Sales Cycle Efficiency (SCE) is a multiple of the conversion rate through every stage of your sales cycle. The reason this metric is so meaningful is that it brings weak links in your sales cycle into sharp focus. This is because zero multiplied by infinity is still zero.
In practice, the number is much lower, typically ranging from 1 to 10. As 10 is 10 times better than 1, any improvement in your SCE will have a significant impact on the bottom line of your business.
Calculating Your Current SCE
To calculate your current SCE, you will need to collect the following measurements for a given time period (e.g. a month):
- # new enquires / # confirmed contacts
- # quotes / # enquires
- # sales / # quotes
- # deliveries / # sales
- # payments / # deliveries
- # enquiries from existing customers / # customers
In some cases, some these numbers might be 100% – for example if all sales are delivered, and all deliveries are paid for. However, this is rare: even when things are pre-paid, refunds may occur, or orders can be cancelled. Similarly, with an online shop, you might think that you don’t do quotes – but an abandoned checkout is the equivalent of a quote.
Once you have these numbers, simply multiple them all and multiply by 100,000 to calculate your SCE score.
Improving Your SCE
The fastest way to improve your SCE is to focus on the weakest links – the sales stages with the lowest conversion rates. Look for the underlying factors that are the difference between progressing to the next stage or not. Then, put actions in place to address these factors. We have identified five key factors to review:
- Order value
- Time spent in sales stage
- Relationship with customer
- Number of Interactions with the customer
- Cost of servicing the customer
Each of these has been shown to impact on the customer’s willingness to move forward in the sales cycle. For example, first time customers often have a mental limit on how much they are prepared to spend (risk) on their first order. Alternatively, a customer that has waited a long time for a quote may choose to go with a competitor who is more responsive.
The metric that is a little different is the cost to service. This factor is included in order to analyse if cost has a material impact on success. If it does not, then it highlights an opportunity to reduce cost of aquisition.
Keeping it in perspective
Success in sales and marketing is essential for every business, and the factors that determine that success are many and varied. Every business would love to have the level of demand for their product that Apple had for the early iPhone, when people queued in their thousands waiting to become customers. But that moment in history is memorable because it is rare.
By aligning your sales and marketing discussions with how to improve your SCE you will generate performance improvement. Areas of systemic failure such as capturing leads, responding to enquiries, following up on quotes, onboarding new clients and nurturing existing clients are particularly common areas of improvement that can substantially improve the SCE.
Conclusion
It is easy to get distracted by the vast array of data and metrics now available to us. In a world awash with data, it is important to focus on the metrics that matter. In sales and marketing there are three: Revenue, Cost of Acquisition and Sales Cycle Efficiency. In sports parlance, Revenue is the score board, but Sales Cycle Efficiency is how you put that score on the board.