The sales funnel is a model used in marketing to represent an ideal, potential journey that potential customers go through before becoming actual customers. As a representation, it is also often an approximation that helps marketing and sales teams structure their processes at scale, thus building repeatable sales and marketing tactics to convert customers.
Aspect
Explanation
Concept
The Sales Funnel, also known as the purchase funnel or sales pipeline, is a visual representation of the customer journey from initial awareness to making a purchase. It illustrates the stages that potential customers go through as they interact with a business, from the top of the funnel (TOFU) to the bottom of the funnel (BOFU). Understanding and optimizing the sales funnel is crucial for businesses to convert leads into customers effectively.
Key Stages
The sales funnel typically consists of the following key stages: – Awareness: At the top of the funnel, potential customers become aware of a product or service through marketing efforts, such as advertising, social media, or content marketing. – Interest: In this stage, prospects show interest and engage with the business by exploring its offerings, visiting the website, or subscribing to newsletters. – Consideration: Prospects evaluate the product or service, comparing it with alternatives and seeking more information. – Intent: At this stage, prospects signal their intent to purchase by requesting quotes, signing up for trials, or adding items to their cart. – Purchase: The final stage is when prospects become customers by completing a purchase or signing a contract.
Conversion Rates
The funnel is not linear, and not all prospects progress through all stages. Conversion rates represent the percentage of prospects who move from one stage to the next. Tracking and optimizing these rates is critical for improving the sales process.
Application
The sales funnel serves several purposes in business: – Lead Generation: It guides lead generation efforts, helping businesses target and attract potential customers effectively. – Customer Journey Mapping: It helps map out and understand the customer’s path, allowing for tailored marketing and sales strategies. – Sales Forecasting: By tracking conversion rates and the number of leads at each stage, businesses can forecast future sales and revenue. – Optimization: Analyzing the funnel helps identify bottlenecks and areas for improvement in the sales process.
Benefits
Utilizing the sales funnel provides various benefits: – Efficient Resource Allocation: Businesses can allocate marketing and sales resources more efficiently by focusing efforts on stages with lower conversion rates. – Improved Customer Experience: Tailored content and interactions at each stage enhance the overall customer experience. – Higher Conversions: By addressing customer needs and objections at each stage, businesses can increase the likelihood of conversion.
Challenges
Challenges associated with the sales funnel include: – Customer Behavior Variability: Different customers progress through the funnel at varying speeds and with different behaviors, making it challenging to create one-size-fits-all strategies. – Data Accuracy: Accurate data collection and tracking are essential for funnel analysis, and errors or incomplete data can lead to inaccurate insights. – Competitive Landscape: External factors, including competitors’ actions and market changes, can impact the funnel and require constant adaptation.
Real-World Application
– E-commerce businesses often use sales funnels to guide website visitors from product discovery to checkout. – B2B companies employ sales funnels to manage complex, multi-step sales processes, including lead nurturing and contract negotiation. – Subscription-based businesses use funnels to convert free trial users into paying customers.
Table of Contents
Have sales funnels ever existed in the real world?
The sales funnel is just a representation of reality; as such, it has its own drawbacks, such as:
Assuming most customers reach you through the same path can drive bad marketing campaigns.
Assuming the sales cycle is linear, when it’s not, it can create the illusion of understanding for the customer.
Simplifying too much the sales funnel means losing significant opportunities as the service won’t correctly be tailored for more complex shots.
And yet the sales funnel has been a useful tool for marketing and salespeople as a way to communicate and talk about the way customers get to know a brand.
In short, sales funnels introduced a consumer-centered approach to sales that required marketing people to get aligned with potential customers, thus identifying potential actions to take to unlock the potential of a product.
Therefore, the funnel answers an important function: setting a team’s priorities. So even with its evident limitations, it can still be a great tool for teams.
A team’s prioritization tool
A classic example of sales funnel is the AARRR funnel, which is a longer version as it relates to subscription-based or SaaS companies for which the journey of the potential customer starts with the awareness of the brand, and ends with the product referral.
Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables one to understand what metrics and channels to look at, at each stage for the users’ path toward becoming customers and referrers of a brand.
This means that the sales funnel helps the whole team understand the kind of actions to undertake for each step of the journey.
For instance, if the marketing team has identified the problem in the acquisition stage, where only a few contacts get to know the brand, then they will know to leverage certain channels rather than others (for instance, SEO, email marketing, PR, or else, rather than working on-page conversions).
If instead, the marketing team has identified the problem in the activation stage, then other things will need to be prioritized, such as landing page conversions or perhaps product features.
Shortening the sales cycle
One of the elements that, most of all, can damage the bottom line is a mistake in understanding the sales cycle for larger customers.
As sales deals move from small and B2C to larger and more complex deals, the sales cycle becomes increasingly volatile.
B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.
Thus, deals that you thought might close in a few weeks, take months, and this, in turn, affects the health of the overall organization.
Therefore, having a sales funnel to prioritize at each step of the cycle can be a critical element in sustaining the company.
In short, if you know that important deals will take closer than expected to close, you will need to fill the so-called sales pipeline quickly to prevent completely missing the targets.
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.
From attention to desire
AIDA stands for attention, interest, desire, and action. That is a model that is used in marketing to describe the potential journey a customer might go through before purchasing a product or service. The AIDA model helps organizations focus their efforts when optimizing their marketing activities based on the customers’ journeys.
Sales funnels or mental models like the AIDA model can help salespeople use a common language to understand the potential journey customers are taking.
And it becomes a tool to question whether the lead is ready for conversion. In short, mistaking a lead at the interest stage for the desired stage can lead to misleading action that can wreck the whole relationship with the prospect.
Freeterprise
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
When marketing works well, it can become an incredible tool in the hands of salespeople to close deals in much less time and to shorten the sales cycle.
Marketing automatons like in freeterprise models can help salespeople identify the right opportunities that can become enterprise accounts for the organization.
The social seller
Social selling is a process of developing trust, rapport, and a relationship with a prospect to enhance the sales cycle. It usually happens through tech platforms (like LinkedIn, Twitter, Facebook, and more), which enable salespeople to engage with potential prospects before closing the sale, thus becoming more effective.
In the era of digital platforms, sales teams can leverage tools to make the process more effective.
And they have become indispensable tools for sales teams.
The sales funnel has started to morph into something else, as digital business models took over.
Digital platforms
As digital platforms have become among the dominant players of this era, they also learned to take advantage of intrinsic features of digital spaces, that before would not be available.
Indeed, platforms can leverage network effects, whereas the more users join the more the platform becomes valuable for the users coming next.
With this logic of consolidation of the business infrastructure, marketing teams followed suit.
This means that marketing or sales aren’t necessarily made on a one-to-one basis (complex sales and business deals still are) but that the marketing team becomes more like a policy-making lab, where it needs to experiment with all the sorts of ways to build ecosystems rather than just getting the next customers in.
Many companies we value today have focused their efforts on building ecosystems of a few key players coming together.
When the ecosystem becomes liquid (players interact freely, with a minimum effort from the central platform), the platform has reached its maximum potential.
Therefore, as this happens, marketing becomes the set of activities to help this ecosystem to build up in the first place and to maintain or grow. In that, the marketer becomes more like a policy-maker or a community-builder.
When a company creates an ecosystem, it becomes possible to convert its business model, relatively quickly.
See how Airbnb is during the pandemic times, trying to convert from physical and local experiences to digital experiences.
Airbnb is stretching its business model and experimenting with new formats like online experiences to transition toward fully digital experiences.
As the effects of the pandemic on Airbnb’s business model ended, Airbnb shifted again to its growth engine, and it turned out to be a much stronger company than before!
In 2021, Airbnb generated enabled $46.9 Billion in Gross Booking Value, and it generated $6 Billion in service fee revenues. On 2021, there were $300.6 Million Nights and Experiences Booked, ad an average service fee of 12.78%, at an Average Value per Booking $155.94.
