Almost all sales kickoff conferences begin with the Sales VP’s of the organization proclaiming that “We are really excited about the coming year! We’re going to close more deals than we did over the previous year.” This kind of rhetoric definitely goes a long way in energizing sales teams to work harder to get more deals closed. However, if one were to pause and look at the “We’re going to close more deals” speech. It’s missing the most important ingredient, something that most people including veteran sales people miss.
Meeting revenue targets isn’t always about having closed the most number of deals. It’s more important to concentrate on B2B meetings that involve larger deals. A recent benchmarking study showed that companies who increased the average revenue per deal showcased better performance over their peers who had smaller deal sizes and increased deal numbers.Research has shown that there are increased benefits of increasing the average revenue per deal. For instance, some of the key benefits include:
Increased efficiency and effectiveness of sales team
One of the biggest pain points salespeople experience is the constant pressure to meet more customers and close more deals. Most organizations set the wrong expectations for sales. Little do they realize that a number of deals closed being the basis for sales performance is the wrong approach to meeting revenues forecasted. When sales teams focus on meeting their sales quota through closing more deals they often times that do not identify the ideal customers who are willing to purchase your product. This results in sales people spending a great deal of time and efforts on customers who aren’t really worth selling to. With a focus on increasing a deal size, sales teams will initially identify the right customers and expend resources and efforts to closing bigger deals.
More revenue being dealt with upfront
When Sales teams focus on closing more deals over a stipulated time frame. Most times customers or prospects have the bargaining advantage, because of which Sales teams put aside company revenue and focus on meeting their sales quota. This results in closing deals with a total lack of understanding of customer budgets. A focus on large deal sizes will result in more customers committed to investing in your product or solution and result in upfront revenue recognition. Large deal sizes also have a direct correlation to an increase in annual bookings.
Reduced churn rate from customers
One of the biggest challenges companies face is the churn rate of its customers. A small deal size struck with a customer with makes it easier for a customer to walk out from a renewal. Sales people put in a significant amount of efforts to sign on a customer, one can imagine how hard it is to let go of customers. A targeted focus on larger deal sizes will ensure that customers can commit greater investments to your product or solution and thereby increase the stickiness of your product or solution resulting in a significant reduction in churn rates.
Increased customer lifetime value
Customer Lifetime Value is an essential KPI that most companies are measured by. It measures how much revenue you are likely to earn from each customer that you have. Deal size has a direct impact on the customer lifetime value. For instance, if sales teams were to spend their efforts and company resources to understand the customer lifetime value and sign deals that have significant investments in your product/solution. This will result in a steady revenue from the customer as well as a greater chance of cross-selling and upselling to these customers.
Sales is ultimately about the bottom line. Clearly focussing on larger deal size will have a huge impact on the sales revenue and will result in more sales effectiveness which will save costs and drive predictable revenues for the organization. Bigger opportunities are definitely worth the tradeoffs provided your sales teams have the capabilities required to close them.
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