In today's blog I explain why win/loss analysis is the key to more sales success.
Your lead conversion rate (the proportion of orders you receive from leads for prospective orders) is one of your most important determinants of your profit.
Win / loss analysis is the process of investigating why you win some leads and enquires but you lose others. It explains why your lead conversion rate is the level it is.
Your Lead Conversion Rate - Bigger Is Not Necessarily Better
Some performance metrics give a very clear indication of how a business is performing.
Just take your business.
Do you want 100% of your current profit or 200%?
With profit, bigger is usually better, much better.
But do you want to increase your lead conversion rate from 20% to 35%?
But to 70%? 80%, 90%, 99.9%?
On first appearances it sounds crazy but provided your customers have a free choice to buy your product, your competitor's products or not to buy at all, as your lead conversion rate gets closer to 100%, it is a sure sign that you are leaving money on the table because your prices are not high enough.
So low prices mean high sales but don't maximise profit and we agreed earlier that more profit is nearly always good.
Successes Are Internalised, Failures Are Externalised
Human nature means that if something good happens, you attribute your success to something that you did. Success is your reward for making the right decision and for taking the right actions.
That sounds sensible doesn't it?
But if something bad happens, it is very common for people to attribute that problem or failure not to their actions but to something which happened outside of them. Someone else did something sneaky or unfair and that's the reason why they failed.
So successes are internalised while failures are externalised.
Unfortunately this is one of the causes of the blame culture which the UK is importing from the US. If something bad happens, people look for someone to blame, to take them to court and seek compensation. It means more people are learning that it pays to deny taking responsibility for their own actions.
Fortunately entrepreneurs are a slightly different breed. You became an entrepreneur because you believe you can influence far more factors than the average person who is locked into a victim/blame culture where things happen to them.
As an entrepreneur, you can and do make good things happen.
Look Back At A Recent Non-Purchase
First let me explain what a non-purchase is.
It is when you go out intending to buy something but you don't. You are not browsing or fact-finding. You want to buy but you are stopped or discouraged.
Ask yourself why?
I urge you to try the exercise for yourself as a learning experience.
For the sake of an example, let me talk about the experience of going out to buy a car.
Imagine you had done the research and decided that you were going to buy a Ford Focus for your wife.
You get to the car dealership but you find it difficult to park. There are no parking spaces because the area is full of used cars for sale. Eventually you find a tight space to squeeze into but you start to become irritated by the dealer's lack of interest in customer service.
You walk into the showroom and there is the model you want so you browse over to take one final look.
Unfortunately the car has sweet wrappers on the floor and on the passenger seat. Not very impressive for a car showroom but this car isn't the colour you want so it doesn't really matter. This isn't "your car" being abused but it still leaves a tarnished impression.
The two sales staff are chatting and watching sport on a television and you try to attract their attention. They ignore you.
You walk over and stand by the desk. They continue to talk to each other about a recent incident in the game.
Eventually one looks up and with a disinterested tone says "What do you want?"
You suddenly realise that you don't know any more.
You were going to buy a car but you're not going to reward these rude, ignorant, inconsiderate people with the profit on your car so you make up a question before leaving.
You could drive to another dealership but you are no longer in the mood to buy.
You drive home and decide to visit the dealers 10 miles away tomorrow after doing more price checking on the Internet. Someone is going to pay for wasting your time so you will make sure you have the information to drive a better deal.
Our Failure Is Someone Else's Success
In a sales situation, a prospect who is serious about buying has a very limited choice of things they can do:
- They can buy from you
- They can buy from someone else
- They can decide to postpone their purchase, or
- They can decide to buy something else
Depending on the product or service you sell and whether it is a need ("there is a big hole in my roof which must be fixed") or want ("I want a pretty new Alfa Romeo but my current car is still working fine") the spread of leads across those categories will differ.
In the need situation, there is a compulsion to buy so your success is someone else's failure. Alternatively your failure is someone else's success.
So if you employ a salesperson their reasons for losing the order will be externalised ( "despite my best efforts our competitor slashed the price so what could I do?") while the successful salesperson employed by your competitor has internalised their success ("I did a great job of looking after that prospective customer.") Same deal but totally different attributions.
The truth may lie somewhere in between.
Win / Loss Analysis
A win / loss analysis is an investigation into why you won or lost a particular order based on interviewing the customer.
This is so much more important than market research but it is not done as often as it should be.
A win/loss analysis is targeted at the people who make the decisions in real buying situations just after they have made the decision.
Market research asks someone to pretend to be a prospective customer who is looking to spend pretend money on a pretend product or service.
You can see why the win/loss analysis provides much more objective reasons why a purchase is made or not made.
I am in favour of market research on the basis that any form of customer view presents an alternative view to an entrepreneur's possible fantasy world. But if you can only afford the time and money to do one, then opt for win/loss analysis.
The Key Ingredient To A Win / Loss Analysis
There is a danger that your win / loss analysis can turn into a "pre-sales customer service questionnaire" which asks about many different issues which the customer does not really care about.
You want to discover the key purchase criteria which made the customer buy from you, buy from a competitor or not buy at all.
I recommend that you ask some open questions, "Why did you..." as well as asking people closed questions which are answered with a Yes or No. List questions like "Which three of these factors influenced you most?" are also useful to remind the customer of reasons but can also implant thoughts.
Psychologists have found that most people can only weigh up between five and nine factors at any one time so there will not be a very long list of purchase criteria.
