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Sales Funnel: Definition, Stages and How to Create One
Written by: Victoria Yu
Victoria Yu is a Business Writer with expertise in Business Organization, Marketing, and Sales, holding a Bachelor’s Degree in Business Administration from the University of California, Irvine’s Paul Merage School of Business.
Edited by: Sallie Middlebrook
Sallie, holding a Ph.D. from Walden University, is an experienced writing coach and editor with a background in marketing. She has served roles in corporate communications and taught at institutions like the University of Florida.
Updated on March 26, 2023
Sales Funnel: Definition, Stages and How to Create One
Sales cycle, sales pipeline, marketing funnel, sales funnel. With so much terminology flying around, are we just splitting hairs? Does it really matter what a sales funnel is?
These terms are closely related, but the differences between them are crucial to shaping an informed sales strategy. More importantly, a sales funnel is arguably the most potent of them all, as a robust sales funnel has a direct impact on the bottom line!
It’s OK if you’re still wading through this soup of terms – you’ve come to the right place. This guide explains exactly what a sales funnel is and how your business can leverage its benefits to drive growth.
Sales Funnel Definition
A sales funnel is a conceptual tool that details your customer journey and shows how many prospects are at each stage of the journey at any one time.
It’s called a “funnel” because you’ll have fewer prospects at each successive stage. You might start off with hundreds of potential customers, then disqualify some or lose them to competitors until you’re left with only a handful who make a purchase.
But don’t let the losses discourage you – the customers that close are the ones you want!
Difference Between a Sales Cycle, Sales Pipeline, and Sales Funnel
The term sales funnel is sometimes used interchangeably with sales cycle and sales pipeline, but they’re quite different – despite all including stages.
A sales cycle is the process a single customer passed through to make a sale, while a sales pipeline is a procedural overview of the company’s internal sales processes.
For example, if you say “I’m at the initial contact stage with Bill’s T-shirts,” you’re referring to the sales cycle for your potential customer. But if you say “I think we need to overhaul our lead qualification process,” you’re talking about a specific part of your company’s sales pipeline.
A sales funnel, on the other hand, is an aggregate view of all your current sales cycles, detailing how many customers are at each stage of the cycle at that time. Unlike the sales pipeline, the names of each stage will also be different, focusing on the customer’s perspective and experience.
In short, a sales pipeline focuses on your company’s sales procedures, a sales cycle focuses on a single customer, and a sales funnel considers all the cycles at the same time.
Difference Between a Marketing Funnel and a Sales Funnel
Another term you might’ve heard is the marketing funnel.
Of course, marketing and sales are separate business functions with different goals: marketing aims to build awareness and develop leads, while sales turns those leads into paying customers. In other words, sales begins where marketing ends.
A marketing funnel is an overview of the customer’s journey from the moment they become aware of a brand to the point where they consider purchasing. Once they’re interested, they progress into the sales funnel to complete their sale.
Even so, the point at which the marketing funnel ends and the sales funnel begins isn’t always clear. It depends on the company: some companies don’t use a marketing funnel at all, folding it into the top of the sales funnel.
On the other hand, companies that source leads from different sources might rely on marketing funnels to keep their campaigns straight. In this guide, we’ll go with the first definition so you don’t miss out on anything.
In any case, once the lead has been identified, it’s up to the sales department to qualify and nurture them into a sale, reflected in the sales funnel.
What Are the Stages of a Sales Funnel?
A sales funnel has five steps: awareness, interest, consideration, action, and loyalty. Let’s look at each step and the goals of each.
The awareness stage is when your customers first hear of your business and product. You’ll know how many people are in this stage from metrics such as hits on your website or views on a Twitter post.
This is the widest part of the funnel and the overlapping stage between a marketing funnel and a sales funnel; brand awareness usually comes from widespread marketing efforts such as advertising and social media.
These potential buyers don’t think that they have a need to be met and aren’t interested in your products yet. Sales efforts should focus on unobtrusively guiding them to recognize their pain points and build awareness that your products solve said pains.
For example, let’s say your potential buyer Sam is scrolling through Instagram and sees an advertisement for your soap. She scrolls past it because she doesn’t need soap at the moment, but now she’s aware of your brand.
In the interest stage, the buyer thinks about their potential needs and gathers information.
Your goal here is to present yourself as an authority on the topic by providing free content such as social media accounts and website articles that educate them on their issue and how your company could solve it.
Going back to our story with Sam, maybe it’s been a few weeks and she’s running out of soap. She Googles “best organic soaps,” sees your familiar name in the results, and reads how your soap uses shea butter and coconut oil to make a product that’s great for the skin.
