At its simplest, lead time is the time it takes from the beginning of a process to its execution.
If you manage a sales team you probably already know that many factors contribute to a successful sales conversion rate. And tracking (and reducing) this rate is likely what you're most interested in.
A shorter lead time can reduce overall carrying costs, streamline operations and improve productivity of your team and entire operation as a whole. So, why is tracking the time it takes to convert a deal more important than pounding the pavement and ensuring that your pipeline is always full of leads?
Wouldn't more leads naturally lead to more revenue and isn't more revenue the ultimate goal? Well, yes, increased sales is always good but ensuring leads actually turn into a customer should really be your top priority, and knowing exactly how long that takes (and where in the process your sales team hits snags) is crucial information. So, how can you effectively track lead time in your sales pipeline? Read on to find out.
Lead time affects sales forecast
Your sales pipeline gives you an overview of all the prospects your team is currently targeting, no matter how long it might take to convert a lead into a customer. In order to know if your sales pipeline is healthy, you need metrics on your sales cycle, or the anticipated lead time to close a deal.
A sales forecast, where you estimate how many deals are likely to close in a particular time period, is just as important as your sales pipeline. Businesses rely on accurate forecasts to make effective adjustments to the pipeline or marketing and sales strategy. Leaders in sales and CRM know that understanding the lead time needed to close is a critical factor in determining the perfect number of leads in a healthy sales pipeline.
Lead time helps categorize prospects
If you know your typical sales cycle, you’re in a better position to ask the right questions about customers who don’t fit the mold. The longer a prospect lingers at one stage, the less likely they are to advance through your pipeline, according to Inflexion Point. That is, in most cases. Other times, a valuable prospective client may have longer-than-usual legal processes, or more people who need to approve a decision.
There are of course, exceptions. Some clients, in specific industries, may have an unusually long decision making process and need multiple people to sign off before they can commit to a new deal. You need to make a judgment call about when it makes sense to continue actively working with a prospect or focus sales efforts elsewhere.
Lead time can’t be rushed...too much
Refining your sales process to eliminate unnecessary steps and keep momentum going is an exciting idea. While there are certainly actions you can take to prevent hot leads from fizzling out in your pipeline, Jill Konrath, author of More Sales, Less Time, offers an important warning.
Pushing too fast will chase away someone who otherwise might have been a valuable customer. When she downloaded a free ebook from an interesting site, Konrath found herself hounded with three emails and a phone call within the next hour! The takeaway is that respecting a reasonable lead time to build a genuine relationship is a far better strategy than pushing to hit an agreed target.
Lead time impacts sales growth
Matt Smith, of Sales Hacker and Full Stack Sales, points out that increasing revenue is often a matter of making minor improvements to several different elements of the sales process.
Your sales cycle, conversion rates, average deal size, and number of open opportunities all work together. Focusing too hard on stuffing your pipeline with hundreds of new prospects won’t do you any good if the sales process lags too long to bring in revenue the company needs. You might get a greater impact from working more effectively with the leads you have than trying to collect as many new potential targets as possible.
Lead time doesn’t stop with the sale
The sales pipeline gets a lot of attention, and rightfully so. Experienced sales pros know that closing the deal opens another relationship that needs just as much, if not more, careful nurturing. The customer lifecycle has its own lead time rhythm to grow a one-time customer into a devoted advocate for your brand.
Connecting sales, marketing, and customer service into an integrated partnership builds a stronger foundation for customers to get the attention they need. Lead time here is a matter of answering:
- How long does it take for the customer to receive and implement the product?
- When do they need a check-in to make sure everything is working okay?
- What schedule will we follow to introduce other opportunities?
The ultimate goal is to pinpoint the right balance between following through with outstanding service on the purchase the customer already made, and identifying opportunities for up-selling or cross-selling to deepen the relationship. A strong customer relationship time line follows through on the genuine rapport you established in the pipeline, building trust so the customer becomes a natural advocate.
Lead time captures far more nuance than a simple number about customer conversion time. Understanding this metric will enable you to more accurately predict revenue and nurture customer relationships, both before and long after the first sale.
Need help tracking lead conversion times for your sales team? Capsule's pipeline view organizes your opportunities under their current milestone so you can track their sales as they progress through the sales process, ensuring you have a strong handle on each team member's conversion time throughout their individual pipelines. The visual layout ensures all team members can see what they need to do to get their job done. Contact us today, let us help you track and manage sales opportunities so you can easily see how well your business is doing.
How to shorten lead time in sales
In sales, having any lead time is not ideal; the goal is to minimize it as much as possible. Shortening lead time helps meet customer demand more efficiently, thereby enhancing customer satisfaction. By implementing effective strategies, businesses can optimize their production process and supply chain, reducing the overall lead times. The following best practices will help you achieve shorter lead times and improve overall performance.
