It seems like every business process or operation is scrutinized these days. Companies have gone performance management crazy. There are literally hundreds of key performance indicators (KPI) in business today. There are indicators to measure inventory, sales and marketing, human resources, customer service, engineering and product design all the way to accounting, finance, operations, warehousing and shipping. If there’s a business function, there’s a performance indicator. However, there is one business function that all business should measure. What is it you ask? It’s tracking sales cycle times by product lines. So, why is tracking product sales cycle times so important?
Understanding Your Sales Cycle Times by Product Line
When thinking of a product’s sales cycle, think of the clothing items offered by department stores and retail outlets. While these companies don’t implicitly track sales cycles, they still understand that clothing items for summer are sold in the summer season. Once those products fall into September, it’s time to put them on sale and clear out inventory of the summer lineup. So, while these stores may not say that their products have a sales cycle, the sales cycle itself is pretty well defined.
In the aforementioned example, the retail outlet’s products have a seasonal sales cycle and must be sold within a specific period. Otherwise, the store’s costs start to rise and profits start to decline. Therefore, a product does have a sales cycle time. Establishing that cycle time helps businesses lower costs and increase gross profit. How can your company track product sales cycle times?
1. Use a Product Grading System
First, start with a product grading system. Correlate your product’s popularity with the number of customers that buy the product. The more customers that buy the product, the shorter the product’s sales cycle time. The shorter the cycle time, the lower your inventory costs. Sell that product faster and your gross profit increases because the costs aren’t being eroded by the daily cost of capital.
2. Determine Product Cycle Times by Seasonality
Does your business sell more of a certain product during a certain time of year? Are you aware of how fast this product sells? Most companies know that certain product lines fluctuate with demand on a seasonal level. They are able to match their inventory forecasting with the cyclical nature of their customers’ order patterns. However, for every company that’s on the ball, there are far more that are completely unaware. In fact, a number of B2B sales enterprises don’t track their product's sales cycles within different business cycles.
The above video explains how to account for seasonality and business cycles within your sales forecasts.
3. Correlate the Product’s Sales Cycle to Customer Health
If your business has the tracking mechanisms in place, then it’s a good idea to correlate the product’s cycle time, and inventory count, with the financial stability of the customers buying the product. Why should this be done? Well, if the past couple of years have shown us anything, it’s that healthy businesses one day can immediately become insolvent the next. In addition, when hard times hit, they hit all at once. It’s not uncommon for businesses to suddenly be overwhelmed with customers that are either closing, or unable to pay. Either way, retaining that inventory becomes extremely costly.
Tracking B2B product sales cycle times will allow your business to stay up to speed with how your customers adjust to a changing market. Most businesses forget to track the seasonality of their business. It’s essential that companies are aware of the cyclical nature of their customers’ buying patterns.
It’s about protecting the company’s inventory and never purchasing too much, or too little. The focus must be on anticipating customer demand by constantly tracking a product’s sales cycle time. If those times start to become longer, then the company must take immediate action to liquidate that inventory.
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