Version française/French version: LINK
Often limited in terms of commercial resources, startups and SMEs face bottlenecks in their sales cycle. This situation is illustrated by a young IT company whose commercial process jeopardizes reaching the break-even point. To address such bottlenecks, it is necessary to analyze the company’s situation and optimize several factors such as pricing, costs, conversion rate, and internal organization. A clear commercial strategy and targeted actions can significantly improve your productivity and profitability.
E. Krieger
The commercial resources of a startup or an SME are necessarily limited, and the analysis of their sales cycle reveals numerous bottlenecks that cap your sales at levels sometimes below your break-even point.
The example below illustrates the dilemma a business leader may face. It is taken from an activity report sent to shareholders by a young IT entrepreneur: “Commercial costs are significant: my technical partner and I spend an average of 2 days per prospect (4 meetings) and also need to create a prototype (2 more days). The conversion rate is 25%, meaning one effective sale for every 4 quotes issued. With 40% of our time spent on sales and pre-sales activities, roughly 8 days per month, we acquire one client every two months. The average contract value is around €30,000 with a direct cost margin of 50%, and low recurrence. Our cash flow is always very tight” …
When the commercial situation is concerning
By modeling this situation in my favorite spreadsheet, I concluded that this company could not be profitable given its gross margin, salary costs, other fixed expenses, and the excessive length of its sales cycle. In this configuration, it cannot generate a sufficient number of orders to reach its break-even point, even if they are fully billable in the current fiscal year.
However, this type of situation, characteristic of many SMEs and even more startups, is not hopeless if a rigorous analysis is conducted and the means are subsequently provided to implement an effective commercial strategy by eliminating several bottlenecks.
Commercial action: everyone on deck!
“Think like a strategist and act like a barbarian”: this managerial aphorism is inspired by the poet René Char who invites us, in his « Feuillets d’Hypnos » (1946), to “act primitively and foresee as a strategist.”
In the aforementioned example, the best way to (re)find the path to profitability and a more comfortable cash flow level is to modify several parameters related to the general organization of the company or even the offer itself.
Depending on the characteristics of the activity, the questions to ask to optimize your company’s commercial potential are primarily as follows:
Some commercial optimization ideas
- To what extent can we increase our prices without significantly reducing sales volumes?
- Is it possible to reduce variable costs by internalizing or, conversely, outsourcing certain expenses?
- Can we improve our conversion rate, for example by better qualifying our prospects, enhancing our offer, or conducting promotional activities?
- Is it possible to limit the fixed portion of salary costs, for example by introducing a variable component?
- Can we increase the working time of the founding partners or, more occasionally, other team members?
- Can we optimize the processing time of a prospect to reduce sales and pre-sales delays and streamline our commercial process?
- Can we improve internal organization by having some commercial tasks handled by technical and/or administrative teams?
- Should we hire commercial and technical-commercial profiles to eliminate or shift certain bottlenecks?
- Can we use commercial partners and/or business introducers to generate more highly qualified prospects?
- Is it possible and appropriate to reduce other fixed costs?
If you are questioning the commercial potential of your company and want to identify possible bottlenecks and optimize your sales cycle, most of these considerations will probably apply to varying degrees. This will be even more the case if your sales cycle is long.
All these analyses and reflections should lead to a solid commercial and marketing action plan that aligns your various short and medium-term actions.
Implementing a series of simple actions derived from the above questions can quite easily improve your commercial productivity. Indeed, there are almost always significant margins for maneuver, provided you commit to your ambitions. Talent and Herculean effort: we return to René Char’s aphorism…
In the example below, a young company with two partners and an employee cannot reach its break-even point due to an inefficient sales cycle resulting in a billing potential of a maximum of 12 orders of €25,000 each, or a turnover of €300,000.
By optimizing the conversion rate, prospecting delays, and working time of the partners, a significantly more favorable situation is achieved where the company is now well above its break-even point. However, the means must be provided, but in many similar situations, the commercial Gordian knot can easily be cut.
The analysis of the sales cycle is an important exercise that lends credibility to your commercial and financial forecasts. When this work is carried out in collaboration with your teams, you will quickly be able to identify commercial optimization opportunities… and implement them!
