How to Accurately Calculate Sales Cycle Length
The length of a company’s sales cycle is one of the most critical metrics in a sales organization. This is why sales management and sales operations professionals pore over sales cycle statistics, looking for the sales stages that are slowing down or speeding up, hoping to find ways to shorten the cycle.
With everything considered, the shorter your company’s sales cycle, the faster you’ll earn money.
So how do you accurately calculate the length of your company’s sales cycle?
In this article, we’ll take a deep dive into the beginning, middle, and end of the sale cycle as well as give you some actionable takeaways and different approaches that will help increase your conversion rates and hopefully, speed up your sales cycle.
First up, let’s break down the sales cycle…
What is a Sales Cycle?
A sales cycle is a series of predictable phases which are required to sell your company’s product or service. Sales cycles can vary greatly among organizations, products, and services, and no one sale or sales process will be exactly the same.
What are the Stages of the Sales Cycle?
While the exact stages will vary from business to business, depending on the complexity of your product and if you’re selling into small businesses or attempting to penetrate into larger enterprise companies, below is a common sales cycle that can be applied to many different businesses.
- Prospecting (ex: phone calls/cold calling)
- Qualification (Learn and understand the prospects pain points to determine if they are a good fit for your product or service)
- Consideration (This is also the stage to make your sales presentation)
- Decision (Address the Prospect’s Objections)
- Ask for Referrals/Delight Your Customer
The visualization of these stages is often referred to as the sales pipeline. For more on the stages of the sales pipeline check out our article, “Sales 101: What is a Sales Pipeline.” For another take on defining a well-managed sales cycles of the sales cycle, check out Wendy Connick’s article entitled, “The 7 Stages of the Sales Cycle.”
When Does The Sales Cycle Start?
Great question… Not an easy answer.
The most obvious way to track the length of your sales cycle is to start with when leads are created in your CRM and end with when the deal is closed. Leveraging a CRM system can provide your organization with a visually appealing sales pipeline to easily track your sales cycle stages all the way from initial contact to a qualified lead, to prospect, to a new customer.
This method gives marketing and sales operations managers the most comprehensive view of a customer’s journey from entry into their sales funnels through to the close of the deal. By examining a sales cycle length from the “first touch” of your brand with a customer, sales teams can learn ways to improve their top-of-funnel activities like prospecting, lead generation, and marketing. Excelling at these early stages is essential to propelling customers through the sales cycle quickly and ensuring a strong pipeline.
The trouble here is that leads can be created at any time. Most companies that sell highly complex technologies and services usually want customers to have an understanding of the offering before a sales department contacts them, so they’ll employ a variety of marketing and lead development tactics when acquiring new prospects.
Attribution – First touch, many touches…
So… The sales cycle starts the first time someone comes into my CRM as a lead, right?
A company could buy a lead list and let them sit unworked in their CRM (such as Salesforce) for months or years. One of these leads could download a marketing eBook, and then months later request a demo, creating another lead and triggering a salesperson to initiate contact and actually pursue a deal thereby making them a potential client.
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If you credit the initial leads list (above) with lead source credit, your using what’s called, “first touch attribution.”
Which is great for the marketer who loves to buy lead lists, but what about the eBook which took time and money to create?
Measuring the sales cycle length according to the lead genesis can easily become problematic. It’s not an uncommon scenario at B2B sales organizations to have two or three leads (or touch points) attributed/attached to an opportunity. This is defined as, “multi-touch attribution.”
Deciding which to peg as the start of the sales cycle can present several potential problems because while each lead-generating event played a role pushing the customer through the funnel, it’s hard to say which was the actual “start.”
The variability of when leads are created and when they are actually worked, combined with the likelihood that many leads are likely duplicates, tends to skew analysis. This means sales professionals and sales operations managers have to constantly spend time checking in with their reps to determine whether leads are duplicates, and cleaning out their CRM. Then when they come to find a duplicate, they have to decide which to use for their sales results analysis on a case-by-case basis. Though this gives them the accurate view of when a customer first came into the system and when it was worked, it creates a massive time sink and relies on subjective judgment, often resulting in inconsistent data and unreliable analysis.
What About Starting When The Opportunity Is Created?
Some companies attempt to fix the problems that come with deduping leads by choosing to consider the beginning of the sales cycle as the time when a lead is converted into an opportunity. This reduces the amount of time the sales operations manager has to spend cleaning the data and lets them keep more contextual information on deals in their CRM. This is a useful approach for some: it removes the inherent difficulty with lead-based sales cycle measurement (aka first touch attribution) and allows for the inclusion of richer data.
But how do you give credit to your top of funnel efforts?
The above method of starting the sales cycle measurement with the creation of the opportunity does limit your focus of analysis on deals that have already reached a certain level of velocity and ignores the entire top of the funnel. It streamlines analysis by sacrificing comprehensiveness. This may be enough for companies that have a powerful marketing apparatus and maintain a strong flow of customers into the funnel and want to focus on optimizing close rates for customers that are already in the pipeline. But for companies still building out their sales and marketing, who aren’t satisfied with their inbound lead flow, they need a process that allows them to efficiently study and iterate on their sales cycle from the first point that potential customers touch their system.
The opportunity creation method also falls short without hard standards set around when a lead is converted to an opportunity. A redeeming factor of leads is that despite the wide array of sources, they are all created through concrete events. But because Opportunities rely on salespeople to manually change the deal status in CRM, there’s never a guarantee that they’re created along consistent criteria. Experienced sales managers will implement strict rules around when leads must be converted to opportunities, but this still doesn’t assure the whole team will properly edit each deal every time. It’s very common for deals to be converted to opportunities right before they close, thanks to pessimism or simply lack of diligence. And without consistent data, analysis becomes unreliable.
Option Three: The Conversation Start
The third way companies are calculating their sales cycle is by when the sales conversation actually takes place.
This is difficult to do while relying on manual CRM updates – no sales person wants to update their CRM for every email they send to every prospect they target, especially the ones that get qualified out. (Don’t want to update CRM for every email? Datahug can help – Find out how) It could take three or four emails and a call before a sales rep decides a lead is an opportunity, and the email and call data for new leads that get qualified out is largely irrelevant. But for the deals that do close, it’s some of the most important data in the sales cycle, and measuring actual conversation length is the most accurate gauge for decision makers in determining how long it takes to close deals.
This creates a sales cycle management conundrum for sales leaders. Measuring by opportunity creation date ignores highly valuable early-stage information and relies on subjective qualification. Measuring by lead creation takes forever, is much more difficult and still doesn’t create totally reliable analysis. And measuring by conversation length places a huge burden on sales reps if relying on manual data entry.
Automate where you can.
The solution many are finding is to automate the entire process. Modern sales software can take on the entire burden of sales cycle analysis by automating CRM data entry, analyzing conversation length, and creating reports by a deal, rep, team or company. Additionally, automation software can provide sales operations, teams, instant reports based on objective data and frees up sales reps from spending their day in their CRM.
So, in conclusion, there is no “perfect” one size fits all way to accurately calculate sales cycle length. The best method is to find the method that works for you, your team, and your company and simply get started.
Are you looking to automate your sales pipeline management and sales forecasting, as well as free up your sales team’s time from manually entering information into your CRM? Schedule a free demo of the Datahug platform today.