Let’s start with a quick survey (just 3 questions.)
- Have you ever purchased an ERP solution for your business?
- What was your first step in your buying journey?
- Did you Google ‘ERP Solution’ and purchase the solution in the first result?
If your answers are ‘Yes’, ‘Google’ and ‘No’ in that particular order, then you are not alone. A vast majority of us would have answered the same.
Now, out of the three, the answer to the last question is something to really think about.
Why did you choose ‘No’ to the third question?
Simple. Purchasing an ERP solution is not as easy as 1, 2, 3, buy.
Solutions like software, insurance, consulting services, real estate usually require a large investment and/or have a contract tied to it which makes it a little longer to purchase than other products. In other words, they have a longer sales cycle.
Before to understand more about the sales cycle, let us go through another survey. Don’t worry, this one isn’t rhetorical.
An interesting insight from a survey of 886 sales leaders revealed that while it takes four months for 74.6% of businesses to sell to a new client, a massive 46.4% confessed that the same sale process could take well over seven months in some cases.
If we delve deeper into the reasons for these astonishing numbers, you will find that the longer sales cycle directly correlates to:
- Fewer leads engaged per point in time
- Higher risk of prospects changing their mind
- Too many decision-makers along the sales process
All these factors delay and complicate the selling process, slowing revenue growth due to lost deals.
On that note, let us dive into this article where we are going to see what is a sales cycle is, how to calculate your sales cycle, and finally some handy techniques on how to ramp up your sales cycle.
Table of Contents
- What Is A Sales Cycle?
- How To Calculate Your Sales Cycle?
- How Does The Sales Cycle Vary Between Different Types Of Customers?
- 6 Techniques To Ramp Up Your Sales Cycle
What Is a Sales Cycle?
A sales cycle is a series of steps an organization undertakes when selling a product or service to a customer. It constitutes everything from the initial customer contact all the way to deal closure. Think of it this way – it’s a prospect’s journey from realizing the need for a product to making the buying decision.
Sales cycles typically vary in length based on factors like –
- Ideal Customer Profile (ICP)
- Target market
- Deal sizes
Usually, deal size and sales cycle length have a positive correlation. A smaller deal value means the sales cycle is usually shorter than 3 months.
On the other hand, the B2B or “Enterprise Deals” have a longer sales cycle as the product/service is extremely complex, and the price is on the higher side. Both of these lead to multiple product demonstrations and multiple decision-makers. The sales cycle, in this case, can vary from 9 months or 12 months and, in some cases, even more.
However, irrespective of the deal size, organizations must keep a tab on their sales cycles as it is an indicator of the efficiency of their underlying sales process.
A sales cycle formalizes the sales infrastructure for reps to prioritize leads and understand where their prospects are in their buyers’ journeys. By identifying the reference points of a prospective customer, the reps will know how best to approach the leads they are pursuing. Most importantly, a sales cycle allows you to objectively assess the performance of your sales teams in different stages of the cycle and its impact on your bottom line.
Calculating The Length Of The Sales Cycle
A formalized sales cycle creates transparency; by measuring all the steps leading to the conversion of a customer, you can spot issues in your sales process like – where your prospective leads are stalling, delays in lead response time, etc.
With a clear understanding of the total time it takes to complete a sale, you can generate sales projections and predict future revenue based on the leads in your sales pipeline.
Before calculating the lengths of sales cycles, here are some factors that influence it:
- Your company’s target market
- Your ICP
- How effective your sales process is
- Your sales team’s win/loss percentage
- How much your product costs
Calculating The Average Length Of The Sales Cycle
The simplest method to find the length of your sales cycle is –
- Start at the point of creation of a lead in your CRM
- End at the point the deal closes.
As the owner of a B2B enterprise, you can calculate the length of a sales cycle by following these steps –
Step 1: Calculate the total number of days from contact to conversion for all the deals during a quarter. Here are some sample values –
- Deal 1 took 65 days
- Deal 2 took 75 days
- Deal 3 took 60 days
- Deal 4 took 100days
So, in this case, the total number of days will be 65+75+60+100 = 300 days.
Step 2: Note the number of deals during the quarter. In this case, let us assume you closed 4 deals.
Step 3: The length of your sales cycle is the total number of days it took to close every sale divided by the total number of deals. Meaning, divide the total number of days (300) by the total number of deals (4) to get the average length in days. 300 / 4 = 75 days or 2.5 months.
This average sales cycle metric can be used as an estimate or benchmark for similar deals in the future, and you can forecast the revenue from pending deals.
KPIs To Track To Analyze Average Sales Cycle
Now that you know how to calculate the average sales cycle, let us look into some sales KPIs that you need to be cognizant of while analyzing the Average Sales Cycle –
- Prospects by source
- Lead response time
- Average follow-up rate for leads to convert
- Average contract value
- Marketing Qualified Lead (MQL) to Sales Qualified Lead (SQL) Ratio
- Lead To Opportunity Ratio
- Sales Qualified Lead (SQL) to Deal Ratio
- Average purchase value
For example, here is one way to connect the average sales cycle and one of these KPIs –
- Identify the different stages of a sales cycle – for example, the first touch, book a demo, and so on.
