Complete Guide to Understanding the Sales Funnel

What is a sales funnel?

A sales funnel is the step-by-step process that a prospect follows to become your customer. It’s called a funnel because the process begins with many prospects who are aware of your business and its products or services. Some of those prospects funnel downward as a result of your marketing efforts, while a fraction become customers when they reach the bottom of the funnel.

“A sales funnel allows you to have all revenue-generating employees following the same process, and thus the same customer outcomes,” said Christina Brady, co-founder and CEO of Luster AI. “It allows for expertise and mastery at the rep level, which will increase sales velocity and provide a higher NPS.”

For example, here’s how a sales funnel for a retail store in a mall might work:

• People walking through the mall pass by a retail store. It has an advertisement for 25 percent off summer clothes. This is the top of the funnel.
• A percentage of people walking by the store enter to look at some of the summer dresses on sale. This is the next step in the funnel.
• One customer takes two dresses to the checkout. This is the last step in the funnel — when the customer either completes the purchase or leaves the store without the dresses.

“Businesses can better understand their sales funnel by mapping out stages [of the funnel] and the associated customer behaviors; tracking how many leads move from one stage to the next to identify drop-off points; [and] using CRM tools … to monitor interactions and engagement at each stage,” said Farah Ahmed, a content marketing specialist at ZillionDesigns.

Importance of the sales funnel

The sales funnel is a visual representation of your sales development process. It demonstrates how prospects first enter and then travel along the path to the final sale.

It helps you understand how your sales process works.

Understanding your sales funnel shows how your sales process works, as well as its flaws and where prospects drop out of the funnel and fail to convert. Identifying the holes in your sales funnel will enable you to correct the problems and convert more prospects into customers.

It helps improve your marketing and sales tactics.

Through the careful analysis of all its steps, the sales and marketing teams are able to tailor their efforts by testing different ideas and techniques. This achieves a higher chance of retaining customers throughout the funnel and making sales when it’s all said and done. The practicality of a sales funnel is monumental for competitive business markets. And, through today’s technological advancements, data can swiftly be gathered to show what exactly went wrong in a given sales process.

For instance, Google Analytics is a tool that can be used when trying to study the effectiveness of certain parts of a sales funnel. Marketing strategists are able to monitor customer activity and engagement across company websites. This way, they can see which pages experienced losses of interest leading to customer exits and failure to obtain sales.

It helps you understand where sales fall through.

When you understand your sales funnel, you can identify where potential customers are most likely to stall. When you know where sales fall through, you can work to address the friction points that prevent you from closing a deal.

For example, you may look at a website’s shopping cart page and see the rate of customer withdrawal, despite products being placed in their shopping carts. From there, marketers can theorize why customers chose not to move on to the next stage of payment. Advanced programs and software can be extremely useful to marketers and sales professionals today — increasing efficiency and optimizing outcomes in tight sales brackets.

“Marketers — especially digital marketers — need to understand that loading the top of the funnel with participants who never make it to the bottom often is a waste of marketing resources as well as sales resources,” said Anthony Miyazaki, professor of marketing at Florida International University. “Marketers need to respect the experience, customer connections, and selling mentality of the sales teams and support them in their efforts. After all, with no resulting sales, marketing is a waste of time and money.”

>> Learn more: How to Build a Positive Sales Culture

Stages of the sales funnel

There are four stages of the sales funnel: awareness, interest, decision and action.

Each stage represents the mindset of your potential customer, as well as the approach you should take in marketing to the prospect at that stage.

1. Awareness.

During this stage, a prospect becomes aware of your business and its products or services. The awareness could occur in many ways: through an advertisement, Facebook post, Google search, tweet, forwarded email, postcard or website visit.

In some cases, the prospect might realize that they have a need or problem to solve. They could then become aware that you offer a solution. It’s entirely possible that they become aware of your company and its solution at just the right time; then, they decide to make a purchase at the moment of discovery. However, it’s more likely that this is the beginning of the relationship. Now, you will have to spend time building up trust and leading them to the next stage in the sales funnel.

2. Interest.

During this stage, the prospect is interested enough to gather more information on your company and its offerings. They might do some research and compare the different options.

At this point, it would be ideal to attract the prospect with the right content. Rather than selling, the goal is to inform and educate. This allows you to demonstrate your knowledge and expertise in the area of interest. For example, it might be a case study about how a company used your product to solve a similar problem. Or, it could be a white paper on different ways to deal with a similar situation. It’s not the time to sell or push your product, as you could drive the prospect away by being too sales-focused.

An interested prospect might sign up for your newsletter or email list or subscribe to your social media page to follow what you’re doing. If they provide an email address, you can nurture the lead with regular emails to build interest.

3. Decision.

At this stage, the prospect is ready to buy. They might consider your company’s product or service as the best choice. Or, they might rank your offering as one of their two or three best options.

This is the time when you would make the best offer: a discount code for a first purchase, a bonus product when they order by a certain time or free shipping when they spend a minimum amount. It should be a relevant and irresistible offer so that the prospect will be encouraged to make the purchase. The sales offer can take different forms, such as a sales call, email, redirect to a sales page, webinar or other interaction.

4. Action.

This is the last part of the sales funnel: when the prospect becomes a customer and makes the purchase. They buy your product or service and finalize the deal.

