Sales Cycle Stages – How To Define A Sales Cycle
Sometimes, leaders in small and medium-sized businesses feel it’s unnecessary to formalize the stages of their sales cycle. Do they really require such a formalized system?
If they want their companies to grow, the answer is “yes.”
Sales cycle stages are the foundation for managing the process of selling. Depending on where someone is in your sales cycle, you should have prescribed steps to move them through the sales process. Also, with sales stages defined, you can determine where your sales funnel is leaking and find ways to fix it, thus optimizing your sales.
What Are the Stages of a Sale?
Contacts start as leads and move through the sales process to become customers. Sales stages are the steps that make up this process.
Every industry is unique and your company’s sales stages must reflect your sales process. To begin thinking about sales stages, consider these conversation starters.
Typically, leads include anyone who provides contact information to your company. Perhaps he or she downloaded an e-book or signed up for your newsletter. The lead has not been qualified.
Be forewarned: a lead may have no interest in your product or service. Perhaps they’re just doing some research for a school project or checking out the competition.
Qualified Leads or Prospects
When differentiating between marketing qualified leads and sales qualified leads, there’s likely to be some debate within the sales and marketing teams on how to define them. You can qualify leads based on demographic, firmographic (i.e., size of company) and behavioral data.
Some leads should remain with the marketing team, which nurtures them until they warrant the attention of the sales team. You should discard other leads because they do not meet basic criteria to turn into sales, such as interest and budget. Only the fish that are ready to bite should be passed on to your sales team. Companies often consider these sales qualified leads or prospects.
Demos, Quotes and Customers
The job of the sales team is to convert sales qualified leads into customers. You may decide that there are a couple of sales stages once marketing hands the leads over to sales. For example, there may be demonstrations and a proposal phase prior to a sale (or, sadly, a no sale).
3 Steps to Sales Cycle Stages that Work
Step #1 Gather the Team for the Essential Debate
The problem that plagues many companies is a misalignment between sales and marketing teams. So, ensure that sales and marketing team members give their input and agree on the sales stages. Create a draft of the stages of a sale and gain approval from key stakeholders.
Step #2 Assign Your Leads to Defined Sales Stages
Now that you’ve agreed on your sales stage definitions, assign your leads to them.
Step #3 Refine Your Sales Stages
Test your sales stages to determine if you need to make changes. For example, if there’s a sales stage with few leads assigned to it, decide whether it’s necessary. If you’re not sure where to place individual leads, reevaluate your sales stage classifications.
Do’s & Don’ts of Sales Stage Definitions
Customize Your Sales Stages
Many customer relationship management (CRM) systems come with pre-defined sales stages. Don’t use out of the box sales stages. They may lead your company in the wrong direction.
Create sales stages that represent real stages in your sales process and work the way your business wants to sell.
Create As Many Stages As Necessary, As Few As Possible
You want your sales stages to be user-friendly. So, make sure you have enough stages to represent your process, but don’t overdo it. Just because some sales guru has invented a long list of sales stages, it doesn’t mean it’s right for you.
Establish Dashboard Data that Matters
Make sure the sales stages you create translate well into actionable reports and dashboards. You want data that drives decision making, helps you increase conversions and provides an accurate forecast of future sales.
Add Useful Details with Stage Extensions
Let’s say you have a quotation stage. At this critical phase of the sales cycle, you likely want more intelligence. If so, document additional details, or what we call “stage extensions.” For example, your extensions for the quotation phase might be “favored,” “unknown,” and “not favored.” These extensions help you understand the likelihood of closing the business deal.
Once again, don’t get too elaborate with your extensions. Only use them where they will provide information that helps make strategic decisions or provide a better forecast of future sales.
Use Sales Stage Data in Your Forecast
Include your final sales stages, those where the chances of generating revenue are high, in your forecast.
You probably don’t want to include earlier sales stages, however, such as qualified leads, in the forecast as they will water down the value of opportunity tracking. Opportunities are when someone has the need for your solution, service or product, the authority and budget to buy it, and a timeline to get the job done. Anything less than that is wishful thinking, and that doesn’t make for a robust sales forecast.
Add Predictability to Your Sales Process
Once you build dashboards in your CRM system, you’ll be able to determine conversion rates from one sales stage to the next. For example, you may need 20 sales demonstrations to generate ten sales proposals and close five sales. Then, you’ll want to know how many leads you need to produce those sales demos. With this information, you understand what it takes to fill your pipeline.
The next task is to tweak your sales process at every stage. If you can increase conversion rates at any stage to move leads through your sales pipeline, you’ll be able to increase your company’s sales without the expense of generating more leads.