Launch - Spring 2008 - (Page 24) Shortening Sales Cycles By Tim Hunt Founder and CEO Lingotek Phil Windley spoke recently about the distribution of customers in any market. He said at the head of the market there are a few large entities that are willing to pay more for new technology. In the middle of the market the customers don’t have as deep of pockets and often need lower prices tailored to their needs and size. In the long tail customers typically look for no cost or very low cost solutions like open source technology. Early stage businesses fail most often because they don’t get to breakeven before they burn through the investor’s money. Often entrepreneurs have to try different business models until they land on one that works. When the sales cycles are long you can burn through a lot of cash before you know if your business model is viable. A long sales cycle is a risk. I have seen some companies with 6 to 18 month sales cycles get to the end of their cash before they know if their business model works. $ $ 24 launch spring > > Some entrepreneurs, me included, have made the mistake of ignoring the sales cycle in developing the business model. Time and time again I see early stage companies with great new technology price their systems for that small segment at the head of the market only. I have consulted with several companies whose initial entry price of their software is $80,000 to several hundred thousand. Price often affects the length of the sales cycle; the higher the initial price, the longer the sales cycle. However, lowering the price does not always ensure a shorter sales cycle. When your software has a large ROI it isn’t always wise to lower the price just to win customers sooner. A better business model is found in the practices of the larger successful corporations. Looking at several companies I found none of them had an initial price of $80,000 or more. All of their systems were priced on a graduated scale that allowed smaller customers to purchase their systems. Likewise larger corporations were able to purchase entry-level systems and expand them within their organizations without a large upfront price tag. For example, at Oracle some of their sales are over $10 million for a single customer, however, they price their software depending on the number of processors running the software. This allows smaller organizations to get into Oracle for around $35,000 while the larger organizations can purchase larger multiple processor systems at higher prices. Likewise, SAP sells its ERP software on a per user basis. The initial server side of the software runs about $6,800 installed and customers pay about $3,000 per full license and $900 for a limited use license per user. Smaller organizations can purchase an ERP system for under $20,000 and add users as they need. The key to shorter sales cycles is getting the first part of the sale with the customer. It is always easier to sell more to existing customers than to get new customers. You see this with ink jet printer sales. They sell you a cheap printer to get in the door and then sell you expensive ink cartridges to make the big money. >> > > The Power of Planning By Jay Pillai, Ph.D. Vice President of Sales and Strategic Business FatPipe Networks > Globalization, coupled with advances in communication technology has been instrumental in lowering business barriers. This has resulted in a palpable quickening of business and sales cycles.
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