Optimize inventory management
Effective inventory management is crucial in reducing lead time. By maintaining optimal stock levels, businesses can ensure that raw materials and products are readily available when needed. Implementing inventory control systems can help monitor stock levels in real-time, thus preventing lead time delays caused by stockouts. Additionally, forecasting tools can predict future customer demand, enabling timely procurement and replenishment of materials. This proactive approach significantly shortens material lead time and improves the entire process of fulfilling customer orders.
Streamline the production process
Streamlining the production process can significantly reduce production lead time. Analyzing and eliminating bottlenecks, automating repetitive tasks, and improving workflow efficiency are key steps. Implementing lean manufacturing principles helps minimize waste and optimize resource use, reducing the time required for production. Regular maintenance of equipment ensures smooth operations, preventing delays. By focusing on efficiency, businesses can shorten the manufacturing process and reduce the cumulative lead time from order placement to delivery.
Enhance supply chain management
Effective supply chain management is essential for shortening supply chain lead time. Building strong relationships with reliable suppliers and implementing advanced tracking systems helps monitor the movement of goods throughout the supply chain. Utilizing just-in-time (JIT) inventory systems ensures that materials arrive exactly when needed, reducing average lead time. By optimizing logistics and improving coordination among all stakeholders, businesses can ensure timely delivery of raw materials and finished products.
Implement automation and technology
Automation and technology can dramatically reduce lead time by streamlining various processes. Implementing automated order processing systems can handle customer requests with just a few clicks, reducing the time taken for manual entry and approval. Using advanced forecasting and planning tools helps predict customer demand and align production schedules accordingly. Technology also facilitates better communication and coordination across departments, ensuring that everyone is aligned and working towards the same goals.
Improve communication and collaboration
Effective communication and collaboration among all stakeholders are crucial for reducing lead time. Implementing collaborative platforms allows real-time sharing of information between departments, suppliers, and customers. This transparency helps quickly identify and address any issues that may arise, preventing lead time delays. Regular meetings and updates ensure that everyone is aware of their roles and responsibilities, enabling smooth coordination and faster decision-making.
Maintain flexible production schedules
Maintaining flexible production schedules allows businesses to adapt quickly to changes in customer demand and unforeseen disruptions. By having contingency plans in place, companies can adjust their production schedules to accommodate variations in demand or supply chain disruptions. This flexibility helps prevent delays and ensures that production continues smoothly, even in the face of unexpected challenges such as natural disasters or supplier issues.
Optimize supplier relationships
Building strong relationships with suppliers can significantly impact lead time. By working closely with suppliers, businesses can ensure timely delivery of raw materials and negotiate better terms and conditions. Regular communication and collaboration with suppliers help address any potential issues before they become major problems, reducing supply chain lead time. Developing a network of reliable suppliers also provides alternatives in case of delays from primary suppliers.
Use data to analyze and improve lead time
Using data to analyze and improve lead time is essential for continuous improvement. By tracking key lead time factors and metrics, businesses can identify areas for improvement and implement targeted strategies. Calculating average lead times for different processes helps benchmark performance and set realistic goals. Utilizing the lead time formula to measure cumulative lead time provides insights into the efficiency of the entire supply chain. Regularly reviewing and analyzing this data helps make informed decisions to shorten lead times.
Invest in employee training
Investing in employee training ensures that staff are equipped with the necessary skills and knowledge to perform their tasks efficiently. Training programs should focus on best practices in lead time management, inventory management, and production techniques. Well-trained employees can identify and address potential issues quickly, reducing the risk of delays. Regular training updates keep staff informed about the latest tools and technologies, ensuring continuous improvement in lead time reduction.
Implement continuous improvement strategies
Continuous improvement strategies such as Kaizen and Six Sigma help identify and eliminate inefficiencies in the production process and supply chain. By fostering a culture of continuous improvement, businesses can regularly review and optimize their processes to reduce lead time. Implementing these strategies ensures that the organization is always looking for ways to enhance efficiency, improve customer satisfaction, and stay competitive in the market.
Myth busting: common misconceptions about lead time
When it comes to lead time, there are several misconceptions that can mislead businesses and project managers. Here, we address and clarify three common myths to enhance your understanding of lead time management.
Myth 1: Lead time refers only to the time it takes to produce a product
Many believe that lead time refers solely to the actual production time. In reality, lead time encompasses the entire duration from order placement to delivery, including pre processing time, production, and transportation. Ignoring these additional components can result in inaccurate planning and delivery lead time estimations.
Myth 2: You can't accurately calculate lead time due to too many variables
While it's true that many factors can affect lead time, it is still possible to calculate lead time accurately using a lead time formula. By considering all stages of the process, from order receipt to final delivery, businesses can develop more precise schedules and improve overall efficiency.
Myth 3: Reducing customer lead time is all about speeding up production
A common misconception is that shortening customer lead time involves just accelerating the production process. In fact, improving lead time requires a holistic approach, including streamlining the supply chain and enhancing communication with suppliers. Addressing these areas ensures that reductions in lead time are sustainable and effective.
