Definition

sales funnel

A sales funnel, also called a purchase funnel, is the visual representation of the customer journey, depicting the sales process from awareness to action.

What is a sales funnel?

A sales funnel, also called a purchase funnel, is the visual representation of the customer journey, depicting the sales process from awareness to action.

The funnel, which is also sometimes referred to as a marketing funnel or revenue funnel, illustrates the idea that every sale begins with a large number of potential customers and ends with a much smaller number of people who actually make a purchase.

Why is implementing a sales funnel important?

There are several reasons why implementing a sales funnel is important, including the following:

  • Creates customers. The point of the sales funnel is to take a business's target audience and move the members through a series of steps that may eventually result in them becoming customers.
  • Generates referrals. In addition to acquiring a base target audience and group of customers, a sales funnel also spurs satisfied customers to refer other prospects that previously may not have fallen into the original target audience.
  • Monitors and tracks. A sales funnel enables organizations to see how well each step of the sales process is working and to make adjustments as needed. This helps ensure efficient use of time and sales resources. Pushing customers through the sales funnel creates useful feedback.
  • Focuses efforts. A sales funnel narrows the business's focus to a specific group of prospects. This makes it easier to reach target audience members and convert them into customers when they reach the bottom of the funnel. A sales funnel can also help businesses weed out unqualified prospects by requiring potential customers to go through a series of steps eventually leading to a purchase.

Today, a successful company relies on both sales and marketing to guide the customer through the sales funnel and to build customer loyalty, taking advantage of content marketing, customer data analytics and the two-way communication that social media marketing provides.

How the sales funnel works

Sales funnel stages will vary by company, but they are generally divided into the following four sections:

  1. Awareness. This stage includes the largest number of customer prospects. They have determined a problem, begun searching for a solution and become aware of an organization via Content marketing, an email campaign, social media marketing or other avenue.
  2. Interaction. At this stage, the number of customer prospects begins to decrease, but the possibility of a sales conversion increases. This is generally when the customer will engage with the organization and request more information. The prospect will also conduct competitive research to determine if the organization's product can best meet their needs.
  3. Interest. The prospect demonstrates increased interest in the organization by reaching out for answers to their questions. This stage of the process may include sales offers and further research into the different options the organization presents as well as pricing. If the customer declines to buy something, they cease to progress through the funnel.
  4. Action. All of the previous stages of the sales funnel culminate in the final step -- action. At this point, the customer has decided whether or not to purchase the product. If the prospect declines to make a purchase, the organization can use other marketing tactics to ensure their product stays top of mind.
The sales funnel begins with the potential customer's awareness and ends with them taking action on a particular product or service.

How to build a sales funnel for your business

There are several best practices a business should follow to build a successful sales funnel. These include the following:

  • Analyze audience behavior. This involves defining a target audience -- the people who will be drawn into the top of the funnel. For a web-based business this might mean analyzing metrics on how prospects use the site, including what they find most popular and the bounce rate that shows the amount of time they are on the business's webpages.
  • Capture audience attention. There needs to be something that initially draws an audience into the funnel. This may include rich media like infographics and videos or advertisements.
  • Direct the audience somewhere. Once their attention is captured, the prospects need a place to go. For a web-based business, this means using an attractive landing page that gathers data from the user experience and features a call to action that gets the prospect to engage.
  • Generate leads. Once the previous three steps are completed, it is important to continuously generate new leads to add to the funnel. There are several lead generation tools that businesses can use to help automate this process, including Salesforce, HubSpot and Leadformly.
  • Maintain relationships. Once leads are generated and captured, the most important step is to nurture these prospects into customers. The point of the sales funnel is to generate customers.

Sales funnel metrics

Companies use various metrics to analyze and score leads and prospects during the sales cycle to evaluate the success of their sales teams.

Examples of lead-to-revenue management metrics include the following:

  • Average order value. This shows how much revenue on average is generated with each order or purchase. This is important because it shows how valuable the average individual customer is.
  • Customer lifetime value. This quantifies the value of every sales opportunity in the funnel.
  • Conversion rate. This is the number of customer conversions divided by the total number of site visitors or those who have otherwise engaged with the business's product or service without yet becoming a customer. This is the percentage of leads that turn into customers.
  • Entrances. These are the number of leads that enter the funnel during a specific period of time.
  • Follow-ups. This is the number of prospects that follow up with and respond to the initial marketing efforts of the business.
  • Flow rate. Optimal flow rate is the average amount of time leads are in each stage of the funnel.
  • Total revenue. This is the total amount of revenue generated by all sales in a given period. This is a good measure of overall sales efficiency.
  • Win rate. This is the percentage of deal closings divided by the total number of deals in the pipeline.

Optimizing and managing your sales funnel

In addition to the best practices mentioned above, there are several marketing automation software options that can help businesses get the most out of their sales funnel, including the following:

  • Adobe Marketing Cloud. This tool comes as part of Adobe Experience Cloud's suite of products and services and features Marketo Engagement Platform.
  • HubSpot Marketing Hub. This customer relationship management software offers marketing, sales and customer service.
  • Salesforce Pardot. This marketing automation tool offers analytics features.

Some features that are useful in marketing automation and sales funnel software include the following:

  • Triggered emails. These can be automated and triggered by a user's browsing behavior.
  • SMS and push notifications. SMS messages and push notification are automated for mobile marketing campaigns.
  • ROI reporting. Return on investment can be monitored as an indicator of overall funnel health.
  • Lead management. A lead activity summary enables refined campaign targeting.
  • Offer management. A rules-based offer catalog enables marketers to assign weight to and track presentation of offers to customers.
  • Knowledge bases. A knowledge base provides employee and customer support through an online library of reference documents.
  • Lead generation. Automated features monitor customer interactions with landing pages as well built-in automated landing page designs.
  • Sales dashboard. Reporting and dashboards provide easy display of sales performance and measurement.
  • Sales alignment. Software enables granular analysis of an individual salesperson's activity.
  • SEO recommendations. Recommendations for making landing pages more attractive to customers and making blog posts perform better in search engines.
  • Customer data curation features. Customer analytics and data are optimized and organized for ease of use.
  • Customer feedback features. Feedback can be solicited through triggered emails and other software features.
  • Social media management. This allows customers to monitor user feedback on social media.
  • Multiple versions. Sales and marketing software may offer different tiers, from a free trial to pro plan.

In today's age of the customer, the journey a customer takes -- sometimes referred to as the customer lifecycle -- is less likely to be linear. For that reason, some experts prefer a flywheel model, which puts the customer at the center of an organization's marketing efforts. However, unlike a flywheel model, a sales funnel enables a business to be as granular as needed in its efforts to convert a prospect into a sale.

In some cases, the flywheel model is preferred to the sales funnel because it is continuous.

The goal of a sales funnel is to take prospective customers in and nurture them into true customers. Learn six ways to create a customer experience that helps ensure sales success.