By Jacco van der Kooij and Tae Hea Nahm

Over the past weeks we have been elbowing each other at the white board as we discussed trends among sales metrics. We wanted to share some of our discussions with a broader audience to raise awareness.

At every board meeting, we wonder — is the Sales Cycle too long?

To answer that question, the VP Sales reports on the sales cycle. We soon learn that it depends on the customer’s “urgency,” sales playbook, sales team ramp and price. So, it seems physically impossible to improve the sales cycle.

Then the VC board member (such as Tae Hea) pushes for a shorter sales cycle by asking: what really should be the target sales cycle?

To answer that question, we conducted a survey among 100'ish of Storm’s portfolio and Winning By Design’s portfolio companies.

The “Dotted Green Line” — The Best Sales Cycle

The dotted green line shows the best performing SaaS companies in terms of the price vs sales cycle tradeoff.

Jacco prepared the chart by calling VP’s of Sales with the ask: what is your ACV and what is the sales cycle. The sales cycle is measured in days from Sales Qualified Lead to Win. For many it starts when the discovery call with sales is scheduled. We can further segment the data by size of businesses and across a few verticals (MarTech, EdTech, GovTech, etc.)

As a board member, Tae Hea is less interested in segmentation. Rather, he just looks at the financial return: How much is booked (as measured by ACV) for time spent by Sales (as measured by the sales cycle). In other words, just get to the green dotted line.

The data also helps answer another question.

How will Raising or Lowering Prices Impact the Sales Cycle?

Pricing is often set by product management — who often want to raise prices to justify additional development. But, a price increase usually increases the sales cycle, which is managed by sales. This creates a natural tension between these two teams.

Just Double Your Pricing?

Recently a number of online conversations recommend — just double the price. These conversation often end up in the hands of founders and CEOs who see this as a simple panacea to help close the bookings gap. However doubling the price impacts your sales cycle and your win ratio. For every success story, there are several horror stories of a sales VPs career getting torpedoed if not a company.

We wanted to discuss two pricing scenarios.

If the company has a fast sales cycle, it makes sense to increase the price to test the impact on the sales cycle. This scenario is illustrated by the green triangle (where the slope (Y/X) is substantially less than 1.0).

If the company has a very slow sales cycle, it makes sense to decrease the price to reduce the sales cycle — to hopefully get to the green dotted line. This scenario is illustrated by the black triangle (where the slope (Y/X) is substantially more than 1.0).

Manytimes this price increase or decrease is implemented through a slightly different product.

We are collecting more data on the impact of price on the sales cycle. But, given the importance of the sales cycle, the two teams (product management and sales) need to work together on determining the optimal price (and product packaging).

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