If a company can sell 1.5 deals in the time it previously took to sell one deal, you have 50% more revenue. All other things being equal (ie., you don’t increase churn, increase discounting, etc), if you tighten up your sales cycle, you’ll increase revenue.
There’s a fair amount written on SaaS sales cycle lengths and the factors impacting them, for example, here and here. We definitely see from our benchmarking that smaller ACVs have shorter sales cycles than large ACVs. In addition, the maturity of the market impacts sales cycles, ie., selling to early adopters (who may not have clear budgetary or purchasing authority) takes longer than selling into a more mature market. Too often, though, we’ve heard from companies that there is nothing they can do to shorten sales cycles because whatever their sales cycle is, it is normal for their product, market, price level, etc. which can be a self-fulfilling prophecy.
Sales Cycle Benchmark for Fast Growth SaaS Companies
Since we deal with hundreds of small and mid-sized companies, we took another tack of looking at the sales cycle benchmark by results, ie., if you sort private companies by annual revenue growth rates, we see some pretty clear trends. Bottom line, the fastest growth companies (we took the top 25% of all the private SaaS companies in our 2015 annual benchmarking in terms of annual revenue growth rate – about 20 companies with a median revenue growth rate of about 100% on close to an average of $20M recognized revenue) had on average 44% shorter sales cycles as a group than companies with slower revenue growth. Median average contract size was about $15k ARR. Sales cycle is defined as the number of days from the time a Marketing Qualified Lead (MQL) is created.
It seems pretty intuitive that fast growth companies are achieving a faster turn around than slow growth companies. Combine the fact that the fastest growth companies have not only the shortest sales cycles, but also the highest investment in sales and marketing and you get the highest growth rates.
Benchmarking the numbers helps focus both the operations analysis on the factors affecting sales cycles, and the financial planning projections of revenues and cash if sales cycles were shortened, which then supports greater confidence to invest in the sales and marketing needed to shorten sales cycles and increase revenue.
2016 Software and SaaS Benchmarking
Want to learn more about how to compare your company’s performance and operations in order to drive growth and efficiency? Contact us to learn about the 2016 software and SaaS benchmarking.