Sales cycle is the step-by-step procedure used by most companies to close a deal. Depending on the company, the cycle can take between five and seven stages and often involves steps such as sales prospecting, lead nurturing, and objection handling. Usually, at the end of the process, the company asks for referrals to generate new leads. The process is then repeated from the start as the business welcomes new leads, hence the term sales cycle.
While most businesses follow a series of predictable steps, not everyone achieves stellar results. It still depends on how you execute the process. One crucial element of sales cycle execution is performance tracking. Those who monitor certain key performance indicators (KPIs) are in a better position to make adjustments that can boost sales.
In this article, we look at five key performances indicators to improve your sales cycle.
1. Lead response time
By definition, this is the period between a customer’s inquiry and your sales representative’s response. While this metric is often measured after the customer’s first contact, you can look at the lead response time at any stage of the sales cycle.
This measure is particularly important to companies that rely on inbound sales strategies. According to a Harvard study on response results, the average response time of companies that responded within 30 days was 42 hours. However, those who reached out to leads within 1 hour of getting a query were seven times more likely to share a meaningful conversation with a decision-maker.
This goes to show how important it is to put yourself in front of the lead right after they’ve discovered your business. Decision-makers have a lot to attend to. You only have a brief window to capture their attention. Therefore, tracking this metric can help you escalate more leads from initial contact to the presentation.
To monitor this metric, you can keep tabs on the lead status change in your Customer Relationship Management (CRM) software. CRMs have functionalities that enable you to view and track every lead’s engagement with your business. You can then generate reports that show the average lead response time of your sales reps.
The insights gained can be instrumental in the improvement of your sales cycle. If your sales reps are taking too long to respond to a lead query in general, you might consider adding more manpower to boost productivity. In addition, you can also see which of your sales reps need more training to improve lead response time.
2. Lead to opportunity ratio
Lead to opportunity ratio is the percentage of opportunities generated and the total number of leads by your business. An Implisit study reveals that 13 percent of leads are converted to opportunities on average. The figure tells us that lead to opportunity ratio is a numbers game. The more leads you generate, the more opportunities you have.
It is important to track this metric to see whether there are weaknesses in your lead generation and qualification process. In reality, most sales managers and business owners would not be satisfied with a 13 percent lead to opportunity rate. Many seek a ratio that’s twice or thrice that number.
That’s because the lead to opportunity ratio is an indicator you can control. If leads are coming in but opportunities are low, that can point to flaws in your lead generation process. Are your lead generation efforts aligned with your customer persona?
In addition, this sales KPI can help you check which sources generate quality leads. For example, if LinkedIn marketing generates significantly more quality leads than paid Facebook ads, perhaps it’s a good idea to focus time and resources in LinkedIn marketing.
While you can track this metric using manual computation, an efficient way to do it would be to invest in a CRM. A sales CRM can quickly generate lead to opportunity ratio reports by month, quarter, or year. It can even produce reports on the lead source which can help you allot your energy and resources.
3. Sales cycle length
Sales cycle length is the period starting from the initial contact with a lead up to the point when the deal is closed. When we say closed, we mean either won or lost. A sales benchmark research shows that the average sales cycle length of B2B companies is 102 days.
This metric is used by many companies to measure the overall performance of your sales strategy. The lower the sales cycle length, the better.
On top of measuring the effectiveness of your sales strategy, tracking this KPI can boost your sales cycle. For instance, you can use the sales cycle length to check for leads that are growing cold. If a deal is way behind your company’s average period, you can assign a sales rep to follow up on the lead and extend offers such as a free trial or price discounts.
You can also use this metric to improve your sales cycle by contrasting your company’s average sales cycle against the average sales cycle length of each sales rep. There are two ways to go about this.
First, if a sales rep’s average sales cycle length is shorter than the company’s average sales cycle, that means the person is doing a great job. This can be an opportunity for you to investigate what’s working for the sales rep, so you can share the insights with the rest of the team.
On the hand, sales reps with longer sales cycle length are struggling to keep up. They can be put up for training or one-on-one coaching.
Monitor the average sales cycle of your team as well as your company with the use of a CRM. The software can quickly generate sales cycle length reports with a few clicks. The reports contain information on the number of days it takes a sales rep to close a deal. This enables you to identify which sales reps need more support.
4. Opportunity to win ratio
This measures how many qualified leads resulted in wins for the company. The same Implisit study reveals that the benchmark win rate for B2B sales teams stands at 6 percent. With this metric, you can see how effective your sales reps and sales managers are in closing accounts. This higher the ratio, the better the performance.
In addition to evaluating the performance of your sales team, the opportunity to win ratio can be used to check the effectiveness of your sales cycle. For instance, if you find that your opportunity to win ratio is below the industry average, you can review the processes and resources that you employ to close a deal. Consider these questions:
- Do you equip your sales reps with presentation decks?
- Do you provide objection management templates and techniques?
- Is it clear to your employees what type of offers or discounts they can extend to win clients?
These questions cover threes stages of the sales cycle: presentation, evaluation, and closing. Thus, it is essential to provide these resources to your sales reps to help them close deals faster.
If you are a small business with less than 10 sales reps, you can use a spreadsheet to track this metric. For companies with bigger sales teams, it is recommended to invest in a CRM to monitor the opportunity to win ratio. The application can create visual reports on this metric by sales rep, territory, or by time period (month). The insights can help you understand whether you need to provide additional training to individual sales reps or you need to have a look at your sales process.
5. Loss rate by sales stage
By definition, this metric is the percentage of deals lost at each stage of the sales cycle. Measuring this metric helps you see weak spots in your sales cycle. As you tally deals lost per stage, you can quickly identify bottleneck areas. This allows you to dig deeper and check whether the issue is due to your sales process or your employees.
For example, if you see that many deals are lost at the negotiation stage, this can mean that sales reps might need more coaching to help them close deals. It can also be a sign that this stage of the sales pipeline needs to be reevaluated. Consider throwing promotional offers such as a 15 percent discount on the first purchase. This might lower customers’ resistance and get them to commit.
A spreadsheet may not have functionalities to track loss rate by sales stage. This makes a sales CRM a sound investment. The software offers features that let you generate reports on lost deals by stage. In one glimpse, you can see problematic areas for your sales reps.
Getting your sales cycle working like a well-oiled machine is no easy feat. However, these five sales KPIs should help you get to that point.
So whether you’re starting a new business or scaling, Freshsales CRM can help you track these metrics. The free CRM can help you track lead status change and generate visual reports on lead to opportunity ratio, sales cycle length, opportunity to win ratio, loss rate by sales stage and many more. Get your free 30-day trial today.
Do you have other KPIs that can help in sales cycle improvement? Let us know in the comments.