Why do Deals Keep Coming in at the Last Minute?
One of the greatest sources of grey hair on Sales VPs is the empty list of won deals as the quarter-end starts approaching, and then the flurry of bell ringing in the final hours. WHY does every company seem to have this last minute scramble of closing deals, instead of a nice spread out revenue stream?
Is it the customers driving this? That was hypothesis #1, and we were able to test it when Xactly shifted from a December year-end to a January year-end several years ago. The hope was that the close would still occur in December, leaving January to clean-up and add-on. Nope. Did not happen. Instead, the last week of January became the new week of scrambling to manage prices, products, red-lines, and final signatures.
I later decided to leverage some of our Xactly Insights™ data to see if we were unique. I took a data set of SaaS companies and looked at when commissions were calculated and paid over a 12-month period, adjusting so that every company in the dataset had the numbers from month 1 (regardless of when their fiscal year started) through month 12. The analysis showed a spike in the last week of month 3, 6, and 9 and the biggest spike in the last week of month 12. It didn’t matter the time of the year, the sales team was bringing in the deals at the last minute.
Can we predict this procrastination? Absolutely. As a matter of fact, a physics professor has developed “A Universal Law of Procrastination.” Tomasz Durakiewicz, who is a program director at NSF (The National Science Foundation), recently wrote about this procrastination phenomenon – going so far as to develop a mathematical formula to help describe the arrival of grant proposals (warning – math nerd time):
Proposed modified hyperbolic function reflecting a universal law of procrastination. The red line represents the full form of the law, which illustrates the hyperbolic scaling, N(t) is the number of submissions received by day t, M is the final number of proposals submitted, and D is the number of days in the submission window.
According to the universal law of procrastination: N(t)=M/(D−t+C)−M/(D+C),
where C=½(D‾‾√·4+D‾‾‾‾‾‾√−D) helps improve the fit for small values of t.
OK – so what does this have to do with the end-of-quarter sales rush? Simple – the same pressure from school to turn in a paper or problem set by deadline, which results in a flurry of students sprinting to the faculty office at the last minute is what happens to the sales team.
Putting sales closing habits into the formula:
- N(t) would be the number deals closed by day t
- M is the total numbers of deals for the period
- D is the numbers of days in the period (e.g a fiscal quarter)
I hypothesize that we will get the same modified hyperbolic function that Durakiewicz describes in the link above. What do we do?
Change the deadline. If the scale is 1/r, where r is the time in the period – the pressure to close a deal is low at the beginning of the quarter (0.01) and it’s at its highest on the last day (1.0). We can’t change human nature, but we can change r. Companies can run a SPIF or a commission accelerators for a “false close.” You can even give extra credit on deals that are brought in X days or weeks before the end of the period. Pay for it through the reduced overtime and stress on your sales operations, finance, and legal teams.
Or, you can just accept the nature of humanity. In that case, I recommend reading my old advisor John Perry’s book: The Art of Procrastination: A Guide to Effective Dawdling, Lollygagging and Postponing
CSO Insights – Sales Management Optimization Study
This report shares key trends and best practices for sales compensation and performance management, as well as insights based on company size, industry, and annual revenue.