For startups and newer businesses, there’s plenty to learn and one area to focus on is the sales cycle.
What is the sales cycle and how do you calculate sales cycle?
Sales cycle is a metric that looks at the average amount of time between when a deal is created, or an opportunity begins and when it is closed with a win. To calculate this important metric, you take each of the deals that can be counted as won in a period. Then, for each of those you look at the number of days between creation and close.
Take all those, add them together and divide it by the won opportunities.
To give an example—if you had 30 won deals in Q2, you would then combine the number of days from the time they were created to closing. You would then divide that total number by the number of deals for your sales cycle calculation.
You can use platforms like Salesforce or HubSpot CRM to gather this information and create the metric if you use either one.
Beyond those key elements, what else should you know about the sales cycle?
What Are the Pros of Using the Sales Cycle Metric?
Beyond what was addressed above, what are benefits of calculating the sales cycle metric? One benefit is that it can give you a sense of predictability when you’re forecasting. You can also use this metric to accelerate revenue growth.
If you are tracking sales cycle, you can see how efficiently your sales operations are overall. You might see that your sales department is more or less effective than what they should be by measuring sales cycle.
A faster sales cycle is typically seen as better because it’s a shorter time required to make a sale. Therefore fewer resources are going toward that sale, more sales can be made in a shorter time period, and there’s less of a chance of the deal not going through.
When it comes to things to take into consideration when calculating this metric, some things can cause it to deviate in one direction or the other.
For example, if you’re selling to a small business, you’re likely to see a shorter sales cycle time as compared to selling to an enterprise. Also, if you have a product that needs to be customized, this is likely going to lengthen the average calculation of the sales cycle as well.
How your source leads will play a role too. If you’re cold calling, your average sales cycle time is more than likely going to be longer than if you have customers who have already expressed interest.
Defining a Sales Process
A sales process isn’t the same as a sales cycle, but the two are related to one another in various ways. Your sales process isn’t a measurable metric like sales cycle, but instead, it’s the steps that you take as an opportunity is identified, you work to connect with customers and the steps you take to get them to make a purchase.
The sales process becomes a model that you develop, refine and then replicate. The most successful sales cycles tend to align with the targeted customer’s purchase journey.
One of the ways the sales cycle and sales process are related is the fact that you can use your sales cycle measurement to help you see where you need to make improvements with your sales process. Maybe you refine your sales process as a way to shorten your calculated sales cycle.
Steps in a Sales Cycle
Even if you shorten your sales cycle, you’ll likely still need to follow a set of steps. While it can vary, most experts say that a sales cycle will have seven steps in it, which can look something like the following:
- Lead prospecting where you’re working to find new customers
- Appointment setting which could include cold calling, emailing, social media or other forms of contact to set up face-to-face meetings
- Qualifying prospects to ensure the prospect can buy the product or service
- Making the presentation
- Addressing possible objections or concerns
- Closing the sale
- Asking for referrals
Measuring your sales cycle is so important. It can show you where you can become more efficient and where you might need to make changes to the steps in your sales process. It’s a great overall metric to use when it comes to your sales departments and sales teams and is a good all-around benchmark.
………….
