Revenue forecasting gives B2B companies visibility into future success and helps them with strategic decision-making in their B2B sales cycle. But accurate revenue or sales forecasting needs another important metric – the Average Sales Cycle. This metric tells you the average length of your sales cycle, i.e., how long it would usually take for leads to turn into paying customers. In the following sections, we'll explain everything about the average sales cycle.
In simplest terms, the average sales cycle is the time it takes your salespeople to close a lead after it enters the sales pipeline. The process usually starts when a new business becomes aware of your product/services and ends when they become a customer. Depending on your customer relationship, you could have a longer or shorter sales cycle. New leads could take weeks or even months to convert in a long sales cycle.
If you're tracking your average sales cycle length, tracking the Average Handle Time (AHT) in the sales process is also a good idea. This metric tells you the total amount of time that is spent by a sales rep on potential customers from the beginning to the close date.
When it comes to sales KPIs, the average sales cycle is one of the most important metrics to track.
To determine the average sales cycle of your SaaS company in a specific time period, add up the total number of deals you were able to win in that period. Then, add how many days it took you to close those deals. Now, you have to divide the total number of days by the total number of deals won, and you'll get your average sales cycle.
The formula for this looks something like this –
Average Sales Cycle in days = Total number of days to close deals / total number of deals won.
When calculating the number of days to close deals, remember to start when you had first contact with any lead.
When you know the formula for average sales cycle, the calculation becomes pretty simple. But for the sake of clarity, we'll take you through the step-by-step process of calculation with the help of an example. Suppose you closed 2 deals in a quarter. One of them took 10 days, while the other took 14. Remember that you have to calculate the number of days from the initial contact. Here's how you'll be calculating the average sales cycle –
Total number of deals won = 2
Total number of days to close deals = 10 + 14 = 24
Average Sales Cycle = 24 / 2 = 12 days
This tells you that it takes roughly 12 days to close a deal.
According to a Salesforce report, the average time it takes for leads to convert into opportunities was around 84 days, while the average time for opportunities to convert into deals was 18 days. From this, the average sales cycle for most companies is around 102 days (84+18).