Any business that has an online presence knows how important a sales funnel is to its unhindered operation and continued survival. A sales funnel is what helps businesses convert their website visitors into paying users. The sales funnel is thus defined as the process that helps sales teams turn cold prospective buyers into hot leads.
If it wasn't apparent already, the sales funnel is the most important sales process, and improving its efficiency is among the topmost priorities of any organization. It makes sense: a well-designed sales funnel provides a deep insight into how a prospective buyer's train of thought to sales reps so that they can align their sales efforts accordingly and convert the prospect to a customer.
But what is a sales funnel?
A sales funnel can be defined as the journey undertaken by leads and prospective buyers on their way to purchase. There are many essential steps that comprise a sales funnel, and these steps are usually grouped into three categories, namely ToFu (top-of-funnel), MoFu (middle-of-funnel), and BoFu (bottom-of-funnel). While the steps contained in a sales funnel may vary depending on a business's sales model, they always fall in the aforementioned three categories, whose confederation results in the final sales funnel.
If you are still unclear about what a sales funnel is, envision it as a real-life funnel. Just like the real-life funnel, the abstract sales funnel is used to filter leads down through to one final destination, arriving upon which converts the prospect from a lead to a customer. However, the sales funnel metaphor is rather ambiguous because unlike a real-life funnel, not all leads that enter it convert to customers at the end.
According to Digital Marketer, the sales funnel is a multi-step process that moves prospective browsers into buyers. The reason why it is so multimodal is that there are a lot of things that have to occur from the time that a lead is made aware of your product and enters your funnel to the time when they act upon their interest and complete the purchase.
However, despite the overbearing importance of a sales funnel, as many as 68% of companies have not yet attempted to build or measure the success of their respective sales funnel. Yet another study revealed that as many as 79% of marketing leads never reached the end of the funnel, after which they would convert to paying customers.
Ask any business owner about the pain of missing the opportunity to make a sale, and they are bound to rue over it. It is particularly painful when they have spent weeks trying to goad the customer into buying their product and moving them through different stages of the sales funnel, but as it so happens, prospects just unexpectedly drop out of the funnel without buying. There are many reasons attributable to this; however, none of them is as significant as the lack of providing the right information at the right time. In fact, it has been reported that as many as 95% of buyers choose to buy from those vendors who provide them with the content appropriate to the stage they are at and which helps them navigate seamlessly through that stage of the buying process.
It doesn't help then when sales funnels are not properly built and act more like a sieve through which the prospect uncannily always drops out. It's certain, therefore, that to efficiently grow sales revenue over time, businesses should build themselves a solid sales funnel that helps them capture and retain the attention of leads throughout the buying process and slowly ushers them through to the bottom of the funnel to turn them into a paying customer.
What Is a Sales Funnel and How Does It Work?
While you may have a vague idea of what a sales funnel is meant to be, let us take a rounded overview of the concept and see what it is supposed to signify and enable.
A sales funnel is a marketing term given to the journey or the process that prospective buyers go through as they make their way to a purchase. You start with lots of potential leads that are both aware and unaware of your product or service and might have some need for it. It is in this cluster of leads that the people who need your product are going to buy from you lie, and the process of filtering those leads until you arrive at those that are willing to buy your product or service is called the sales funnel.
The sales funnel provides you with a visual description of where your prospects are in the buying process. This notion is based on the idea that all prospects go through similar phases while making a purchase, with the first step of all traditional sales funnels being the stage of awareness, while the ultimate step is usually the post-purchase evaluation.
A typical sales funnel resembles an inverted open cone. The base of the cone is the top of the funnel and is wider than the other stages because it contains a large volume of leads who have just shown interest in your product or service. As you rear these leads through the stages and educate them about your product, the funnel gets narrower as many leads drop out while others get qualified until you finally arrive at those who are willing to buy from you. The act of supervising this journey is called sales funnel management.
The first stage of the sales funnel is called "awareness" because it is when your prospective buyers first come to know about you. They could have heard about your product or service through social media channels, automated emails, landing pages, word-of-mouth, and advertising, among others.
How and why these leads then move down through the funnel depends upon your sales ability and how you can provide them the right content when they need it to make them more and more confident about your product. Suffice it to say, the at the lower stages are the ones that you should direct your attention to more than others because they've moved beyond awareness to interest and stand the most chance at converting to a customer.
