How to shorten your Sales Cycle with Usage-based Pricing

Don’t just try to improve conversion rates, you should also work on shortening the time it takes to convert a lead.

IMO, if your sales cycle is >3 months, it’s too long. Even if you’re selling to traditional/highly regulated/bureaucratic organizations. So how can you shorten your cycle?

Avoid Time-based Trials

14-day trial? Congratulations, your sales cycle is a minimum of 14 days. Most prospects will squeeze as much as they can out of the free trial and rarely will they convert before it ends.

Avoid Feature/Tier/Subscription-based Freemium

Free vs. Pro or tiered versions with different features? Risky for startups, this assumes that you know what people are willing to pay for and often leads to feature creep in development as you bloat your solution to cater to different power users.

Consistent revenue from subscriptions makes it easier to predict revenue and budget; however, at the risk of slower/harder conversion and potentially higher churn.

Instead, explore Usage-based Pricing

e.g. Free with all features to start, $10/mo for 10GB of storage, $18/mo for 20GB…

The key to good Usage-based Pricing is to tier it based on the right usage metric that reflects the value customers are getting out of your solution, their growth, and their ability/willingness to spend more with you.

Here are some other tips:

Qualify and Score your leads

Sales is the most expensive business activity for most organizations. If you’re engaging an unqualified lead too early along, this means that you’re spending too much time and resources doing high-touch activities on a lead that could have been better nurtured by marketing efforts. This also makes your sales cycle unnecessarily long as you’re inaccurately defining the starting point of your cycle.

It’ll be different for every industry/solution, so you’ll have to rely on good data capture practices to be able to properly identify buying behaviours for your prospects. Once you know how to identify them, use lead scoring to prioritize and set up automated triggers to notify you if someone becomes a Sales Qualified Lead (SQL).

A good lead scoring model should account for:

• Customer Profile Fit (BANT – Budget, Authority, Need, Timeline)
• Engagement Behaviours you can track (pages on your website, email opens, form fills, lead magnet downloads, etc.),
• Intent behaviours (often on external sites and can be obtained with tools like Bombora, Cognism, and 6sense)
• Account for recency decay
• Negative behaviours (unsubscribing, negative reviews, abuse of free trials, etc.)

Not applicable to all businesses, but some may also want to score for:

• Purchasing timeframe
• Opportunity size
• Complexity of the potential project
• Potential for future business
• Reputation of the lead and the ability to leverage them to close other potential prospects.

That said, scoring models can get relatively complex. Don’t worry about accounting for everything as there is no such thing as a perfect scoring model, it’s more important to start somewhere and improve from there.

If you want to take it a step further, the future of lead scoring is AI/ML-based as they can run much larger comparative models across bigger datasets and are capable of self-improvement/learning over time with minimal supervision.

Understand their budget/purchase periods

When does their fiscal year end? Some organizations rush to deplete their budget at the end of their fiscal year. When does their new budget get approved? They may also more readily spend or put out Requests For Proposals (RFPs) at the start of their budget cycle.

Certain organizations in different regions are more active during different seasons, they may be less responsive at some times, or perhaps more ready to explore improvement projects when they’re not swamped. This looks different for every industry so learn what works best for your solution.

It’s never too early to engage with someone to form relationships; however, it is important to prioritize your activities and efforts so that you’re only engaging them in high touch sales activities when they’re ready. This also improves their overall experience with you as they get what’s relevant to them depending on where they are in their journey/decision making process and aren’t constantly pestered to close when they’re not ready.

Reduce formalities

Legal contracts require pulling in a lawyer and more time to approve. Not saying that you shouldn’t protect yourself, but explore ways to reduce the risk both for the prospect and yourself by minimizing the scope of the project. If it’s much easier to get a simple project started, they’ll have a high likelihood of continuing with you if they like your solution/service.

E.g. I worked with a software company that sold to Hospitals + Universities to help doctors manage their student interns, both highly bureaucratic institutions reputed for long sales cycles. Their sales cycle was 1 year on average; however, through some mystery shopping to see how their competitors converted, we found out that the biggest difference was that they didn’t involve contracts and instead allowed both institutions to try their similar platform for free (instead, they built the legalities into their Terms & Conditions). By implementing a similar approach, we were able to cut our sales cycle down to 1 month!