What is a sales funnel?
A sales funnel is a simple visualization that helps you picture your customers’ journey from lead to payment.
This takes the form of a “funnel” because it’s wide at the top and narrow at the bottom. No matter how good your product is, some people will inevitably drop off at various stages of the sales funnel. This can be for a variety of reasons – they don’t have the money, are locked into a competitor’s contract, etc.
The key to having a strong sales funnel is to have good sales analytics providing a clear understanding of your average deal size, your target sales revenue and the expected drop off at each of your sales funnel stages. This will help you accurately forecast revenues and take action to repair leaky parts of the funnel before you’ve missed quota.
Differences Among Sales Funnels
While sales funnels all follow the same general format, they differ in two areas: the number of stages that are in your funnel, and the amount of time that you expect prospective customers to spend at each stage. In order to visualize your funnel, you can draft a sales funnel template to outline how you expect the process to look.
Thinking About Your Sales Funnel
If your company is selling sandwiches there will be far fewer sales funnel stages between when a prospect hears about your sandwiches and when they make a purchasing decision than if your company is selling supercomputers. IT doesn’t need to evaluate your sandwich! Generally speaking, the higher your price point the longer you should expect it to take a prospect to move through your funnel.
The same concept holds true for the time that prospects spend at each stage. Every prospect will do some research before they buy from you – even if it’s just to see the condition of your restaurant before buying a sandwich. If you’re selling enterprise software your prospects will likely want to find out not just about your product but also about your team and investors. Customers want to know that they’re buying from a credible company that will be around to support them.
Leveraging Your Sales Funnel
We’ve already concluded that the type of product that you’re selling, and your price point, dramatically affect the structure of your sales funnel. However, that’s not the same as saying that there’s nothing you can do to improve your funnel. After all, the goal of a sales funnel isn’t simply to produce a graphic that you can share with your boss – it’s to give you actionable insights.
An Example of a Sales Funnel
Let’s say that your company sells widgets at the price of $10 per widget and your boss has set the revenue goal for this quarter at $500. You know that you need to sell 50 widgets. For simplicity’s sake let’s also say that each customer only buys one widget. Great, but now you notice a problem – your sales funnel says you only have 75 unqualified leads and there is a 50% drop off between unqualified leads and a purchase. At this rate you’ll only sell approximately 37.5 widgets!
Armed with this information you understand that you need to go out and gather more sales leads, whether that’s through advertising, content or something else. Without a proper sales funnel you wouldn’t have been able to predict this revenue shortfall before it was already too late.