Even though the number of stages of a sales funnel may vary from organization to organization, they usually always include the awareness, interest, evaluation, decision, purchase, and post-purchase evaluation stages. This can translate to your unique sales funnel structure with prospects going through the below-mentioned timeline:
Untouched > Contacted > Qualified > Proposed to > Negotiated > Won
Importance of a Sales Funnel
Any prospect that has just made contact with your brand for the first time ever stands a higher chance of not becoming a paying customer right away. That is why pitching an offer to them as soon as they arrive at your door will only serve as an exercise to turn them away. Conversely, not engaging the first-time visitor will be the equivalent of leaving them in the dark, and they are bound to leave your shores in exchange for greener pastures.
Building a sales funnel will help you ascertain when and how to engage with the prospective buyer in addition to letting you know how close to the act of buying your prospect is. You can then use this information to design an extensive marketing plan that takes into account potential customer needs by basing it on their proximity during the moment of purchase.
Depending on your offering and the nature of your products, the sales cycle can take anywhere from weeks to months to materialize and result in a sale. Since this can be an arduous and complicated process, it is of great importance to understand the customer journey as much as possible to increase the chances of selling. A sales funnel, in such scenarios, allows for greater visibility and control over the sales process.
Based on their position along the sales funnel, your clients will feel differently about your product and have a different attitude towards it. That is why it pays to construct a marketing strategy that contains content that is tailor-made to succor communication efforts with prospects that are arriving at different stages of the sales funnel. On the other hand, if you have a marketing plan already, a well-designed sales funnel can help you analyze its effectiveness and tweak it at the places required.
For example, the information that a lead arriving at you for the first time may find relevant and useful won't hold the same value for the client who has already bought from you in the past. Knowing how well-acquainted the prospective buyer is with your brand helps you gauge their relative interest levels and helps you determine measures that attract the interest of your unified customer base.
It goes without saying that failing to engage your prospects in a meaningful way is the equivalent of shooting yourself in the foot, and they could quickly lose interest in your offering, drip out of the sales cycle, and turn their attention to a competitor. The sales funnel allows you to fashion a clear sales path for your leads and helps escort them through the various stages of the funnel until they are ready to purchase from you.
Apart from that, the sales funnel also facilitates the collection of valuable data accrued through repeated reruns of the sales cycle that you can use for future lead prioritization, analysis, and forecast efforts.
In conclusion, having a sales funnel in place offers you the unmatched benefits of being able to track consumer habits. In the heavily digitalized world of today, the way customers interact with brands is people continually evolving. Brands that trace their potential buyers' behaviors and remodel their efforts to keep up with their ever-changing expectations stand a higher chance to build and sustain an updated marketing strategy with a solid sales funnel backbone to offer their consumers an outstanding customer experience.
Benefits of a Sales Funnel
It is evident that sales funnels are the best way to improve sales performances and boost your bottom line by improving your customer conversion rate. Apart from these obvious advantages, having a sales funnel has further benefits:
1. It makes marketing simpler
Having a sales funnel in place provides you with an accurate overview of the total number of leads that have entered your funnel and provides a contrast against the ones that finally convert to paying customers. This helps your marketing team reverse calculate the number of leads that are required to enter your funnel during the awareness stage do that you can achieve your targets. You can then use this information to determine the right sources or platforms to invest in depending upon how much returns they provide.
2. It improves the accuracy of sales forecasts
Just like reverse calculating can tell you the number of leads required to enter the funnel during the awareness stage, it can also help you accurately understand and predict how much you need to sell in the future. This can help you design a more accurate sales plan for the next quarter or fiscal year so that you can start drawing up strategies that aid your efforts to meet your projected targets.
3. It leads to consistent sales
For any business, it is of the utmost importance that they have a consistent revenue flow so that they can run their business without any hindrance.
Irregularities in your revenue stream can mess with the operational plans for the next quarter and impede your marketing efforts, eventually preventing you from planning ahead because you won't know what the future might hold for you in terms of revenue.
With a sales funnel, you can derive approximated sales revenues on the basis of sales forecasts, which can help you further your marketing efforts and allow you to bring in more and more clients whom you can sell to without putting in too drastic an effort and still have favorable results at the end.
These customers who move through the sales funnel are more likely to be loyal and stick around with you and keep buying from you. This customer retention helps you build revenue security and puts you at ease so that you can continue sourcing for more clients.
4. It helps make content more appropriate
Every stage of the funnel requires that you deliver the appropriate content to the client to help them learn more about your product or service and make up their mind. For example, providing a case study to a prospect who is at the awareness stage will tell them nothing about your product and form the impression that you are trying too hard to earn their patronage, resulting in them feeling unconfident about your product and eventually dropping out.
As a result, it is of extreme importance to design the content according to the reader. Learn about their needs, interests, and goals and align your content so that it helps them see the value in partnering with you. With a sales funnel, you will know which stage of the journey the prospect is at and target them with the appropriate content form that would help make them more inclined to learn about your offering. This allows marketers to choose certain topics and design content that gives readers what they want to know, thus leading them towards a sale.
