is a 30% win rate “good” or “bad” ?
Hard to tell. If you’re only winning one proposal in three, I’d say there’s definitely room for improvement. But if 30% of the leads that enter your pipeline turn into actual business, I’d ask you what your secret is.
What are we winning at, exactly ?
What if I told you one of my clients wins 75% of all the business they quote ? Pretty good, right ? I mean, I know quite a few firms who would kill for a “hit rate” like that.
But what if I told you they mostly work with a small, established number of clients, most of whom they’ve been working with for years ? And that most of the quoted business actually comes from add-ons, renewals and supplements to existing business, sold a long time ago ? That it’s mostly automatic, or generated by the client ? And that most of their sellers tend to be of the “order taker” variety, sitting by the phone until another order rolls in ?
In that case, I bet you’d start seeing things a little differently. In fact, I bet you’d wonder “why aren’t they winning the other 75% of the deals they’re quoting on ?”
The problem is that one win does not equal another – and tracking win rates can yield surprisingly different results. Sometimes you win, but you win small. Sometimes you win, but it’s business that you would have won anyway. Sometimes your win rate is high, but you’re not sending enough proposals.
In all of those cases, tracking win rates can be downright deceiving.In other words, win rates only explain a part of the equation - deal size is equally important. Click To Tweet
Small deals, big deals, and 80/20
Unless you’ve been living under a rock, you’ll be familiar with the Pareto principle. 80% of all results stem from 20% of the causes.
80% of business comes from 20% of your clients. 80% of clients represent only 20% of business.
Now, think about that for a second. If 80% of business comes from 20% of clients, that means that 80% of your revenue comes from 20% of your proposals. In other words, you’d need a 20% win rate, to secure 80% of your revenue. Let me say that again: for most companies, 20% of their clients represent 80% of their revenue (OK, so sometimes it’s closer to 70/30, 90/10, or whatever distribution is nearby).
Which means that, in real life, they would be far better off focusing on winning 20% of their deals, providing those are the right deals.
Would you rather have a win rate of 75% on five deals worth 25K each, or 20% on five deals worth 100K ?
(I’ll save you the math – the 75% win rate would equate to 93’750 in revenue. The 20% win rate would, of course, equate to 100K.)
In other words, win rates only explain a part of the equation – deal size is equally important. Which explains how you can have sellers on your team who close 80% of the business, but fail to meet quota every year. Or the guy who sells two deals per year, and meets quota by March. In spite of our best efforts to sweep its existence under the rug, the 80/20 principle underpins virtually every aspect of our existence. From the clothes we wear on a daily basis to what’s for dinner.
And it underpins our business and sales as well.
Meaning maybe we should stop being so focused on tracking win rates, and track revenue wins instead. And it’s not hard either: a simple formula that includes a “weight factor” that accounts for the size of the deal to each “win” should do the trick nicely.