Caught in a never ending Sales Cycle
Simplify your sales cycle
This post is a reflection on last four months of business development that I am currently doing at Qscript, a SaaS platform for Market Research industry.
It is true that every successful startup begins with a breakthrough product or service but it is equally important to stress that having this is alone is not sufficient enough. Equally critical is to spend sufficient time to figure out your customer acquisition strategy. At the end of the day, a startup would be successful only if it is able to make more money from a customer than it spends to acquire that. Mathematically :
Life Time Value > Customer Acquisition Cost
What is your sales model?
When we look at different products/services available online such as service like Prezi or Canva, we see that at one end of sales cycle spectrum are DIY products/services that can easily be sold online. At the other end are “Do It For Me” product or service which requires complex sales cycle : multiple onsite-visits, different discussions with different stakeholders etc., protracted proof of concept. A good example of this would be banking software such as iFlex.
For each different online product, we need a different customer acquisition strategy. Following diagram portrays sales cycle from simple to complex:
Freemium: Base product offered free with the goal of up-selling over time. Think dropbox, evernote.
Light Touch: You might need some level of human touch such as email support. Think zoho, launchrock
High Touch: You might need to spend hours on phone calls, web demos etc. with potential clients to acquire them. Think IBM Dimensions where you can request a demo at the website.
Field Sales: You might need to do multiple on-site visits, selling to several decision makers or/and doing Proof of Concept. Think selling a banking product.
Any entrepreneur needs to answer two very important questions:
- How are you going to find your customer?
- How are you going to sell your product or service to them?
These two questions define your sales complexity.
Sales complexity impacts Customer Acquisition Cost
Most of us (including me) thought that there is a linear relation between Sales Complexity and Customer Acquisition Cost. That is, I had this picture in mind:
But the truth is quite far from there. In reality, CAC increases exponentially as the sales model moves from Freemium to Field Sales. Actual graph looks like this:
Usually, the Customer Acquisition Cost increases ten times as we move from a simpler sales model to complex sales model. This can have very adverse impact on companies that have longer and complex sales cycle. You might be wondering why CAC increases so drastically. Some of the factors include:
- Product might be complex to understand / install
- Multiple decision makers might be involved
- Expensive : Longer time to get ROI
- Involves behavioural change among users
- Requires some additional components to work
This is a partial list and there can be other reasons that makes a sales cycle complex.
Reduce CAC by reducing sales complexity
As we have now identified some reasons for complex sales cycle, the next question that comes to mind is : Is it possible to reduce this complexity? By reducing complexity, if CAC goes down by a factor of 10 to 100, then this can save many startups from failing. If we are able to eliminate the issues mentioned above, then we can surely reduce CAC. Some of the ways to this would be:
- SaaS : By moving from on-premise to Software as a Service model, companies can: (a) make it easy to try product (b) move CapEx to OpEx and thus reducing the cost of trying the product
- Free Trials / Freemium : Offer a base version for free and making it dead simple to try the product
- Open Source : Enable other people to customise your product according to their needs. If they like the product they would come back for support and would become part of your ecosystem
- Use varied tool offered on the web for inbound marketing, SEO, SEM, social web for engage as many potential customer as possible.
Key Take aways:
- Try to understand complexity of your sales cycle long before you start building your product
- Evaluate all possible ways to reduce the sales cycle complexity
References:
Whole credit of this blog goes to David Skok who writes amazing blogs for entrepreneurs here.
