What is a sales funnel used for in business? Imagine a funnel with all of your leads poured into the top, and the finished sales coming out of the bottom. A sales funnel is used to analyze and categorize all that happens between the top and the bottom.
The funnel shape is used because there are obviously a lot more leads pouring into the top than sales pouring out the bottom. As the funnel diameter narrows more and more leads drop off, and the funnel can be used to evaluate the reasons why this happens, and also to qualify leads at each stage down the funnel. The funnel exit need not be just completed sales, but can be categorized in any way that you want: they can even be fed into the top of a second funnel which then leads into a more complex funnel system.
The various sections of the funnel between the top an the bottom can include such procedures as contact, quotations, samples and any other part of your business process that converts leads to sales or whatever end result the funnel is designed to analyze. Whatever they are, it is critical for the system to work that each defined part of the funnel allows further qualification of the subject or lead, and that the stage can be identified and defined.
The sales funnel can be analyzed and compared with your sales plan. The funnel displays the actual situation and a comparison with the budget or plan can indicate, for example, if any part of the funnel is a bottleneck, and getting clogged up. This could indicate that a resource needs to be moved from one part of the funnel to another in order to clear the blockage. If the funnel report indicates that the budget is in danger of not being met, then more leads can be poured into the top, or if resources are being overloaded then either more are provided or a lid is temporarily put over the funnel.
The whole objective of a sales funnel is to maintain a steady flow from top to bottom, with the latter being the budget. Sometimes the funnel shape will have to change to ensure this. It does not matter whether your business is online or offline, the principle is the same. The first stage of a regular offline business is to get leads through answers to adverts or advertising campaigns. These sit at the top of your funnel. In an online business, your web pages with squeeze pages, SEO and adverts of various kinds sit at the top. Through these pass all the respondents who fall into the funnel. These include those that answer the advert, fill in a form, or respond to a free offer.
Once you have them there you can analyze how far they go and at what stage they fall out. You might offer them a fairly inexpensive product that they purchase, and fall farther down the funnel, or alternatively might request a sample of your product for evaluation or trial. The next stage in the funnel would be your next contact, such as enquiring as to the result of the trial, or even in an online business offering them a second, more expensive, product relevant to their own niche or interest.
You do not just qualify your leads in the funnel, but can also disqualify them. If you find that a particular lead in your sales funnel is hanging about in there without getting anywhere you could forcibly remove it and make room for more promising prospects. You don't want to be wasting time on leads that are relatively inactive since your funnel is expensive real estate and leads are only allowed so much time in there.
The most profitable part of your funnel is near the bottom where your highest valued products are offered. The top of your funnel is the advert, then farther down is the hook and lower value products, and the high value stuff is at the bottom. Many leads will be stuck half way through, satisfied with only your lower to middle range products, and once you have qualified them as such you will have to make the decision to disqualify them from the funnel if they show no further interest in your products.
The practicality of what a sales funnel can do for your business is that it allows you to analyze at what part in your sales procedure your leads tend to drop out, and so enable you to take appropriate action to retain them past that point, and also to determine what part of the procedure is undermanned or needs more resource to allow a smooth flow. A sales funnel might sound theoretical, but it is very practical and it works.
