Understanding Lost Revenues

Often, businesses judge their success by the revenues they earn and the subsequent profits from them. However, a potentially more effective measurement metric could be the “lost revenues.” These are the revenues a business missed in the past year and the specific reasons for losing those customers. It’s important because typically, 20% of leads are closed while 80% are lost. If the 80% loss can be decreased, it would significantly improve the 20% gain. For example, a 10% increase in conversion rates can potentially lead to a 50% increase in revenues. This article will help you understand how to define and measure potential causes of lost revenues, allowing you to reduce the amount lost.

Common Reasons for Lost Revenues

Lost revenues can have a variety of reasons. Some reasons might be tied to your company, such as your product, pricing, or methods of sales and marketing. Alternatively, the reasons could be connected to your buyer’s company, like managerial permissions and budget setups. Sometimes the individuals involved in a transaction could be the reason, like your salesperson, buyer, or any middlemen that may be part of the process. Additionally, other outside factors, like market competition and economic conditions, could be the cause. Identifying the exact reason behind each lost sale is key. These reasons should be documented in a way that lets you build reports to learn from and make action plans that address each of these barriers to increase future sales.

Problems Pertaining to Your Company

Remember the four P’s of marketing — product, price, promotion, and place — from business school? They all play a crucial role in whether someone decides to buy from you or looks elsewhere. Conduct thorough research to find out what your customers like and don’t like about your product. Emphasize the positives in your marketing messages and try to fix the negatives. Test your price elasticity to find the optimum price that maximizes revenues. Experiment with different marketing messages to see what resonates most with potential customers. Ensure that your products can be discovered wherever a customer might be looking for them.

Problems Related to the Buyer’s Company

Major issues on the buyer’s end often revolve around managerial approval and the existence of a pre-approved budget. Regardless of how appealing your product may be to a lower level employee, if their superiors are not convinced or the budget doesn’t permit, the sale will not go through. So, when navigating a sales process, ensure you know who the key decision makers are and whether a budget has been approved. With this knowledge, you can focus on persuading the decision makers and avoid wasting time on projects without a sufficient budget.

Problems Associated with Individuals Involved

There are times when the sale doesn’t go through based on the specific individuals involved. Perhaps, your salesperson requires more training, or there might be personality conflicts between your salesperson and the client. Sometimes, a middleman, such as a design agency, could just be using you for ideas without actually having a contract in place with the client. There can be a myriad of such issues. Therefore, understanding the ‘people issues’ of the persons involved in the transaction is critical, enabling you to try selling to other individuals within the same target company who might be more open to doing business with you.

External Issues

External factors can sometimes prevent a sale from happening. Perhaps a major competitor has dropped their prices and you did not adjust quickly enough. The economy might be in a downturn and buyers might hesitate to make substantial discretionary purchases. The demand for your product might be seasonal or cyclical, which could also affect sales. Or, maybe government regulations are obstructing the path (e.g., the product is made in China and high tariffs are incurred). Monitoring these external forces and crafting messages that resonate with your customers despite market barriers are essential business strategies.

What Should You Measure?

Every factor discussed above needs to be measured. Are you tracking the success of your marketing campaigns and testing different offers and creatives? Are you measuring how successful each of your salespeople are, and are you cross-pollinating best practices while weeding out the underperformers? Are you tracking competitors’ moves? Are you asking customers who didn’t purchase from your company about the specific reasons why they chose not to? You will be surprised by the amount of intelligence you can gather simply by inquiring. Like with anything else in business, you can’t manage what you are not measuring. Ensure that you have metrics in place to monitor all these “lost revenue” drivers so that you can increase your conversion rates over time by converting more ‘no’s to ‘yes’s.

Conclusion

Understanding why you did not close 80% of the sales could be more beneficial than celebrating the 20% that did. By focusing on the lost 80% of potential sales, you might be able to boost your win rate from 20% to 40%, thereby doubling your sales. Good luck!