The sales cycle is the process that occurs when a business sells its product/service to a potential customer. The cycle begins with the introduction of a new lead and ends once the lead is converted to a new client and the deal is finalized.
Keeping track of your sales cycle will allow you and your sales representatives to know exactly where your leads are in their buyer’s journey. As a new lead appears, the team will know which steps to conduct according to the process and have an understanding of approximately when a deal could be closed.
Your sales cycle shows the effectiveness of your team and its process. Knowing the length of your sales cycle will let you evaluate your process to decide if it needs to be improved in order to convert leads into clients quicker.
Additionally, knowing the length of your sales cycle will help you make accurate revenue forecasts. You can implement your cycle lengths to show potential revenue based on forecasted lead generation. Not only will this help you make informed business decisions, it will also allow investors to evaluate the financial health of your company through dependable revenue predictions.
Measuring your cycle will benefit your business in many different areas. Here’s how we recommend calculating your average sales cycle:
Formula: Average Sales Cycle = total # of days to close deals / # of closed deals
On average, it takes you about 33.25 days to close a deal. You can use this metric to predict when a new deal will close and implement that into revenue forecasts using models.
After calculating your sales cycle average length, it's time to compare it against industry standards to fully evaluate it.
Different industries have different types of products, meaning processes will differ as well as cycle lengths. In the SaaS industry, buying a product or service is a higher commitment due to the ongoing, recurring nature of the purchase. Because of this, the price of a SaaS product will impact the length of a sales cycle.
Here’s what Jason Lemkin says on Quora about B2B SaaS sales cycle lengths based on annual contract values:
1. Deals < $2,000 in ACV should close on average within 14 days.
2. Deals < $5,000 in ACV should close on average within 30 days.
3. Deals < $25,000 in ACV should close on average within 90 days.
4. Deals < $100,000 in ACV should close on average within 90-180 days depending on # of stakeholders and gates.
5. Deals > $100,000 in ACV will take on average 3–9 months to close. They can take the better part of a year, as these purchases are budgets on Annual cycles. Some deals will be faster, some shorter. This is an average
Comparing your average cycle length against industry standards is a great starting point, but don’t stop there. If you have the insight to the sales cycle of your close competitors, compare yours to theirs and see if it needs improvement. If you are a sales rep, you should always measure your own sales cycle length against the colleagues on your team. You may find that you are lagging behind and now is the perfect time to see what you can do to catch up.
In addition to industry type, there are many other factors that can lengthen or shorten your sales cycle.
The higher the price of a product, the longer the sales cycle will be and vice versa. If the price is higher, a customer needs to determine if the benefits of the product are worth the price. This will take time until the customer is ready to make the purchase at that price point.
Depending on how complex your product is, the longer it will take the customer to purchase. If you have a complex product, it will take potential customers longer to understand the product and its value. It might take many presentations, demos, and free trials until a customer understands the value and decides to buy.
Targeting your ideal customers will shorten your sales cycle. Your ideal customer is someone that is the right fit for your product so they understand the value right away. These customers do not need to be convinced about the value of your product and will purchase quicker than others. However, if your leads do not fit your ideal buyer persona, then this will increase your sales cycle timeline.
This one goes hand and hand with the target audience since the audience in a new market is not aware of your product and its value. A majority of the time in the sales process will be spent on educating the new market about what you are selling. This will take time and increase your sales cycle timeline until the audience is aware of your product or services.
The size of your customers’ companies can prolong the process; the greater the number of people in a company, the more people you have to convince that your product is valuable. If you are selling to an individual, once you convince that individual about your product there really isn’t more to do. However, selling to larger enterprises is a different story. Not only do you have to sell to a specific department (say the HR department), but you also need approval from the executive office, the board of investors, and whoever else depending on the firm’s structure.
If you have free trials in your process, this also needs to be included in your sales cycle length since you still have not secured the deal yet. The longer your free trials are, the longer your cycles will be.
In order to understand your sales cycle, you need to understand your sales process as well. The stages of a process will vary from team to team, but it always starts with the creation of a new lead and ends once a purchase or deal has been made.
Whether it’s outbound or inbound leads, hopefully you’ll have plenty of leads in your funnel and you can start differentiating the ones you want to connect with further. Make sure the lead you pick fits the perfect buyer persona for your product — this will make things much easier in the short and long run.
Once you have your lead, it is time to move them along through the funnel. Your process can be constructed of a series of cold emails or calls. At this stage you want to learn more about your potential customer and see if it would be a mutually beneficial relationship.
- At this point you know all about your client and their pain points. Use this to your advantage when you present the product to them further. Show them how your product solves their problems and how it’s the best in the industry.
You’ve talked, presented, and explained, but the customer has some objections — maybe they think the price is too high. At this stage, it’s up to you to convince them how valuable the product is for them or for their business. Keep reminding them the benefits the product brings, the time and resources it can save their team, and other value adds to assure them that the price is justified.
Once you’ve successfully shown them the value of your product, they should be ready to purchase and close the deal! However, some customers may still have some objections at this stage. Throwing in a discount may help seal the deal. Offering the first month off or a complementary feature can help customers overcome their doubts.
The shorter your sales cycle is, the better. If a deal takes less time to close, that means you can move on to the next deal to secure more customers! Here are a few suggestions to help shorten your cycle:
Sales Cycles matter. Tracking the performance of your sales efficiency will give you great insight into the effectiveness of your sales team and allow you to make accurate revenue forecasts. If you're looking to leverage your financial data to empower your sales team, we're here to help. Schedule a chat today to get started
Sales cycles are extremely important to understand, and you can better inform you sales cycle information with improved B2B SaaS financial reporting for your sales team. Learn more about tracking your financial data with our SaaS reporting platform.