Ask someone what they like about their favourite restaurant and you'll get a comment back like:
"There is a really nice atmosphere, the staff are very friendly but efficient and the food is great" (three reasons) or
"Both Gino's and Mario's are lovely restaurants but Gino's is 10 minutes closer and they have better desserts." (two reasons)
Price Is Often An Excuse
When you start interviewing customers for your win/loss analysis, you may find that the first answer you are given when checking up on a lost order is "the price from the other people was better".
It is an easy excuse so don't stop there.
Imagine someone buying an executive car and the BMW garage follows up why it didn't convert the enquiry for the £40k car the buyer seemed so keen on.
"I bought elsewhere because I got a better price."
"What did you buy?"
"A Mercedes for £50k"
"But that's £10k more?"
"Yes but this car had better performance than the BMW, I think it is more exclusive and I prefer the looks."
So it's not the price but the deal. The value for money. The benefits the customer gets for the price they pay.
Who Should Do The Win / Loss Analysis?
There are three options:
- The sales person
- A different employee of the company or the boss
- A third party
Generally it is not the best idea for the sales person to conduct the win / loss analysis interview (by telephone, in person or even at a push, in writing) because they are too closely involved and the customer will be reluctant to voice certain concerns for fear of an argument.
A third party could do it. They will be objective and have interview skills which politely but forcefully push past the superficial first answers. But they will have limited knowledge of the product, the company and the competitors and whilst they will report their results, important nuances may be missed.
So I favour keeping it in-house but with someone unconnected with the deal asking the questions. It risks some bias and political point scoring but an informed person will be able to follow up much better on various things that are said.
What Determines Value For Money?
As part of my customer focused entrepreneur (or custompreneur) initiative, I intend to be writing much more about this but you need an understanding of the framework to start your win/loss analysis.
First of all, it is essential to understand that a prospective customer bases their decisions on their perceptions, not fact so it is the perceived value of the benefits compared to the perceived price or cost.
Both perceptions may be wrong which is why people make buying mistakes. A salesperson focused on the customers needs and the profit available from a long term relationship should be making sure that the perceived benefits and price are understood correctly.
If the perceived value for money is too low, the business is likely to go elsewhere. If the perceived value for money is too high and not matched by reality, the customer is likely to be disappointed and the future revenue is at risk.
Benefits or customer value will come from four main sources which need to be considered in your win / loss analysis:
- The company - its image and reputation
- The product or service - the direct benefits of using it
- The service around the product or service - it sounds strange to talk about the service around a service so let me give you an example.
You may be buying an accounting service so your direct benefits will be what you get from the service but the service around the service will be whether you can talk to your accountant easily, whether they return your phone calls promptly, whether you can get quick answers or they have to go away and find out.
- The sales person - it's been said many times but people buy people as the sales person is an essential part of the process. If you like and trust the sales person, the entire buying process seems easy and pleasant. If you don't, then little problems develop and you want to get them fixed before you buy, even if you do believe that this is clearly the best product.
It is also worth remembering that people buy emotionally but justify the decision rationally (see Marketing Using The Powers Of Psychology for more details) so you need to look for both.
The Results of Your Win / Loss Analysis
When you have completed your first win / loss analysis looking at a lead who did not buy you will discover factors where:
- You let yourself down on (see my car showroom example - rude, disinterested, little focus on customers)
- Your customers are perceived to have an advantage and are perceived to be better than you
For items in the first category, you should implement a customer service program to make sure that the problems do not keep occurring by training and identifying minimum accepted standards together with an indication of desired behaviour.
Where customers are perceived to have an advantage in the second category, there are only three options:
- The perception is wrong. The competitor does not have an advantage but your business has undersold the benefits. You have to improve the way you educate your customers or (very gently) question the exaggerated benefits of your competitors.
- The perception is right. The competitor does have a better product in that attribute and is on par or better for every other criteria important to this type of customer.
It looks like it is time to sharpen the pencil and accept that the value for money relationship needs to be rebalanced through a price reduction.
- The perception is right and wrong. The customer is right that for that particular criteria your product is not as good but you have advantages elsewhere on criteria which are important to the customer but the customer hasn't recognised your strengths.
This is back to improving the way you educate your customers about your benefits and ask them questions about their particular needs.
You are the expert and the customer may not be looking at the whole problem. Imagine a cash strapped customer who is looking at buying a car but doesn't look at the difference insurance groups, the better fuel economy, the longer time between services, the extended warranty period when choosing which car to buy.
The feedback from the win / loss analysis gives you a chance to change your sales and marketing or over the longer term to improve your operations and product strategy.
If you need help to improve your selling processes then I recommend Peter Thomson's Accelerated Business Growth System. It is a premium program but it is a very well put together, crafted and delivered business growth program with the focus on turning learning into action.
Should Everyone Do Win / Loss Analyses?
I believe every business should perform a win/loss analysis and I try to find out why my prospects decide to buy elsewhere.
The technique is particularly suitable for:
- Businesses that sell the same basic product or service to many customers. You can learn lessons that you can apply to your main market.
- Businesses that sell large one-off items. While each customer is unique, you will find characteristics in common which you can incorporate into your future proposals, perhaps based on the type of customer or their purchase situation. The win / loss analysis is essential because with large one-off projects, you cannot use the normal testing and measuring options.
While my focus in writing this article has been on looking at the lost orders to help you to find ways to improve your conversion rate, you should also be looking at the wins.
If you keep hearing comments like "It was a no-brainer. The benefits so outweigh the costs we just had to do it and your product is so much better than your competitors, it was the easiest decision we've made this year", it might be time to put your prices up.
The more you know about why your customers buy, the more you become a custompreneur (customer focused entrepreneur.)