- Track the lead response time in each of these phases
- Identify the lengthier individual phases.
- Set goals for each stage of the cycle and provide your salespeople with a clear path on how to reduce the lead response time, thereby the total sales cycle
Later in this post, we will also look into the different KPIs that need to be tracked for different types of customers.
Now if you are keeping a track of your sales cycle and you notice that they are longer than average, then you might want to keep track of certain red flags in your sales processes. These factors can negatively impact the time it takes to move an opportunity to closure. Hence, you need to keep track of certain red flags that can help you course-correct sooner before it cascades into a bigger issue.
Red Flags To Observe In a Typical Sales Cycle
- Lack of a structured follow-up process
Your future customers will not wait forever, and if your sales reps are not following up efficiently then they will take their business elsewhere. By not striking the iron when it’s hot after the initial contact or demo, you risk a longer than required sales cycle or, even worse, losing the deal completely.
- Sub Optimal Lead Qualification
Lead qualification refers to the process of determining which of your prospects are most likely to become future customers. It’s a critical part of any sales process, which often takes in many leads but only converts a small portion of them. By not having well-defined lead qualification criteria, they will end up having fruitless discussions with prospects who were not the right fit, to begin with. This can result in longer than normal sales cycles.
- Poor Team Work
Sales teams and marketing teams pursue a common goal of creating value for the customer and increasing company profit. However, a lack of collaboration between sales and marketing teams can result in a multitude of negative factors like low conversion, poor lead quality, and less support for the sales team. This can result in longer sales cycles and hinder the process of forecasting revenue.
When Should Your Sales Cycle Officially Begin?
When it comes to measuring your average sales cycle length, there is a need to clarify when the sales cycle actually begins. There are three common activities that can signal the start of a sales cycle:
- Firstly you can track your sales cycle from the moment a new lead is created in your CRM. This is known as first touch attribution.
- Secondly, your sales cycle can begin when you first contact a new lead and this will exclude prospecting from the calculation. This might be suitable if you buy lists of leads and enter them into your CRM before you’re actually ready to contact them.
- Lastly, some companies prefer to start their sales cycle when a lead converts into an opportunity.
How Does The Sales Cycle Vary Between Different Types of Customers?
Enterprise customers refer to those types of customers to whom the selling process is relatively large and resource-intensive. Typically, it involves selling large-scale solutions to corporate clients or enterprises with over 1000 employees and earning over a billion in annual revenue. The sale of enterprise technology such as cybersecurity solutions, security systems, building management software, are usually sold to enterprise customers.
With enterprise deals, the pipeline generated in one quarter will end up getting closed several quarters later. Enterprise sales cycles are typically 7+ months and 6K+ figure deals. The long sales cycle is due to the non-linear multiple-step process, where clients move back and forth between the different stages of the purchase process before making a final decision.
Here are some other reasons why enterprise sale has a longer cycle –
- A longer negotiation period
- A high contract value/deal size
- Numerous stakeholders
- Extensive competitor review
- The complexity of the product
- Many customizations
Here are some KPIs to track for an enterprise customer:
- Average Deal Lifetime
- Average Deal Size
- Sales Velocity
- Number of new Customers
- Number of lost accounts
An individual customer is usually subjected to a product-led sales cycle. Lower-priced, high-volume SaaS products or consumer goods are typically sold to such customers via a self-service model. This self-service model with a very short sales cycle works best with software that’s easy to use and doesn’t involve complex business processes.
So, your goal is to develop a solution for the greater market and work out ways to distribute that product or service to the best-suited leads. With features like a free trial, faster onboarding flow, and a highly sticky product, customers can experience immediate value and upgrade in no time. Sellers have the benefit of a faster sales cycle.
With self-service, your potential customers go through decision-making, testing, and paying for the product at their own pace (still way faster than enterprise or SMB). It is excellent for low-cost products that don’t require a lot of technical setup or knowledge to use. Examples of transactional sales include clothes, groceries, pharmaceuticals, and other low-value purchases.
KPIs to track for an individual customer that can help in analyzing sales cycle –
- The virality of product adoption
- PQLs (Product Qualified Leads). In other words, who are more likely to become a customer than other leads.
- Average Revenue Per User (ARPU)
- The Net Revenue Churn, which is the percentage of revenue you have lost from existing customers in a period by total revenue at the beginning of a period.
