December 7, 2018

What is the average length of your sales cycle?

Accurately gauging your sales cycle is key for forecasting and strategy. The post highlights errors in estimating sales cycle lengths and underscores the importance of recognizing differences between inbound and outbound cycles. It suggests adjustments for improved accuracy, noting variations across industries and product types.

‍This is a common question we ask our software business clients before we begin outbound sales process, aiming to give us a reasonably good idea of what to expect in the coming months in terms of sales cycle length and market growth.

The answers are invariably in the range of 30-45 days, which has almost never been right in my 10 years in sales working with various software companies and helping them on market entry and market expansion. I can think of exactly one client for whom the actual average sales cycle length is about 30 days. So, what exactly is going on? Are my sales managers lying to me to get my company to perform better? Are they ignorant of the length of their sales cycle? The answer, I have found, is neither. It is a common logical fallacy that most sales managers fall prey to affecting the sales process improvement.

Let me explain.

Many upper-level executives are unaware of the exact point in time that a business development executive initiates contact with a prospect. By initiating contact, I mean the time when the first cold email outreach was sent, or the cold call was made, or the prospect was met at an event or a conference. The number of unanswered cold email outreaches, referrals from cold call referrals, and leads from different lead generation channels are usually no more than numbers to them. They become aware of individual prospects only when they communicate interest in their software product or service in some manner.

Generally, this is considered to be ground zero and the starting point of the sales cycle, whereas in reality, this point is about 40% along the sales cycle in an outbound sales process. The executive probably sent several emails, spoke to the prospect over the phone and maybe even had some face-to-face meetings to get the prospect to actively engage with their product/company. In failing to include this in the sales cycle calculation, sales managers are skewing the numbers significantly, leading to mistakes in the sales cycle.

The second important mistake, and one that should not be made at all is calculating the sales cycle of inbound sales process and outbound processes together as a single number. When you get an inbound lead, the lead incubation period, that is the time during which the prospect is recognizing their pain point, realizing that they need a solution, as well as probably budgeting this solution is already over. In an outbound process, this is reversed.

In several instances, there might not be a recognition of pain points until after contact has been made and they become aware of your product. So, sales cycle calculation should always be done independently for inbound and outbound processes to avoid sales cycle mistakes.

The third error, and probably the least significant, is that companies do not consider the entirety of their outbound channels when making the sales cycle calculation. For example, if a software business pursues emails, phone calls, LinkedIn networking, and attending conferences as outbound channels, I have seen that there is a tendency to ignore the least effective channels and calculate the sales cycle based on only the most effective ones. In the case of one of our software companies clients, they were giving sales cycle calculation based only on events/conferences.

So, what is the right way to view the sales cycle by industry or to analyse sales cycle factors, you ask? Let me tell you our story.

We are in a very low entry barrier business, by which I mean that every company is performing sales and is reasonably open to new avenues of lead and revenue generation. Other companies should make adjustments based on the entry barrier, competition in the market, and any seasonal aspects to sales that they are subject to.

  1. An inbound lead usually matures and closes in 2-3 weeks.
  2. An outbound cold call that includes a referral takes about 3 months to close.
  3. A lead generated through cold email outreach takes closes in about 3-4 months.
  4. A lead generated by attending an event in a bid to validate their market validation takes about 1-2 months to close.

These timelines double if the prospect is in a different country.

In our experience, the average sales cycle has never been less than 4.5 months when aiming for market fit, irrespective of whether it is a product or service. Shorter or longer sales cycles are usually seen based on the cost of the product/service, apart from the factors mentioned in the above paragraph.

Setting up a good sales process and improving it begins with understanding where we are today.

I hope this post helps in accurately projecting your sales cycle timeline and to gauge your as-is scenario. Feel free to write to me if you have any questions.

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