A/E/C firms struggle with the best metrics to manage their sales and marketing effectiveness. Which ones make the most sense? Part of that depends upon how you are tracking the performance of departments verses individuals. Part of it also depends upon goals outlined in your strategic plans.
There are quite a few approaches to metric tracking, but by far the most common one is hit rate.
Firms track hit rates at different stages, and it can be difficult to benchmark with industry hit rates because of how a given firm defines a “win.” Have you won a project when a client notifies you? Or when you receive the signed contract or purchase order? Or when the work actually begins? Plus, you can track hit rate based upon quantity or dollars – or both – but firms do it differently.
The traditional hit rate is a simple percentage based upon number of proposals submitted verses number of proposals won. For example, if you submit 10 proposals, and you win three, then your hit rate is 30%. But it’s not always that simple. What if you submit 10 proposals, win three, one project was cancelled, and two are still pending? In that case, you may calculate your hit rate as:
# proposals won / (total proposals – outstanding proposals – cancelled/withdrawn proposals)
So in the example above, we’d have:
Hit rate = 3 / (10 – 2 – 1)
This would give equate to 3 / 7, or a hit rate of 43%.
But is this really a meaningful number? What if the proposals you won had an average value of $10,000, but the proposals you lost had an average value of $25,000? A good hit rate doesn’t necessarily mean that you’re bringing in a lot of revenue.
There’s another way to look at hit rate, and I think this one is more beneficial. This is your hit rate based upon dollars proposed verses dollars won. I call this the “conversion rate” – that’s not a standardized industry term, just one that I’ve used for years to reflect the value of the dollars proposed converted to actual bookings.
With this approach, instead of looking at quantities, you are looking at dollars. Say you propose on $1,000,000 of work, and your firm is awarded $200,000. Your conversion (hit) rate would be 20%; that is, you’ve won (converted) 20% of the dollars you’ve pursued.
Of course, you’ll probably again want to exclude outstanding proposals as well as cancelled or withdrawn proposals, as with the formula listed above. Substitute dollars for quantities. For example, you propose on $1,000,000 of work, $200,000 is won, $200,000 in proposals are still pending, and $100,000 in proposals were cancelled or withdrawn. Your conversion rate would be 29%, or:
$200,000 won / ($1,000,000 proposed - $200,000 outstanding - $100,000 cancelled/withdrawn)
Hit rate tracking is one of the most common ways to measure metrics in the A/E/C industry, but firms do it differently, and not every firm has the same definition for a “win.”
To try to get a grasp on how the industry is tracking hit rates and other KPIs (Key Performance Indicators), the Society for Marketing Professional Services (SMPS) Foundation partnered with the Southern Illinois University Edwardsville (SIUE). Through the summer they have been gathering data through an online survey and telephone interviews, and plan to publish their findings later this year. When that happens, I’ll post a link right here on Marketropolis.
How does your firm track hit rates – and when do you count a project as being "won"?