Sales investments are often made on the beginning stages of the sales cycle, i.e. awareness, lead generation, relationships, etc.
Most contractors budget for entertainment, tradeshows, marketing collateral, some even budget for sales training. All worthy and necessary, but…………
New business only starts with a sales proposal. It’s the only stage in the sales cycle a customer can sign. It’s the only time revenue and profit can start to flow.
Lose the bid and it’s “Thank you very much, see you next time.” Efforts on losing bids have some value, just not this year.
But the revenue monkey needs to be fed. Therefore, a clear-eyed assessment says “lose the bid” and forfeit that year’s investment in that prospect. Applied to all your lost bids, that’s a great deal of money and time invested in the early stages now gone, vanished.
The Dark Side is your Loss Ratio
Here’s the dark, dirty truth – you lose more than you win.
That’s your Loss Ratio. It’s calculated as:
(total # bids – # bids secured) / total # bids
Or, put another way:
(# of lost bids + # of no-decision bids) / total # bids
Yes, no-decisions are part of your Loss Ratio. You had the chance to win but didn’t. Any bid not won = a loss. Harsh but true.
Don’t feel bad. The typical contractor Loss Ratio is anywhere from 65% up to 80%. That represents possibly hundreds of bids going south during the year.
And that means millions in lost bid revenue – year after year after year.
Here’s a 1-year example:
–> 75% loss ratio on 120 bids per year =
–> 90 LOST bids @ avg of $120k/yr per bid =
–> $10.8 million LOST revenue, or even more painfully
–> $648k LOST net profit @ 6%
But I Cant’ Win ’em All
Of course not, that’s not the point.
The point is to shave your loss ratio by a fraction and add to your top and bottom line – almost instantly.
In the example above, improving your loss ratio from 75% to 65% hands you:
–> $1,440,000 additional revenue
–> $86,400 more profit
–> from the bids you already participate in!
Is that kind of reduction doable?
If a customer gave you such a large number to improve you’d find a way. Why not take that approach with your loss ratio?
Big Bucks in your Backyard
You already have access to the fastest way to your largest revenue increase.
Counter intuitively, it’s available to you at the end of the sales cycle, not at the beginning.
Secure more of the bids you already have.
A slight decrease in your loss ratio and you:
- Fire up revenues with faster growth
- Realize greater sales ROI
- Retain more of your flagship accounts
Take a look at your sales budget and consider focusing on the moment of truth – the sales proposal. After all, it’s the key to decreasing your Loss Ratio and with a leaner Loss Ratio comes millions.
When you’re ready to lower your Loss Ratio, we can help, it’s what we do.
Chris Arlen, 206-780-2963
President, Revenue IQ