B2B companies often have long sales cycles. Ours is one of the exceptions, because the average one from year 2018 lasted 29 days, and if I wasn’t a selling CEO but a full-time salesperson instead, it could be even shorter. That’s because every day I would end up with an empty CRM — just like when I was in sales full-time. As a result, all follow-ups would come out on time and all, even the smallest promises to potential customers would be delivered no matter what. Unfortunately, shortening sales cycles is not something that is easily accomplished when you are the selling CEO.
I still see our clients’ CRMs in which the average length of the sales cycle is 3, 6, or even 9 months. The record average I saw was 18 months. If you have a six-month sales cycle, it means that the leads generated in June will turn into signed contracts around December.
It’s important because taking into account cash turnover, you want the least time possible passing from the moment you generate the lead to paying the invoice. On the other hand, you don’t want to push customers into signing contracts so hard that they start viewing you as intrusive or an aggressive salesman. So you want to have sales cycles as short as possible without decreasing conversions — but not shorter.
I’ll show you on two examples of businesses that are identical except for the cash turnover rate. They both compete with each other. To simplify, let’s assume that both businesses can process only one sales cycle at a time and that they allocate 5% of each booked revenue to marketing.
|Tasks||Business A||Business B|
|Transaction value||300.000 PLN||300.000 PLN|
|Sales cycle length||90 days||180 days|
|Invoice generation time||Day of signing the contract||7 days after signing the contract|
|Payment time on the invoice||7||45|
The first business will book revenue 97 days after generating the lead. The other one — 232 days after. This is a huge difference, because if both businesses start from the same level on day zero, then after 97 days the first one has a marketing budget of PLN 15,000 from closed sales.
The slower business will have to wait 135 more days for this money. This budget can be allocated to outbid competitor’s Google Ads campaign rates, organize a stronger presence at an industry conference, write a few more blog posts or launch a podcast or Youtube channel.
At the beginning these differences are small. But over time, they begin to grow. Within 3 years, the difference in the budget spent is already visible at first glance and increases to over PLN 100,000. Not to mention the revenue. The faster business has a revenue of PLN 3,600,000, while the slower one — only PLN 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 usually gain more customers over time (if they spend it sensibly). Those who have more clients have more social proof (testimonials, opinions, case studies, logos, awards). All of that translates to better conversion of budgets spent on marketing — because the market sees that the service is verified.
If we’re doing a good job, more customers also mean more recommendations, which usually have a higher conversion to sales and even shorter 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 it can then allocate 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 30 or 180 days can be found there. Usually, more than one lead at a time is processed, which is another issue.
Remember, we’re talking about businesses that are pretty much the same and only differ in how quickly they process cash. I am receiving signals that people think 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 cycle speed, which I describe 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 department 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.
So if your sales cycle lasts half a year, then counting from today you have 70 days to generate leads which will give you your total 2020 result. But not all of these are working days — you have 45 of those. And yet many of you don’t press your marketers for increased effort in Q1 and Q2 Because “we have 8 more months” and “we’ll catch up”.
You won’t catch up. Your sales cycle is six months. And of course, you may close faster than usual and “succeed”. But statistically speaking — you won’t.
It’s the beginning of Q2, but that’s later than you might think. Get to it.
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