Small and Medium-sized Businesses
Small and medium-sized businesses will usually have less than 100 employees and generate between $5 to $10 million in annual revenue. When you sell to SMB, a lot of the opportunities created in the cycle will be won in that cycle. An SMB sales process can close anywhere from 2 days to 4 months and have a short sales cycle of 60 days or less. Here are some reasons why they have a shorter sales cycle –
- Fewer decision-makers
- Lower customer acquisition cost
- Limited customizations
- Lower Risk
KPIs to track for an SMB that can help in analyzing sales cycle –
- Lead to Conversion Ratio
- Revenue Per Sales Rep
- Service or Product Usage
- Customer Acquisition Cost
- Customer Lifetime Value
6 Techniques To Ramp Up Your Sales Cycle
1. Lead enrichment to increase lead qualification
By enriching your leads, your SDRs won’t have to spend time qualifying leads. Instead, they can focus on contacting as many leads as possible. You might be feeding unqualified and low intent leads to your sales pipeline. A direct consequence of this is that you’ll realize they aren’t qualified later on. It leads to lost time and losing other essential resources and opportunities.
While this might not necessarily be a bad practice, it does slow your sales cycle down by having more leads dropping off in forthcoming stages. To mitigate this, add more qualifying factors to your qualification process. Have stricter rules, which will help you avoid loosely qualified leads. Have your SDRs pre-qualify leads based on these rules, and only then pass them on to Account Executives.
2. Automate CRM workflows
Consider this: The average SDR spends 21% of their time writing emails and 17% of their time prospecting and researching leads. It is not uncommon for top sales reps to spend more hours in a day organizing or inputting information than actually selling.
Sales automation tools can remove these tasks from your plate or make them easier to complete. Automating repetitive tasks helps reps spend more of their cognitive time working on high-value tasks like building targeted relationships.
Start with an audit to determine which tasks you and your teammates are doing again and again. Then, prioritize which repetitive tasks should (and can) be automated. Company research or data entry are two good places to start. Once you’ve got the mechanical tasks off your plate, you can start exploring more complex options — like automating your email prospecting. All these activities, if carried out, can reduce the sales cycle drastically.
3. Sales and marketing alignment
Along with automating your outreach and tracking, having your marketing team help you with sales engagement will ensure your leads are being nurtured nurturing well.
Marketing teams mostly get involved while setting up inbound funnels and lead generation channels for your sales operations.
On the engagement side, your marketing team can help you with visibility through content marketing and web ads on platforms outside email. Visibility plays a vital role. Build your presence online. As per Forrester, 74% of buyers conduct their research online.
Marketing teams can also help in sourcing and creating social proof for your product in various forms. This social proof helps with engaging leads mid-cycle. It enables you to focus more on building engagement with your prospects. You can then spend more time understanding their business, removing the scope for uncertainties, and getting to close quicker.
4. Using sales engagement tool for automatic follow-ups
Initiating the first contact with your lead is only the first part of the puzzle. While it is a victory of sorts, you will still have to work on following up with your lead, and unfortunately, this can seem like a drawn-out process.
Interestingly enough, while 80% of sales reps require five follow-ups before a deal is made, 44% of them give up after the first attempt. This means that your sales reps will have to develop thick hides and persevere with the follow-ups. Keeping leads engaged is key in ramping up the sales cycle.
To do more, automate everything that doesn’t need your human touch and use a sales engagement tool like Klenty to stay on top of your game. Every single prospect deserves your utmost patience, empathy, and availability, and you can’t give them that if you’re stuck doing mindless admin work the whole time.
5. Personalize multiple touchpoints
Following up with prospects is one of the most challenging parts of the sales process. You need to know what to say and find the right time to say it. You want to keep your prospects engaged, but you don’t want to annoy them either. How can you reach customers in a way that they will respond quickly, thereby reducing your sales cycle?
We believe that personalization is the key to success, but it’s not just about sending a customized email or text message. It’s about making sure every interaction with your customers feels personal and human. It allows you to connect with your prospects on a deeper level and make them feel valued and important to your business. For example, Klenty’s Cadence Playbook feature automates and lets you send the right message to the right prospect at the right time through personalized execution. It will help identify the intent levels of the prospects and put you in total control of your follow-ups.
6. Training AEs and SDRs
Create sales decks, sales kits, and other documents to guide your team through the sales process. Of course, you cannot create them all. Task your marketing team to create it for you. You can also keep a close eye on each team member’s metrics as they get used to your sales cycle.
What’s more, you can also put your CRM software to use for this. Using a CRM, you can create reports to analyze the performance of your sales team, such as lead response time, activities, deals closed, and more.
Doing this, you may find that certain reps are facing headwinds at specific stages of the sales cycle. If this is the case, be sure to offer them additional resources and support and allow them to shadow and learn from high-performing sales reps.
The biggest issue most companies face is getting a lead to say, “Yes,” more quickly. In other words, most of them are grappling with ways to shorten their sales cycle. However, making a sales cycle shorter is not rocket science anymore. All you need to do is a series of strategic but deliberate tweaks to various stages in your sales pipeline that will convert a prospect to a closed deal quicker. And this will translate to more revenue for your business.