In a study before the pandemic, PricewaterhouseCoopers found that companies had made little progress in the previous decade in speeding up their cash-conversion cycle—as the cash crunch generated by the coronavirus painfully demonstrated: in 2020, a JPMorgan Chase Institute report found that 50% of small businesses had fewer than 15 cash buffer days and only 40% had more than 3 weeks.
In most firms, the biggest driver of cash-out and cash-in is the sales cycle. Accounts payable accrue during selling, and accounts receivables are largely determined by what’s sold, how fast, and at what price. But the sales cycle is the result of other activities: opportunity selection, deal size, and win rate. Let’s look at each component and the managerial requirements:
Opportunity Selection: Quality over Quantity
When asked to double revenue, most managers seek twice the leads. But effective sales models operate as a system. Improvements or failures in opportunity selection are felt throughout, so emphasize quality over quantity.
Prospects differ in their product and service preferences and their response to marketing actions. Some require more sales calls; some buy in operations-efficient volumes, and others with just-in-time or custom orders that affect setup time, delivery and other elements of cost-to-serve. These factors affect your return on capital because many capital costs are embedded in cost-to-serve differences.
To improve sales velocity, have and communicate criteria the sales team can use in qualifying prospects. That’s the role of lead-scoring, and most CRM software will classify leads based on sales readiness. However, CRM systems typically weight revenue expectations by pipeline stage on the assumption that the odds of closing increase in successive stages—a process often at-odds with current buying journeys where prospects simultaneously use online and offline channels in their search, evaluation, and purchase decisions. Also, most sales incentives are based on top-line volume independent of margin, profit, or cost-to-serve. In a pay plan like that, there are no “bad” opportunities, and the sales force will spend much time on false positives and sell to customers whose conflicting demands on product and service groups fragment resource allocations across the firm.
CloudTalk.io provides call-center software mostly for SMBs in various industries. It manages opportunity selection with the help of a tool from Leadfeeder, which tracks webpage content that a prospect has searched for and automatically updates that information in CloudTalk’s marketing automation system. This enables CloudTalk to reach out with personalized messages to prospects that have expressed interest in its service but have not taken any action. It also allows CloudTalk to deploy selling efforts on warmer prospects, decreasing the cost of false positives and increasing sales velocity. The results to date have been 20 more trial sign-ups monthly—a big gain in an early-stage venture.
Average Deal Size: Product, Price, and Deployment
This element of sales is tied to opportunity selection, but is also affected by pricing, product features, and deployment. Here are examples:
Toast focused on the need to split a group-dining check. Its app let diners see what each had ordered, and pay with credit cards without waiting for the server. But average deal size was low because restaurants relied on legacy cash-register systems and desired product features varied. Pizza restaurants wanted the ability to specify different toppings; others wanted diners’ email addresses as part of loyalty programs; casual dining places wanted to take orders when lines are long and send a text to patrons when their table was ready. Toast built an order-taking system using cloud technology. This affected pricing (a change to subscription pricing) and the value proposition. The pitch that resonated best before the pandemic was helping restaurants to turn tables faster when they’re busy, generate online ordering when less busy, and allowing managers to access inventory data from a laptop or phone, rather than arriving early or staying late at the restaurant to do that, and spend more time with their families.
Sales deployment can also increase deal size. Edward Jones, a brokerage firm with more than $1 trillion in assets under management (AUM), relies on Financial Advisors (FAs) to acquire and grow AUM with clients. A key to Jones’ success has been its management of account assignments and service levels. Its Goodknight program involves an established FA turning over to a new FA the clients that the veteran FA has not contacted for a specified period of time. This frees veteran FAs to spend more time with and increase “share of wallet” at established clients, and allows new FAs to work with existing but under-served Jones clients. The success rate of a new FA without the Goodknight program was 36%, while for those in the program it’s 80%. Jones therefore conducts thousands of “Goodknights” annually. Conversely, as it grew, Jones also found that smaller accounts take up inordinate amounts of FA time and effort, and it assigned inactive accounts with less than $50,000 in AUM to home-office based service centers, freeing up time for FAs to focus on clients with higher deal-size opportunities.
From Correct Attribution to Enhanced Win Rates
Average win rate per rep is less than 50%, and your business bears the deadweight loss of the time and expense incurred on those not closed. Win rates often have root causes in other activities in a sales model, especially Marketing–Sales alignment and friction in the closing process itself.
In many firms, Marketing is responsible for generating leads and collateral that are then handed to Sales. But an estimated 70% disappear into the “sales lead black hole.” Meanwhile, new tools for tracking which leads and collateral are used by sales, and how, enable responsive marketers to improve interactions with sales and accelerate sales velocity. In many firms, for example, credit for a purchase simply goes to “the last click”—whichever email, online ad, or web page triggered the sale. In reality, purchases are usually motivated by multiple interactions throughout the buyer journey. Incorrect attribution leads to resource misallocations and hurts sales velocity.
Mitel, a Canadian telecom firm, must deal with a complex buyer journey and long selling cycle where attribution is not easy. Via Bizible, an Adobe product, Mitel improved visibility about which marketing campaigns generated which kinds of leads and outcomes, allowing Mitel to make smarter use of its marketing budget, improve alignment with sales, and double pipeline revenue within a year.
Finally, a standard complaint of many reps is the time and effort they must spend to finalize contracts. Here, the pandemic was a disseminator of good practice. Electronic signatures and agreements available from DocuSign and others can shorten sales cycles by a week or more, while eliminating printing, mailing and other expenses of paper-based contracts.
For many businesses, improving sales velocity has been crucial for surviving the pandemic. For all businesses, continuous improvement in sales velocity will be key after the pandemic, because it’s core to financial oversight as well as sales management. Start now.
About the Authors
Frank Cespedes teaches at Harvard Business School. He has written for publications including Harvard Business Review, Organization Science, and The Wall Street Journal, and is the author of six books including, most recently, Sales Management That Works: How to Sell in a World That Never Stops Changing (Harvard Business Review Press, 2021).
Zoran Latinovic teaches Personal Selling and Sales Management at Vienna University of Economics and Business (WU; Spring-Summer 2021) and is a Visiting Postdoctoral Scientist at MIT Sloan School of Management, Management Science. He has written for publications including MIT Sloan Management Review, Fast Company, MarketWatch, Psychology Today, and The Hill.
-  Nina Trentmann and Ezequiel Minaya, “CFOs Face a Tough Task: Freeing Cash Trapped on Their Balance Sheets,” The Wall Street Journal (November 29, 2018): B1.
-  JPMorgan Chase & Co., “Small Business Cash Liquidity in 25 Metro Areas” (April 2020).
-  https://www.leadfeeder.com/customers/cloudtalk/
-  David Collis and Ashley Hartman, “Edward Jones: Implementing the Solutions Approach,” Harvard Business School Case No. 9-718-478 (Boston: Harvard Business School, 2018).
-  https://www.cien.ai/low-win-rate/
-  Gaurav Sabnis, Sharmila C. Chatterjee, Rajdeep Grewal, and Gary L. Lilien, “The Sales Lead Black Hole: On Sales Reps’ Follow-Up of Marketing Leads,” Journal of Marketing, 77 (January 2013): 52-67.
-  https://www.marketo.com/customers/mitel
-  https://www.docusign.com/blog/accelerating-remote-sales-during-the-covid-19-outbreak