One of the most critical items in small business management is cash flow. Years later, I still look at cash flow on at least a weekly basis in each business that I own. One cause that can affect cash flow is your sales cycle. I spent the last month in Asia working on business development for a small business. I met with prospects in Singapore, Hong Kong, and China. Most of these prospects will not convert into buying customers for at least a year. They need to budget for the product that this business sells – the cost of the product is high so the only opportunity is to get it into an annual budget cycle.
Small Business Management: How Long is Your Sales Cycle?
How long does it take for you to convert a prospect to a buying customer? In our property management company, we see the time being anywhere from a week to six months with the average being around 45 days. Every company is different.
Think about your sales funnel. As a lead comes in, what are the specific steps required to emotionally connect with that person in a way that they are starting to seriously consider what you are offering? Are there triggers that you can pull to move the process along more rapidly?
Small Business Management: How Costly is Your Sales Cycle?
Now think about how much it costs to get a lead and how much it costs to convert them to a customer. It’s easy to use your cost per click or some advertising cost, but you should include all of the costs. Your or your salesperson’s labor is not free. Include time spent on site visits. Add in investment in more sales cycle activities such as consultation, sending information, or meetings. At the end you’ll have an acquisition cost for a new customer.
This acquisition cost might be more than you make on the customer initially. Think about how long it takes to make that money back on each new customer. I once had an advertising campaign that was so expensive that it took half a year to start making money on the customer. That’s okay if the relationship is going to endure years. It’s not if you’re going to lose that customer within the first six months.
Small Business Management: How Do Sales Help Cash Flow?
Sales alone do not solve cash flow problems. Profitable sales help cash flow problems. Attracting good converting prospects with a quick time to profitability means that those new customers will be rapidly contributing to the rest of the business expenses such as salaries, rent, more advertising, and, yes, your personal income.
Are you spending the best time on the best activities to find the best customers? Some activities can make you feel good because you become busy. Start focusing on this when you think about small business management: how do they help cash flow?
Let me know your comments about ways you’ve found to best manage your cash flow!