The Right Way to Calculate Time to Closed Won

Contentious topic alert -- one that always sparks fierce debate!

Many businesses, particularly startups, track a KPI called "Time to Close." It's the length of time, measured in days, that it takes to move a prospect through your sales pipeline to eventually become a customer.

Virtually every sales team measures time to close the same way: Days from [deal creation date in CRM] to [closed won date of same deal]

The calculation method is very simple.

1. Download all deal records from your CRM
2. Dump deals a spreadsheet
3. Add a column that calculates closed won date minus record creation date
4. Celebrate

Job done, right? WRONG. FAIL. PLEASE DO NOT DO THIS.

That calculation ignores the many process, behavioral, and business reasons that a deal record is created. The deal creation date is often the wrong starting milestone for any of a number of reasons:

1. Deals may be automatically closed out after XX days without activity. If the prospect re-engages, a new deal record is created, and therefore the deal creation date is largely arbitrary, based on process.
2. Business follows a product-led-growth motion. For example, the deal creation date may represent the date the prospect entered their credit card, or some other action unrelated to the start of the sales journey.
3. Behavioral differences between sales reps. Sales Rep A may be quick to mark a deal closed lost to clean up their dashboards, while Sales Rep B may hold out hope for longer. In both cases, the prospect may eventually purchase, but Sales Rep A has multiple deal records in the CRM for the same sales motion that Sales Rep B only has one record for.

The Time to Close in all three of the scenarios above loses its quantitative usefulness if we simply compare the creation and closed won dates of successful deals.

How it can go wrong

Time for a real example of how this simple method will lead you astray.

Company A had five sales teams. The average time to close across all teams was ~90 days. One team, Team 5, had a time to close of 14 days. Wow! Amazing, right?

Team 5's account executives (AEs) amazing accomplishment was mentioned endlessly in the weekly all-hands meetings. They were brought into sales enablement meetings to "train" the other teams how to increase their deal velocity. After months of this, no other team had moved the needle at all. They all remained at 90 days to close.

Upon further inspection, it became clear that the VP of Team 5 was a stickler for "clean pipeline." AEs were encouraged to mark deals closed lost if they weren't making quick progress. The AEs continued following up, and if the prospect picked up the conversation again, the AE created a new deal record in the CRM. The deals that eventually won were frequently on their second, third, fourth, or fifth iteration.

When we introduced an alternate time to close KPI, based instead on the time from the first deal creation to the ultimate closed won deal, Team 5 was smack in the middle of teams 1 to 4. In fact, the company-wide time to close actually increased to 120 days, and suddenly every sales team became much better at forecasting!

The Right Way

Most businesses, with the obvious exception of product led growth organizations, should calculate time to close as the number of days from first deal creation, to the first closed won deal!

Product led growth has more variability, but a consistent method is to calculate days from the first time the prospect trialed the product to the day they first became a customer.

I understand the urge to do it the wrong way! It just feels so right!

The problem is that it does nothing to normalize out process or behavioral quirks, and we're left with a biased metric that doesn't really inform any business outcome or decision. In other words, not really a metric at all!