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.
Several factors can contribute to the reduction in deal sizes during negotiations:
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.
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.
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.
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.
While the immediate pipeline may appear constrained, there are some actionable strategies that emerging tech service companies can adapt to minimizing deal shrinkages.
Marketing must support the Business Development team by moving leads through the consideration phase of the funnel:
Your account managers can also contribute to closing the gap by expanding existing relationships:
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.
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