B2B companies often have long sales cycles . Ours is one of the exceptions, because average length of the sales cycle for the past couple of years was 29 days. If I wasn’t a selling CEO but a full-time salesperson instead, it would have been even shorter. That’s because as a sales representative I would end up with an empty CRM every day — just like in the times when I was working full-time in sales team. As a result, first contact and further follow-ups would reach prospective customers on time and even the smallest promises would be delivered no matter what. Unfortunately, shortening sales cycles is not something that is easily accomplished when you are the selling CEO. Sales and marketing teams help a lot in this regard.
I still see our clients’ CRMs in which the average sales cycle length is 3, 6, or even 9 months. The longest sales process I saw was 18 months. If your own sales cycle length is six-month, it means that the leads generated in June will probably turn into signed contracts around December.
It’s important. Taking into consideration your company’s cash turnover – you want as little time as possible to pass from the moment you generate the lead (reach decision makers) to closing the deal and receiving the payment. On the other hand, you don’t want to push potential clients too hard into signing the contracts and be seen as an intrusive or aggressive salesman. So what you should aim for is having sales cycles as short as possible to limit the decrease in conversions — but not shorter.
And is a long sales cycle a problem?
I’ll illustrate this approach using two examples. There are 2 businesses that are identical except for the cash turnover rate. They are competitors and pursue the same sales opportunities. To simplify, let’s assume that both businesses can process only one sales cycle at a time and that they allocate 5% of their revenue into marketing efforts.
The first business will receive revenue 97 days after generating the lead. The other one — 232 days after. This is a huge difference. If both businesses start from the same level on day zero, then after 97 days the first one has a marketing budget worth $ 15 000 from the closed sales processes.
Business with longer sales cycles will have to wait 135 more days for this money. The budget sourced from the sales can be allocated into winning over new customers – by outbidding competitor’s Google Ads campaign rates, organizing a stronger presence at an industry conference, writing a few more blog posts or launching a podcast or a Youtube channel.
At the beginning these differences resulting from sales cycles are small. But over time, when you analyze data, they begin to grow. Within 3 years, the difference in the budget spent is already visible at first glance and increases to over $ 100 000. Not to mention the revenue. Business with a faster sales cycle has a revenue of $ 3 600 000, while the slower one — only $ 1 500 000. It’s clear which one of them is predisposed to become the market leader judging only by these two factors.
This is just a simple example based on revenue and marketing budget, not the whole picture. In practice, it looks like this: those who have a larger marketing budget will usually gain more customers over time (if they use it sensibly). Those who have more clients have more social proof (testimonials, opinions, case studies, logos, awards) what positively impacts the lead generation process. All of that translates into a better conversion of the budgets spent on marketing — because the market sees that the service is verified by existing customers and reaching new ones requires less effort.
If we’re doing a good job, more customers also mean more recommendations, which usually have a higher conversion to sales and enable shortening the sales cycles. A business that is in such cycle can expand its marketing, sales and customer service departments faster and turn the customer’s path into a process — all because it gets cash faster, which can then be allocated to these areas. In practice, the whole matter is much more nuanced, because sales cycles have a very large amplitude and if the average is 97 days, transactions that take both 30 or 180 days can be found there. Usually, more than one lead is processed at a time, which is another issue.
Remember, we’re talking about businesses that are pretty much the same and only differ in the speed of processing cash. I am receiving signals that people think that at Casbeg we only accept payment in advance because we don’t like to chase our customers. It’s true, but that’s not the only reason. The rest of the answer is the pressure on the sales cycle time, which I described in this post.
Obviously, this spiral can be broken up very easily. It’s enough if we don’t bring value to our clients, the sales teams can’t handle leads or we make stupid marketing decisions. However, if these situations don’t occur, one of the biggest barriers to the rapid growth of companies is the slow sales cycle and more broadly — the conversion of leads into paid invoices.
The time to modify your sales process is now
So if your sales cycle lasts half a year, then counting from today (April) you have 70 days to generate leads which will give you your total end-year result. But not all of these are working days — you have 45 of those. And yet many of you don’t push your marketing team for increased effort in Q1 and Q2 because “we have 8 more months to work on sales efficiency” and “we’ll catch up”.
No, you won’t catch up. Your sales cycle is six months. And of course, you may end up having more closed deals and do it faster than usual and “succeed”. But statistically speaking — you won’t.
At the moment of writing this article it’s the beginning of Q2, but that’s later than you might think. So get to it.
If you could use some help while working on sales processes, increasing the conversion rate and reaching more potential customers, feel free to reach out to us at: [email protected].