What Does Sales Cycle Length Mean?
Sales Cycle Length is the amount of time that passes between the first touch with a prospective customer and the closing of the deal. Businesses use the average sales cycle length to create sales forecasts.
Why Does it Matter?
A well-defined sales cycle creates transparency. By defining and measuring all of the steps to the conversion of a customer, you can see where in the sales process your prospective leads are stalling, and, figure out how to better pave the way for future sales. With an understanding of the total length of time, it takes to complete a sale, you can create sales projections based on the leads in your pipeline. This means you can predict future revenue, which is key to forming business strategy.
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How Do you Measure the KPI?
Sales Cycle Length is calculated with this formula:
Total # of Days to Close All Deals
___________________________________ = Average Sales Cycle Length
Total Number Of Deals
What Data Sources Would You Use to Measure the KPI?
Sales Cycle length is calculated in a CRM tool like Salesforce, Oracle, or Zoho. Increasingly, companies are relying on visual representations of their sales analytics to increase the accessibility of these important metrics; which you can see in these sales dashboard examples
Give me an example…
Let’s say that you are the CEO of a SaaS company, and you and you need to calculate your sales cycle length so you can forecast your Q2 sales.
In Q1 of this year, your sales team closed four deals. From first click to conversion:
To calculate your sales length cycle, you add up the total number of days it took to close every sale, then, divide that sum by the total number of deals. So, in this case:
40+30+60+70 = 200 days total.
You would then divide the total number of days (200) by the total number of deals (4) to get the average length in days.
200 / 4 = 50 days
With this metric, you can now estimate that similar deals in the future will take around 50 days to close. Looking at your sales pipeline, you can now evaluate your high probability customers and anticipate when the revenue from those pending sales will hit. This forecasting guides you in your Q2 business strategy.
- Deal 1 took 40 days
- Deal 2 took 30 days
- Deal 3 took 60 days
- Deal 4 took 70 days
What Benchmarks/Indicators Should I Use?
The length of the size sales cycle varies greatly by industry. Variables which will affect the length of your sales cycle are:
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- Price of the Product higher priced products take longer to sell
- Payment Terms does your product require a contract?
- Market Maturity are your customers familiar with the use-case of your product?
- Number of Stakeholders how many people need to agree to a sale?
- Customer Profile organization complexity impacts speed of sale.