In order to understand the Opportunity Conversion Rate KPI, one has to delve slightly deeper and be aware of how an Opportunity is tracked.
All opportunities in a CRM system are tagged to a specific stage and tracked until closure. It is a one-way street where opportunities start at one stage and end in the final stage. The example below represents a simple stage wise flow of opportunities. This does not imply that all opportunities will follow a single path with five stages instead there can be stage forward and reverse hops multiple times during actual sales cycle.
A popular representation for this data is a funnel chart in dashboards. The number of opportunities for each stage signifies the size of each band in the funnel. In order to calculate the conversion rate, one has to focus on two factors i.e. Stage and Timeline of each opportunity.
Opportunity Conversion Rate essentially tracks the number of opportunities that started at a stage and ended at a different stage within a specified time frame. The previous statement can be re-phrased with an example as
"Conversion rate shows the number of opportunities that started in Lead stage and ended in Signoff for the first quarter of 2016 (Q1 2016)".
The time context is slightly tricky here because the calculation is done based on two snapshots i.e. point in time measures. In the example described before, the KPI is derived as follows
- Get number of opportunities in the Lead stage as of 1-Jan-2016 e.g. 100
- Get number of opportunities in the Sign off stage as of 31-Mar-2016 e.g. 10
- Calculate the KPI value as (2) / (1) e.g. 10/100 or 10%
Another popular term for this KPI is Win Ratio. This analogy can be extended to derive conversion rate across different stages as needed.
- Some example conversion rate KPI’s can be calculated using this method are
- Qualified leads to Proposal ratio
- Qualified leads to Sign Off ratio
- Proposal to Sign Off ratio