The consideration stage is where potential customers weigh their needs against your product offering. If you’ve done your job in the previous stage, they should already know they have an issue and you have a solution. Their question is whether or not your solution fits their need.
Your prospect could still decide not to purchase. To nudge them further down the funnel, now’s the time for your sales rep to cultivate the relationship, learn more about the prospect’s pain point, and convince them your company’s the best fit.
Sam delves deeper into your website, examining the various soaps. She’s on the fence about bar versus liquid soap and talks to your live chat agent about which might be best.
In the decision stage, your prospect has nearly made a choice but wants to know more – about the product, the prices, the package options, and so on. They might request a demo, seek out a discount, or compare your goods to competitors’ to see if they’re the optimal solution.
Your sales rep should guide the prospect through their final concerns, gently persuading them that your company is the right choice and beginning to confirm the sale.
Following the sales rep’s recommendation, Sam flips through your bar soap catalog, comparing the descriptions and prices before settling on a three-for-one pack that saves her money in the long run. She has made her decision!
In this stage the buyer has committed and is ready to seal the deal. Now all that’s left is to negotiate and finalize the sale or contract and deliver the goods. Congratulations on the sale!
After shrugging off your attempts to upsell, Sam makes her purchase online, chooses expedited shipping, and pays with PayPal. Her soaps are on the way!
Hold your horses – even after closing the deal, you’re still not done. Post-purchase is the perfect opportunity to build loyalty by delivering a great product and overall experience. Monitor the customer’s account and keep in close contact to ensure their order is fulfilled to their satisfaction.
If they’re happy with your product there’s a good chance they’ll buy again or recommend your goods to a friend. You’ll go from one sale to potentially a slew of them.
Just as her last soap is about to finish, Sam receives an email from your company thanking her for her last order and offering her a 10% discount on her next one. Pleased with her experience and the personal attention, Sam decides to buy again, becoming a loyal customer.
The Importance of a Sales Funnel
A sales funnel represents the most essential functions of your business: attracting customers and making sales, generating the revenue to stay in business. If customers aren’t flowing through, generating consistent revenue, your company may be in trouble.
Let’s take a closer look at how a well-built sales funnel benefits your business.
1. Monitoring, tracking, and forecasting
Sales funnel reports monitor how many leads are in each stage of your funnel, track which leads move from one stage to the next, and forecast your sales in the near future.
Sales funnels reveal inefficiencies in the sales process, showing where customers fall off or move forward. With this information, you can allocate resources to optimize your strategy, keeping more leads and closing more sales.
From the number of leads in each stage and their conversion rate to paying customers, you can forecast how much revenue you’ll see and when. Your finance department needs to know this information to set the budget for the next period, so a clear and efficient sales funnel goes a long way in improving your company’s money management.
2. Clarifying sales and marketing functions
Again, it’s the marketing team’s job to make sure the brand name is noticed, and the sales team’s job to close sales in the purchase stage.
But where do the customers fall in the interest, consideration, and decision stages? Some companies say marketing should lead the prospect all the way to payment, while others delegate the process to sales, even going as far up the funnel as lead generation.
If you have sizable sales and marketing teams, every staffer might have different ideas of their role and responsibility, as well as that of their department. This will likely lead to huge inefficiencies and lost prospects.
A sales funnel clearly demarcates which tasks belong to which function, ensuring that no toes are stepped on and no customers are lost in between.
3. Enabling relevant messaging
When selling, it’s unwise to approach strangers and lay into them with pricing and product details. There needs to be a build-up.
In the same vein, by classifying prospects by state, a sales funnel shows how much info the customer has and what they may still need to know, enabling your sales team to tailor their approach, rather than risk driving them off with pushy, inappropriate material.
4. Saving time and effort
Not all leads turn into sales, so attention needs to be focused on the most promising prospects. With a sales funnel, sales reps will immediately know a prospect’s level of interest and be able to provide appropriate care.
You could assign one sales rep to each customer, but this is usually unsustainable. Consolidating the buying process and customer journey into the sales funnel lets you mass-produce marketing and sales material for each stage and switch out sales reps as needed. Plus, as many potential buyers are disqualified at the top of the funnel, your sales reps would be wasting time on leads that go nowhere.
How to Build a Sales Funnel
Now that you understand the value of the sales funnel, it’s time to build your own.
1. Identify Your Target Audience
Before you can close a sale, you need to know your target audience. Hopefully you already have a solid ideal customer profile, or buyer persona.
