Understanding sales cycles

By Sam Maropis • October 4th, 2009

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What I find interesting is that most people never really study the type of business they want to start, I mean sure they study the business, the market and maybe the opportunity but there is one often overlooked aspect – understanding the sales cycle of your new business.

We all agree, you are going to spend lots of hours in your new business. And I do mean lots, way more that at a job, but the difference is that it is your business. I know for myself I will work all hours for myself but not so for a job.

Lets look at sales cycles. At a high level I have them broken down into four types.

One-time sales. In that most of the customers only buy one time. There are a couple of good examples; home buying, hot water heater replacement, and telephone systems for business. Of course I am discounting the importance of referrals and good customer service.

But in one-time sales there are three types of sales based on time line. The first is a one call close. This was made famous by siding salesmen. They would come to your home and sell you siding for your home. These guys were really hard core sales folks, and they tended to give the rest of us sales professionals a bad name. And the sales are for tens of thousands of dollars. I use to have a roommate who sold siding, God help anyone who asked about siding, these salesmen were hardcore. But in today’s world this type of sale would include door-to-door sales of any kind.

The second group is one-time sales but the sale cycle is less than 30 days. In business, this could include telephone equipment sales, copier sales (not the complex systems types of copiers) and for consumers it could include installation of water sprinklers, new roofs, etc.

The third group within the one-time sales are the sales that take 30 days to six months. Lots of business sales take this long. Most equipment types of sales fall into this group.

And the last group is the really long sales cycle. I remember interviewing a boiler equipment company and they had a two-year or more cycle for the sale of their equipment. I am talking about the boilers found in really large buildings, ie 20 story high rise buildings. Can you imagine two years and still no sale? That would drive me nuts.

The second group I like to talk about are the one time with repeat sales. The best example for consumers is pest control. You have them come to your home once every 90 days. (at least here in Texas we do) And if you like them, they just keep coming back.

The last group in this very basic description of sales are sales where once the sale is made the relationship with the customers is really on-going, examples include tenants in a building, or bank customers.

So at a very high level we have described the different types of sales cycles, now to look at your personality.

Let me ask you about your skills at meeting people. And yes I am talking about your skills at meeting people, the reason is that the number one reason a small business succeeds or fails has to do with sales and of course getting paid for that sale. If your business has everything else right but no sales, you will die a quick death. But if everything else is messed up and you still have paying customers you have time to fix your problems, well generally that is true.

So do you like to meet new people, but grow tired of long term relations with customers, then going for a one time sales product may be good for you. Of course I am overlooking all of the important parts of customer service. But that is a different post.

If you really like to find a customer and really take care of that customer long term then maybe a long term relation type of sales is for you.

One of my businesses was printing of credit cards, ATM cards, phone cards and ID cards. In this industry, there were companies that only bought once every few years to buying every few weeks, depending on the type of business it was. I always looked for the high volume repeat business customers. But there is a trade off between repeat customers and one-time customers and that has to do with sales price and margin.

True the repeat customer had a much lower cost of acquisition but the one time customer marketing was very important as well because you could get a higher margin on a one time sale over the repeat customer. For me it was always a balancing act, dividing my time from new sales to managing existing customers. I live by the rule that never do you have a single customer be more than 20% of your business. If that customer left, and they all do, you could be really hurt if their sales were much higher than 20%.

So I always liked a balance, some strong repeat customers and constant marketing for more high margin end customers. This way I was in all of the different sales cycles and did not get bored with just one time of sales.

But for you, study your personality and find the sales cycle that fits you is very imporant. Because if it does not fit, your business will soon become just a job, and that is a bad thing to happen.