5. It increases the conversion rate
Having a sales funnel translates to more targeted marketing, thus increasing the possibility of bringing in more leads. The greater the number of leads you have, the more chances you have of converting them to customers. Since a sales funnel provides your sales team with a 360-degree view of the customer journey, they can use the time it takes for a lead to become a customer to further personalize and refine their sales pitch to increase conversion rates.
6. It encourages accountability for sales
A sales funnel does away with the confusions of knowing which lead was reached out to and when. A funnel keeps track of every single activity and helps you record information for later use. It gives you all the data about the client, including the region they are from, the demographic they belong to, the social media platform that sees the most responses, and also the sales teams that have achieved the most targets and brought in the most revenue.
7. It helps derive greater business revenue
All of the benefits mentioned above come together to give you the benefit that you want and care about the most. Increased revenue. More importantly, the sales funnel will also tell you what helped you earn the extra revenue so that you can adjust your efforts around it accordingly to replicate your success a second time as well.
Stages of a Sales Funnel
The stages of the sales funnel are described by the acronym AIDAR: Awareness, Interest, Decision, Action, and Retention. These five stages of the sales funnel are used to illustrate the thought process of the prospect depending upon which of the stages they are at during the sales process.
Every last stage requires a uniquely different approach by sales reps and marketers. You don't want to confuse two stages and enact measures that could lead to a prospect exiting the sales cycle because they weren't provided with the right information at the right time. Here, we will have a look at each of these stages in the sales funnel in greater detail.
The first stage of the sales funnel, as described above in the article, is the awareness stage when the leads are made aware of your product or service. This is the moment when you first attract a prospective buyer's attention towards your product through various means.
Once the lead becomes aware of your business offering, they have entered your sales funnel. Remember that at this particular stage, the prospects don't have enough of an idea about what your product is and what types of problems it would solve for them.
Therefore, at this stage, it's important to understand that people are not ready to buy just yet. Consequently, there is no point in trying to sell them anything for now. Instead, you can try to provide them with informative content in the form of white papers or e-books to educate them about your industry and your product. This will establish you as an expert on the subject, and people will feel more confident about buying from you.
This is the stage where clients already know about you and your product. They have read up on your company, know about your offerings, and have probably even subscribed to your email newsletters. Since you know that you have the attention of your potential customers, it is time to move it up a notch and interact with them in a better way so as to nurture your relationship with them a bit more.
Keep in mind that by this point, the prospects have already carried out significant research about your product and have a clearer idea of how it matches their needs. However, they still have to make up their mind about a specific product. This where you can use your marketing renown to set yourself apart from your competitors by sharing content that is meant for a more well-informed audience. Therefore, it would do you better to focus your efforts on content that is more detailed. You can then inspire your prospects towards making a decision by highlighting the unique properties of your product and its benefits.
The decision stage of the sales funnel is when the prospects have a complete understanding of their original problem. At this point, the clients have conducted even more research and are surer about their needs and options to know the type of product that will solve their problem. They have even possibly narrowed down their options and are looking to make a final decision.
This stage is your last chance to convince the buyer about your product. To tilt the scale in your favor, you present them with an offer that makes your product seem better than that of your competitors. You can do this by combining your core product with an additional accessory. You can also share white papers, case studies, e-books, etc. to inform your prospects about the opinion of your other clients and what they think about the overall customer experience.
The action stage of the funnel is when the sale takes place. It is usually where you make a proposal to the client, the customer accepts the proposal, they place an order and make the payment, and you ship the product to them. This stage is where the sales funnel culminates into a sale.
This is the stage when you have won over the prospect and converted them to a customer. However, this stage is the one that requires the most effort since you are statistically more likely to sell to an existing customer than a new one. Your entire focus and efforts have to be redirected to keeping the customer happy and turning them into loyal customers and faithful brand advocates. Doing so will give you the benefit of the most powerful marketing tactic, help you word-of-mouth, and it is a happy customer that will do it best.
In order to keep your customers delighted, you need to help them with various aspects of your product that they are only getting to know once they have started using it. Your end goal is to make them stay as engaged with you as possible, and you can do this by:
- Sharing surveys and following up with them
- Sending them promotional emails
- Providing special offers
- Customizing a product usage guide for them
Sales Funnel vs. Marketing Funnel
Many business owners often confuse a marketing funnel with a sales funnel and take it to mean the same thing. What they don't realize to their business's detriment is that there is more than one kind of funnel, and each funnel has its own identity and works differently. The distinction is especially critical when it comes to your business goals. Primarily, these funnels are of three kinds:
- conversion funnels
- marketing funnels
- sales funnels
Conversion funnels are a novel purchase funnel used by ecommerce businesses. Also known as lean funnels, they are pretty much similar to sales and marketing funnels and are very fixated on customer journey personalization. While all these funnels differ in nature, they share the same concept of creating a memorable experience for your clients.