Do some additional research into your target audience: their demographics, common pain points, desires, and habits. Knowing buyers focuses sales reps’ efforts on activities that resonate best.
2. Capture Your Target Audience
Next, develop enticing free content to build brand awareness, make customers aware of their needs, and generate interest.
From your research in the previous step, you should know where your target audience gets their information, the lingo they use, and the product specs they’re interested in. With this in mind, create promotional materials that catch buyers’ eyes and draw them in.
If you have multiple target audiences, consider how your messaging and lead generation strategies might differ between them. For example, Unilever sells soap under the Axe brand to men and under the Dove brand to women. You may need to develop multiple sales funnels to match.
An essential part of this step that may seem obvious is to have a product customers actually want. It doesn’t matter how far down the funnel the prospect gets – if they get to the end and realize they don’t want your product, you’ll never close.
False advertising about your product isn’t sustainable, so make sure your marketing is air-tight and your target audience fits from the get-go.
3. Set Metrics, Activities, and Goals for Each Stage
How do prospects move from one stage to the next? Set clear metrics for success at each stage, highlighting activities that contribute to said goals.
To gauge prospect progress through your funnel, establish clear steps to delineate between stages. From our earlier example with Sam, we classified that she was at the interest stage when she was researching and learning more about the soap, and the decision stage when she looked at the catalog.
For another product, an Instagram view might represent the awareness stage, and the prospect placing the product in their basket at your online shop might be the decision stage. Of course, if you’re managing multiple campaigns and several communication channels, you could have multiple metrics for each stage.
Either way, each stage should have a clear call to action that leads to the next step of the funnel — to nudge Sam to the product catalog, you might put a link at the bottom of the article she’s reading.
Similarly, based on where in the funnel the potential customer is at the moment, your sales reps should always have a clear next step, rather than a general “push them to buy.” Specifying each incremental guiding activity creates a smoother customer journey.
Finally, set numerical goals for each stage: how many qualified leads per period? How many sales? Setting targets for each stage lets you gauge the effectiveness of your funnel and shows where there’s room for improvement.
4. Specify Tools and Tasks
Similar to the last point about activities, clearly delineate who does what at each stage of the funnel. Where’s the hand-off between marketing and sales? What promotional material do we provide at each stage?
A showy social media post, for instance, might be good for a prospect at the awareness stage, but not for one in the decision stage. The latter would likely prefer a product comparison graphic. Each stage should be linked to content suited to the buyer’s interest level, encouraging them to continue along the funnel.
5. Regularly Maintain and Readjust Your Sales Funnel
If there’s a shift in your target audience, products, or industry trends, adjust your sales funnel accordingly. Even so, the time between tune-ups varies by company and industry. An e-commerce business may update its funnel every few months, while a lawyer might wait a decade.
But if you don’t maintain an effective funnel and stay relevant, you run the risk of losing customers to competitors offering a more up-to-date experience.
A sales funnel details a buyer’s journey, from the moment they first hear a company’s name to their post-purchase reviews and transformation into a loyal customer.
An effective sales funnel with clear stages optimizes marketing and sales activities, resulting in more sales and greater revenue. Companies without a robust sales funnel tend to fall behind, so it’s a good idea to take the time to develop one for you and your sales team.
Having a sales funnel helps businesses understand their customers’ buying journey and thoughts at each stage of the buying process. By mapping out the different funnel stages, businesses can create targeted marketing strategies to move potential customers from one stage to the next, ultimately converting them into paying customers. It can also help businesses identify areas where potential customers drop off and take corrective action.
To map out your sales funnel, first identify your target audience and the stages your customers go through in your customer journey. Set clear metrics, activities, and goals for each stage. Then, create content and sales strategies tailored to each stage to move customers down the funnel.
Once you’ve mapped out your sales funnel, update it regularly to stay relevant with your target audience. Additionally, if you have separate marketing and sales teams, clearly specify which team does what at each funnel stage to prevent inefficient overlaps and gaps.
Regardless of industry or size, all types of businesses should have a sales funnel to understand and cater to their customers, whose patronage companies need to survive. However, the stages and strategies used in the funnel may vary depending on the nature of the business and its target audience. It’s essential to tailor the sales funnel to fit the specific needs and objectives of the business.
To ensure your sales funnel is effective, track relevant metrics, such as conversion rates and customer engagement, and use that data to make data-driven decisions to optimize your funnel. Additionally, regularly test different strategies and content to identify what works best for your target audience and adjust accordingly.
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