Pipeline Supply Shocks in SaaS Sales
Imagine a startup with 4 customers in the pipeline. The average sales cycle is 28 days. Two of those customers should close this quarter. Two of them, who entered the funnel later in the month, will take longer than 30 days to close.
If the ACV of the company is $25k, then the business should project $50k in bookings this period & $50k next period (assuming no additional pipeline materializes).
?Suppose sales cycles double in length from 28 days to 56 days. The customer progression chart might look like this. Customer 1 won’t close this period. Nor will customer 2. So, bookings in the current month zero out. Bookings in the second month should be $25k.
That’s quite a shock to the system from a seemingly small change in sales cycle. 28 more days in the sales cycle halves the bookings in the current period.
Volatility in sales projections erodes confidence within the company. Given the economic conditions, many startups should expect slower sales cycles which introduces volatility into bookings. An executive team looking at a 50% quota attainment may wonder about the health of the sales team, product-market fit, competition, or other fears; even though the bookings challenges might be solely the result of procurement teams adding in a few additional steps in their process.
Healthier pipeline-to-quota ratios are the antidote to this volatility. More customer prospects stifle volatility by ensuring the period’s number doesn’t rely on a single or small collection of accounts.
In the next few quarters, I would expect many bookings charts to show a dip in one or two quarters. Companies who can juice the pipeline-to-quota ratio from the thinner 3x that’s become standard during boom times to 5-7x coverage should enjoy more predictable bookings.
Digital Marketer | Strategic Solutions and Client Partnerships at MamoTechnolabs | Analytical Thinker | Growth enthusiast
2 年Alex, thanks for sharing!
Global Cloud Alliances Leader
2 年Great stuff Tomasz Tunguz. I’d also offer that the gravitational pull of committed cloud spend can combat the lengthing of sales cycles. Our ISV partners share this feedback consistently. Larger deals can close faster by leveraging #awsmarketplace. More on this at AWS RIV https://reinvent.awsevents.com/ or if you can’t wait and are an AWS partner or customer, reach out and we will get you connected.
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2 年Danke fürs teilen, Alex!
Timely post, Tomasz Tunguz. Managing pipeline supply shocks requires a focus on getting the right pipeline mix of quality and coverage. In this environment, it is expected that deal/sales cycle velocity and variability will only increase. Embracing this fact is the first step to winning in this environment. Deal velocity will depend on the type of opportunities (segment, region, channel, persona, etc.) that enter the pipeline in the first place. What one needs is a whole-funnel focus (right from the top with marketing, the middle with the SDR/BDR teams, and at the bottom with the Sales motion) where the pipeline mix and consequently expected win rates are tuned even before the pipeline is created. Once you have the opportunities in the pipeline it might already be too late to adjust and adapt. Important to make sure the right accounts/leads (segment, persona, title, region, channel, etc.) are attracted and prioritized to progress thru the "whole funnel" to ensure the right "pipeline and revenue portfolio" maximizing success. Closed-loop feedback between the bookings, sales pipeline, and top & middle-of-the-funnel activities is required to make the pipeline sales-ready.