What is a marketing funnel?
Marketing funnels describe the journey that your customer has undertaken with you. From the initial stages, when leads are made aware of your business right down to the purchasing stage, the marketing funnel maps the route from awareness to conversion and beyond. It usually consists of three elements:
- building awareness
- maintaining interest
- evaluation by customers
Before you can begin, potential customers have to realize that a solution to their problem exists in the form of your product or service. You can inform them about yourself through various methods, such as videos, blog posts, running ad campaigns, and targeting them with landing pages, among others.
Once they are made aware of your offering, and they are interested in your product, it falls upon you to maintain that interest level by engaging with them regularly and building their trust. If you do these consistently, you can be sure that your prospects will be inclined towards your product in the evaluation phase.
What is a sales funnel?
A sales funnel is the extension of a marketing funnel, and it decides how much profit you are going to make. Picking up from where the marketing funnel leaves things, the evaluation phase is when the marketing funnel turns to a sales funnel. Since prospects are already aware of your product and you have built an endearing relationship with them, make the prospects believe that your product will solve their problems and is a batter fit for them than any other competitor product in the market.
After the evaluation phase ends, the prospective buyer will have two more funnel stages to cross. They enter the proposal phase when they are ready to commit to your solution, post which, in the last phase, they decide to buy from you and convert to a customer.
Steps to Build a Sales Funnel
Now that you know the stages of a sales funnel and what distinguishes it from a marketing funnel, it is time to see how to go about creating a sales funnel on your own that will help your conversion rates and improve your revenue.
Step #1: Analyze audience behavior
While it goes without saying, audience behavior analysis is extremely important to building a solid sales funnel. The better you understand the behavior of your audience, the more you understand their expectations, and the more efficient your sales funnel becomes. Keep in mind that just like your product is not for everybody, nor should your marketing efforts be. Sell to only those people who you are sure are in need of your product and have a high chance of purchasing it.
In order to know more about your customers ask yourself questions like what kinds of product are they searching for, does your product satisfy their needs, where do they click and scroll, how long do they spend browsing a particular page, etc. Finding the answer to all of these questions will help you refine your sales funnel.
Step #2: Capture their attention
The only way a sales funnel is ever effective is when you can use it to garner people's attention and lure them to it. This is usually done by making valuable content available to your target audience and putting it in front of them.
The most effective way to capture the attention of people is to take the organic route and post lots of valuable content that disseminates additional information about your product as well. You can diversify your content efforts promulgating content in the form of blogs, articles, infographics, case studies, videos, etc.
If you have the buck for it, you can also consider running a few ads. The right place to run these ads depends on the channels your target audience frequents the most.
Step #3: Build landing pages
While your content and your ads may serve the purpose of making the prospects aware of your offering, it has to lead them somewhere from where they can act upon their actions. This is ideally done by redirecting them to a landing page where you make them an offer they can't refuse. Landing pages are so effective that companies that make more than 30 landing pages acquire seven times more leads than companies who use fewer than ten landing pages.
Since these are still the earlier stages of the sales process, it is better to focus on garnering leads instead of pushing for the sale. A landing page is used to direct the prospect to the next step in the process.
Landing pages should ideally have a bold, can't-miss CTA that prompts the visitor to take action. You can also make appropriate content available to them depending upon the kind of landing page it is, like providing them with a free e-book or newsletters and more.
Step #4: Consider building email drip campaigns
The benefits of email can never be understated enough. Email campaigns are so successful even in this day and age that you stand to acquire a 4000% RoI for every marketing dollar spent. You can sell to your target audience by providing content to them through email. Create an email drip campaign and send prospects relevant content regularly.
Utilize the content you are providing in an effective manner to educate your target audience about your product. Understand what they want to learn and what hurdles stand in your way to the prospect that you need to overcome to persuade them to buy.
Once you have a firm grip on these, market your content effectively. At the end of the email drip campaign, make your prospects an irresistible offer. Usually, this offer is accompanied by the content piece that will inspire the prospective buyers to act upon it and convert it to a paying customer.
Step #5: Remain in touch
Once the sale is made comes the most important part. Retention. You can further your retention efforts by dropping in an email after around a month to see how your clients are doing with your new product. Continue to reach out to them and send them appreciative emails, thanking them for their patronage, and offer additional vouchers to secure their retention.
