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Why Opportunities Shrink for ETS Firms - and What to Do About It

For early-stage tech services companies, the excitement of promising deals can quickly turn into disappointment when those deals shrink before they close. Founders frequently leave initial discussions with the impression that they are on the verge of securing significantly large contracts. However, it's not uncommon for these deals to shrink before they are finalized. Understanding the reasons behind this shift is crucial for tech service companies aiming to stabilize their revenue pipeline.

Why Do Deal Sizes Shrink?

Several factors can contribute to the reduction in deal sizes during negotiations:

Beyond Your Scope

Sometimes, clients approach your emerging tech services firm expecting to receive additional services that larger firms typically offer. They must then adjust their expectations of the project's scope to better match what your ETS firm can deliver. This shift in trust often arises from their reliance on the consistent results that other established experts in the field can provide.

Optimized Sales Processes

Companies often design their sales processes to handle deals of a specific size. As a result, if your internal processes are optimized for projects within a particular budget range, clients may need to scale down the project's budget or scope to fit. This mismatch in sales processes can often lead to friction when dealing with larger opportunities.

Customer's Expectations

Clients accustomed to working with larger firms often approach deals differently, typically facing many internal approval barriers. To navigate these hurdles, they may preemptively reduce the deal's scope and budget.

Forecasting Deal Sizes with ARPU

To address these challenges, emerging tech service firms must calculate deal sizes more consistently instead of relying purely on optimism during the early stages of a client's relationship. Average Revenue Per User, or ARPU, is an effective metric that provides a realistic benchmark for deal evaluations. 

Why ARPU?

  • Standardization: ARPU normalizes deal size across your pipeline, giving you a clearer picture of potential revenue. It also helps replace expected deal size with ARPU for unclosed deals, creating a more realistic foundation for forecasting and strategic planning.
  • Revenue Risk Assessment: If larger deals are mainly driven by contract duration instead of the number of required resources, using ARPU can help identify potential revenue risks related to these deals.

Close Opportunity Gaps for Your ETS Firm

While the immediate pipeline may appear constrained, there are some actionable strategies that emerging tech service companies can adapt to minimizing deal shrinkages.

1. Business Development

Business development is responsible for nurturing leads into sales opportunities. As such they have the biggest impact in bridging the gap in the number of opportunities.
  • Nurture Existing Leads: Focus on warmer leads to accelerate the sales process.
  • Work with Marketing: Collaborate with the marketing team to continuously keep your company relevant and on top of your contact's minds for fresh leads.
  • Prioritize Outreach: They should concentrate on nurturing current opportunities rather than long-term relationship-building with clients.

2. Marketing

Marketing must support the Business Development team by moving leads through the consideration phase of the funnel:

  • Targeted Campaigns: Focus on activities like webinars, workshops, and whitepapers to engage leads.
  • Account-Based Marketing (ABM): Use guidance from the business development team to tailor specific campaigns and content for high-priority accounts.
  • Speed is Key: Act quickly so that the business development team can leverage contacts effectively.

3. Account Management

Your account managers can also contribute to closing the gap by expanding existing relationships:

  • Leverage Existing Accounts: Warm, established relationships are easier to nurture and expand.
  • Upsell and Cross-Sell: Identify opportunities to offer additional services or expand the scope of current contracts.

Plan, Execute and Adapt

The challenge of shrinking deals is a natural part of tech services companies' journey. By using tools like ARPU for standardized forecasting, focusing on increasing the number of opportunities, and aligning your marketing, business development, and account management teams, you can mitigate these risks to build a stronger pipeline.

At Vixul, we’re committed to helping tech founders master forecasting and overcome growth challenges. Subscribe to our mailing list to receive our upcoming eBook—a detailed guide on how to set up forecasts for your sales pipeline.