Thursday, June 19, 2014

SiriusDecisions Research: Longer Sales Cycles Drive Need for Change

Sales cycles are taking longer than ever, lengthening by 24% over the past two years, this according to research by SiriusDecisions.

Just two years ago, the average sales cycle was 6.4 months, but deals are now taking much longer to close, extending to just over 8 months. Why the longer sales cycle?

First, buyers have changed, now more skeptical and frugal, a condition we have term Frugalnomics. Regardless of will, today’s buyer finds it difficult to evolve current practices / solutions, sticking with the status quo unless there is overwhelming evidence that the issue they are faced with is costly enough to immediately address, the benefits of your proposal are significant and the risks are low.

There are also many more decision makers involved in each purchase, driving a more complex review / approval process and longer sales cycles to gain consensus. According to research by IDC, 43% more stakeholders are now engaged in each decision compared to just 3 years ago; more than 10 decision makers in deals greater than $500K.

And even when the decision makers are convinced that your proposal is worthy, they are woefully short on budget and resources, delaying commitment even further.

However, the sales cycle delays are not just because of a changed buyer and Frugalnomics. According to IDC, almost 40% of decision-making delays are due to vendors not providing the right decision support information or requested deliverables on a timely basis. Now some of this may be bellyaching or excuses on your buyer’s part, but there is likely some merit to this feedback.

Therein lies a great opportunity to shorten the sales cycle, by up to 4 months according to IDC, by empowering sales reps to ignite and better facilitate buyer’s decision making.

The recommendation, proactively guide the process by answering three key buyer questions:

1)  Is the issue worth addressing as a priority? - There are many challenges competing for your prospect’s time. Often your prospects are not even aware of the severity of the issues you are trying to address, leading to stalled deals and way too many “no-decisions” in the pipeline (up to 60%). Proactively helping them to diagnose new issues, and quantifying the cost of “do nothing” is key to ignite the decision cycle and get deals from status-quo to “Yes”.

2)  What’s the value of the proposal to each stakeholder? – Getting all of the stakeholders on-board with the purchase decision is difficult for your champion, but you can provide them with the fuel for consensus by providing the value messaging and quantification for each relevant decision maker – presenting each with a unique point of value relevant to their challenges and key business drivers.

3)  What’s the financial justification / ROI? – 95% of decisions now require a business case in order to gain approval, however, less than 20% of your prospects are able to do this on their own, causing delays of 1 month or more per decision. Proactively delivering a CFO ready business case is key for you to gain project approval.

In answering all three of these key decision making questions, your ability to improve value communication and quantification is the key.

The Bottom-Line

With Frugalnomics still in effect, your sales cycles have likely extended over the past few years, but you don’t have to settle for deals taking longer than ever to close. By facilitating the buyer’s decision-making process and proactively providing the answers to three key buyer questions regarding the value of addressing key challenges and your proposed solution, you can indeed accelerate buyer decisions.

So, what is the tangible impact of accelerating your sales cycle? If you are able to implement the recommended practices to drive a 1-month reduction in the sales cycle time you can generate over $4M in incremental sales revenue for every $50M in sales territory / quota.

And what about improving the ability for your sales reps to ignite stalled decisions? You can generate an additional 8% of sales revenue, or $4M for every $50M in territory is possible.

What would you be willing to invest for a 16% sales revenue increase?  Improving your sales reps ability to communicate and quantify value in order to ignite buying decisions and accelerate sales cycles is clearly an opportunity worth addressing.


Abhijit Barua said...

It will also be interresting to look at this aspect from the Technology aspect. In some of the mature markets is the sales cycle taking longer on traditional enterprise application business model. Maybe a cloud based solution can take a shorter sales cycle. For example we all know if we are to position CRM with the trend setting by SFDC it has to be essentially cloud based. Are we seeing similar trends emanating in other enterprise applications also which can have to do with the technology aspect.

Tom Pisello said...

I had this discussion with SiriusDecisions in the last webinar, because I too felt that perhaps the way SaaS was positioned / being sold could help reduce the time frame.

Many of the companies in the survey were tech however, and the trend is that the Sales Cycle is going up despite SaaS and attempts to make purchases more consumer like / streamlined.