Key Sales Funnel Metrics
The departments of sales and marketing have never been as much aligned as they are today. While these teams are unified in the pursuit of the same goals, it takes knowing how well they are doing by understanding their performance metrics so that you know what is working for your bottom line and what is not.
To that end, it is important for sales leaders to have a firm grip on the following metrics to know how well the sales department is doing when it comes to sales operations to measure how the revenue is being tied back to marketing activities.
1. Churn rate
Churn rate is one of the most crucial KPIs for you to measure. To calculate the churn rate, simply divide the number of customers that have left and divide it by the total number of customers you had before they left.
Churn rate: (No. of churned customers)/(Total no. of customers before churn
Churn rate can help you know how well your product is doing and alert you of its longevity of your products so that you can improve upon it. When you measure the churn rate regularly by making it an important KPI, you will be able to understand your user base and their expectations a lot more.
Leads are the life and soul of any business and are what make or break them. If you always have a steady supply of leads, it means you always have a certain percentage of new prospects who are interested in your product. The most important things that you should track with respect to leads are:
- The total number of leads that you have
- The total number of qualified leads that you have based on considerations like how many leads have the budget, willingness, and need of your solution
- The sources where your leads are coming from
- The number of qualified leads that grow from month to month, i.e., lead velocity rate
- The total number of leads that you are gaining from marketing activities
- The total number of leads that you are gaining from sales activities
3. Conversion rate
In any business, the conversion rate is the most important KPI. Period. Conversion rates tell you how many prospects have turned into a paying customer. The formula for it is given by:
Conversion rate = (Deals won/Leads) x 100
The conversion rate provides you with an understanding of how efficient your sales funnel is and how effective you are at qualifying leads. The conversion rate is an indispensable metric and can help you know a great deal more about your sales process and point out the areas that need to be optimized as well.
4. Sales velocity
Every business wants instant sales, but before they can even attempt to speed up their sales processes to do that, it is essential that they understand their sales velocity first. The sales velocity helps businesses know how fast they are earning revenue by establishing how soon their leads are converting to customers.
To calculate the sales velocity, you can use the following formula:
Sales velocity = (Total no. of leads x average deal size x conversion rate) / (Average conversion time)
5. Lead acquisition costs
Most of the KPIs that are worth tracking focus on earning revenue. However, there are certain metrics that you need to track to understand if you are making enough profits or not. These metrics are called LAC (lead acquisition costs). You can find out your LAC by taking your total lead acquisition cost and dividing it by the total number of leads.
6. Customer lifetime value
Another highly indispensable sales funnel metric to track is the customer lifetime value or CLTV, as it is more commonly known.
In a nutshell, the CLTV asks, or rather tells, how much revenue are your converted leads going to bring you. The CLTV is especially important to track if you intend to up-sell or cross-sell your products. In order to find out your CLTV, you have to calculate the average revenue that you earn per account (ARPA) first. After that, you can use the formula given below to find your CLTV:
CLTV = (ARPA x Gross Margin)/Churn Rate
7. Lead velocity rate
As mentioned in point #2 above, sales funnels are all about finding the number of qualified leads that grow from month to month because it is an important factor to track when it comes to leads.
This is called the lead velocity rate, and it pertains only to qualified leads. The lead velocity rate can be calculated with the help of the following formula:
LVR = (The total no. of qualified leads in the current month – the total no. of qualified leads in the previous month)/(The total no. of qualified leads in the previous month) x 100
8. Monthly recurring revenue
All sales teams are given certain targets that they have to meet. These are usually measured in the form of MRR or monthly recurring revenue.
To predict your monthly recurring revenue, you need to understand and know the total number of leads you are going to get each month, in addition to knowing how many of them are likely to convert.
9. Annual recurring revenue
The last of these metrics is the annual recurring revenue. The annual recurring revenue is nothing but the fiscal year version of the MRR. In order to calculate the ARR, you have to simply take your MRR and multiply it by 12 (twelve months).
With the help of the above guide, you can map out and implement a sales funnel effectively. Remember that the top, middle, and bottom funnels are simply categories and are not the actual stages of the sales funnel. They are used to define the range of the leads and their interest levels at any point in time.
A well-designed sales funnel with a structured approach is key to acquiring prospects and converting them to a customer. It affects the way prospects see you and ultimately also impacts the health of your organization. Once you bear these things in mind, you are ready to turn your sales faculties to good account and build endearing relationships with customers that are built to last.
Once you have honed and refined your sales funnel, it will become one of your greatest assets and will help you dramatically boost your business bottom line and inevitably increase your revenue.