Software Growth

Sales cycle

The sales cycle is the time from a lead becoming a real opportunity to a signed deal. It grows quickly as the price of your product goes up.

The sales cycle is how long it takes to close a deal, usually measured in days from the moment a lead becomes an opportunity (see sales qualified lead) to the signed contract or first payment. It matters because time is cash. A long cycle means you wait longer for revenue, carry more deals at once and tie up salespeople.

How to calculate sales cycle length

Example: you won four deals that took 12, 30, 45 and 61 days to close. Total is 148 days, divided by 4, so the average is 37 days. The median is more robust, because one slow deal can distort an average. Here it is 37.5 days, similar. Track only won deals, or track won and lost separately, since lost deals often stall longer.

How the cycle scales with price

Price is the main driver. Bigger checks mean more people involved, more risk checks and slower budget approval. Jason Lemkin of SaaStr gives rough benchmarks by annual contract value. In one SaaStr post he says deals under $2,000 should close in about 14 days, under $5,000 in around 30, under $25,000 in about 90, deals under $100,000 in 90 to 180 days depending on stakeholders, $100,000 and up in three to nine months, and over $500,000 in six to eighteen months or more. In another he puts it as small deals in weeks, mid-market in months and enterprise in quarters. These are his rules of thumb, not measurements of your market.

Joel York, who writes the Chaotic Flow blog, explains why in his paper on SaaS sales models: price relates to risk, and the more money at stake, the more customers want a personal relationship. His framework has three models, self-service, transactional and enterprise, and he says a startup can usually master only one. See low-touch sales for how this plays out.

Rob Walling makes the economic version of the point for bootstrappers: match your touch level to what your customers expect and what your price can support. A $30 monthly plan cannot pay for a long, hands-on sales process.

What to do about a long cycle

  • Keep many deals in motion. Lemkin's view is that long cycles are normal for bigger deals and do not hurt if you do not depend on one whale.
  • Find the stalls. Time each stage. Most cycles lose weeks in one place, such as security review, legal or waiting for a budget owner.
  • Get the buyer's boss involved early and agree on the next step at the end of every call.
  • Offer a smaller first step. A pilot or a smaller plan can start the clock sooner, and you can land and expand later.

Why founders should track it

Cycle length is the denominator in sales velocity, and it sets how early you need pipeline in place. A 90-day cycle means the deals closing next quarter must already exist today. It also affects cash: if your customer acquisition cost is spent during a six-month cycle, you carry that cost for six months before revenue starts.

If you are raising prices to move up-market, expect the cycle to lengthen with it, and plan for the cash effect.

Sources

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