Even though the customer has reached the bottom of the sales funnel, the process is not complete. The customer has taken action and now you must focus on customer retention; this way, they’ll purchase additional products or services in the future as well as refer you to others. This process involves creating and sending the right content to your customers at the right time. Here are some examples of actions you could take:

• Thank them for making the purchase.
• Make yourself available for training, education and support.
• Invite them for feedback or input through surveys and outreach.
• Email or mail special offers and discounts.
• Share product usage and technical assistance guides.

How to create a sales funnel

There are different ways to create a sales funnel, and the right one for you will depend on your business and your goals. One effective strategy is to use the following steps:

1. Collect and analyze data about your audience.

Before you can create an effective sales funnel, you must understand your ideal target customers. You need to know their specific goals and needs. You also need to know what they have done to meet their needs and achieve their goals, and how your products or services address those needs and goals. The results of this analysis will enable you to create content that speaks to your target audience. It will also help you gain insight into how to improve or add to your existing products or services and improve your sales funnel to focus on key selling points.

You should also analyze the behavior of your target customers when they visit your website or interact with emails and other marketing information. You’ll want to know where they click, where they spend most of their time, what they spend time reading and how long they spend on a particular page.

All of this information enables you to create buyer personas for each type of customer. Different people have various reasons for buying your products or services, as well as different uses for them. By developing buyer personas — fictionalized representations of your various target customers — you can create targeted sales funnels and content. Both of which will lead to better buying experiences for each group.

2. Capture your audience’s attention.

To get people to buy, you have to get them to enter your sales funnel. And to entice them, you must put the right content in front of the right people at the right time.

There are several ways to capture your audience’s attention:

• Organic (free) traffic: posting content, such as blog posts, infographics and videos, on your social media platforms.
• Paid traffic: purchasing advertisements on various platforms, such as Google, Facebook and LinkedIn.
• Cold calling and emails: reaching out to companies and people who might have a need for your product or service.

3. Create a landing page.

Once prospects have seen your content, they need to end up somewhere following your call to action. One option is to send the prospect to a landing page.

A landing page is a website or page that contains an attractive offer. Most visitors to your landing page will be in the interest stage, so the focus of the landing page is to capture leads rather than make sales. The page explains the next step in the sales process and provides a strong call to action. The latter can be downloading a white paper, watching a video or signing up for a newsletter to get an informative guide.

4. Develop an email marketing campaign.

You’ve captured your prospects’ email addresses? Now it’s time to market to them through an email marketing campaign. Provide great content that builds their interest in your product or service offerings and the solutions you provide. Don’t go for the sale yet; educate your prospects first and give them valuable, useful content through your emails.

One thing to consider is how often you should email prospects. You want to provide regular content to stay in touch. But, you don’t want that contact to be so frequent that you overwhelm and compel them to unsubscribe. One or two emails per week is regular enough to stay in touch and top of mind without wearing out your welcome.

What you’ve learned about your prospects up to this point will help you create the right content for your email marketing campaign. Understand what your prospects want to learn about, what problems they need to solve or what goals they want to achieve. Also, consider the obstacles or reasons they would not want to purchase from you.

Once you complete the email marketing campaign, state your offer. Make it good and preferably irresistible to the prospect. This key content should inspire them to make a purchase. [Related article: 10 Ways to Generate More Sales Leads for Your Business.]

5. Stay in touch with existing customers.

The sales funnel does its job when the customer makes the purchase. However, your interaction should not end here. It’s important to stay in touch with customers after they’ve made the purchase. This way, they’ll continue to buy from you and refer your business to others.

There are many ways to stay in touch with customers after the sale:

• Thank them for their purchase.
• Engage with them on social media.
• Provide coupons and discounts for future purchases.
• Send them to private pages with special offers and information for customers only.

Evaluating the success of your sales funnel

A sales funnel is not a static tool. After you’ve created a sales funnel, measure and evaluate its success to identify any holes and improve its effectiveness. Sales funnels should change with time; you will learn about your customers, develop new products and services, and invest in new technologies.

To determine the effectiveness of your sales funnel, track your conversion rates. See how many prospects sign up for your email list after clicking on advertisements on different websites. Gather data on how many prospects click specific links, download different informational products, visit various pages on your site and make a purchase.

Evaluate what happens at each stage of the sales funnel. Ask yourself these questions to determine where you need to improve your sales funnel:

• How many prospects are you attracting daily, weekly and monthly with your content?
• How many prospects are providing you with an email address or contact information?
• How many purchases are you getting from a recent email marketing campaign?
• How many times do customers make repeat purchases?

Best practices for optimizing your sales funnel

Even if your sales funnel is doing its job, there are still ways to improve it. It’s important to optimize your sales funnel so that it runs more efficiently and effectively. Some parts of your sales funnel could cause you to lose prospects more quickly than others.

Follow these strategies for optimizing your sales funnel:

• Focus on the areas of your sales funnel where people move to the next stage.
• Run multiple versions of the same advertisements and content using different headings and offers.
• Direct content to different buyer personas and target potential customers on various social media sites to put the content in front of the right people.
• Do A/B testing of your landing pages to see what works more effectively to convert leads.
• Do A/B testing of your email campaigns, changing the heading, language, layout, imagery and other factors to see what provides the greatest response rates.
• Test your offers to see whether one produces a better conversion rate than another. For example, some people respond well to free shipping while others might prefer a discount.
• Track your customer retention rate to see how many times customers return to make purchases.
• Track your referrals to see how many customers are sending new prospects your way.

Sean Peek and Jacob Bierer-Nielsen contributed to this article.