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Complete Guide to Understanding the Sales Funnel

David Gargaro
David Gargaro

What is the sales funnel, and why is it important to your business?

Creating the right type of sales funnel for your business can help to automate your marketing processes, scale your sales income and grow your business. This guide will introduce you to the concept of the sales funnel and help you apply it to your business.

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 a large number of prospects at the top who are aware of your business and its products or services. Some of those prospects funnel downward as a result of your marketing efforts, and a fraction of those prospects become customers when they reach the bottom of the funnel.

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, which has an advertisement for 25% 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.

Importance of the sales funnel

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

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, such as 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 and decide to make a purchase at the moment of discovery. However, it's more likely that this is the beginning of the relationship and that 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 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 are doing. If they provide an email address, you can nurture the lead with regular emails to build their interest in your company and its offerings.

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 so that they will purchase additional products or services in the future, as well as refer your business offerings 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

Creating 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, 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, 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 different types of target customers – you can create targeted sales funnels and content that 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 comes from posting content (e.g., blog posts, infographics, videos) on your social media platforms.

  • Paid traffic comes from purchasing advertisements on various platforms (e.g., Google, Facebook, LinkedIn).

  • Cold calling and emails involve 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 (e.g., download a white paper, watch a video, sign up for a newsletter to get an informative guide).

4. Develop an email marketing campaign.

Now that you've captured your prospects' email addresses, 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 to email prospects. You want to provide regular content to stay in touch but not have that contact be so frequent that you overwhelm them 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.

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 at this point. It's important to stay in touch with customers after they've made the purchase so that they will 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, as 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. Determine 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?

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.
Image Credit: g-stockstudio / Shutterstock
David Gargaro
David Gargaro
business.com Contributing Writer
David Gargaro is a content writer and copy editor with more than 20 years of experience in multiple industries, including publishing, advertising, marketing, finance, and small business. He has written on B2B-focused topics covering business technology, sales, marketing, and insurance. David has a Bachelor of Arts degree in English and Actuarial Science from the University of Toronto. He served as the managing editor of a small publishing company, and self-published a book called How to Run Your Company… Into the Ground.