Flywheels and momentum
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selection of goods, and Amazon further improves its cost structure to decrease prices that spin the flywheel.
When Jeff Bezos scratched on a piece of paper what would become the Amazon Flywheel (at Amazon, they called it a virtuous cycle), this was a way to align the marketing effort with the fact that Amazon was transitioning at all effects to consolidate its e-commerce platform (so enable third-party stores to sell on Amazon, which as a side-effect brought to the birth of another platform: Amazon AWS).
As the flywheel model gains momentum, you don’t start from scratch, but when the accumulated momentum reaches a critical mass as a side effect, an entrepreneurial ecosystem forms, which becomes the most important asset for the platform business model.
Therefore, marketing at this level becomes a completely different game.
Other examples, like the Uber business model, also combine platform (both business and technical) and marketing efforts to build momentum.
The argument from a company like Uber is that when the ecosystem becomes liquid, this creates s market which is much larger than the previous one:
At each expansion stage, the next market created is much bigger than the previous, and as a result, the platform scales with it.
By scaling with the market, the whole context changes, and the whole company changes with it, thus requiring a new business model.
Case Studies
E-commerce:
Fashion Retail Sales Funnel:
Discovery: Customers discover clothing items through online ads, social media, or website search.
Selection: They select products, view product details, and add desired items to their shopping cart.
Checkout: Customers proceed to checkout, enter shipping and payment information, and review their order.
Purchase: They complete the purchase, receiving an order confirmation and tracking details.
Electronics Store Sales Funnel:
Research: Shoppers research electronic gadgets, comparing specifications and reading customer reviews.
Selection: After choosing products that fit their needs, they add items to the cart.
Checkout: Customers go to the checkout page, where they provide shipping and payment details.
Purchase: They finalize the purchase, receiving an order confirmation and delivery updates.
Beauty Products Sales Funnel:
Exploration: Beauty enthusiasts explore skincare and makeup products through brand websites and beauty influencers.
Selection: They select products based on their needs, adding them to their online shopping cart.
Checkout: Customers proceed to the checkout, entering delivery information and payment details.
Purchase: They complete the purchase, receiving a confirmation email and shipping notifications.
Home Decor Sales Funnel:
Inspiration: Homeowners and decorators seek inspiration on home decor websites, social media, or in-store displays.
Selection: After choosing decor items, they add them to their virtual shopping cart.
Checkout: Customers proceed to checkout, providing shipping and payment information.
Purchase: They finalize the purchase, receiving confirmation and delivery updates.
Subscription Services:
Streaming Services Sales Funnel:
Sign-up: Users sign up for streaming platforms, providing email addresses and creating accounts.
Free Trial: They enjoy a free trial period with access to premium content.
Subscription: Customers subscribe to premium plans, providing payment details.
Continued Streaming: Users continue streaming content, with subscriptions auto-renewing until canceled.
Customization: They customize ingredients and dietary preferences for their meal kits.
Subscription: Customers subscribe to meal kit services, with recurring deliveries scheduled.
Regular Deliveries: Subscribers receive regular deliveries of meal kits per their chosen schedule.
Magazine Subscription Sales Funnel:
Interest: Readers discover magazines through advertisements or online recommendations.
Selection: They choose subscription packages (e.g., digital, print, or both).
Payment: Customers make payments for the selected subscription plan.
Monthly Issues: Subscribers receive monthly issues or access digital content as part of their subscription.
Education and Training:
University Enrollment Sales Funnel:
Exploration: Prospective students research universities, explore programs, and visit campus websites.
Application: They complete university applications, providing academic records and personal information.
Acceptance: Students receive acceptance offers from the university.
Enrollment: Accepted students enroll in programs, pay tuition, and attend classes.
Online Tutoring Sales Funnel:
Inquiry: Parents or students inquire about online tutoring services.
Scheduling: They schedule tutoring sessions based on availability and subject requirements.
Learning: Students attend online tutoring sessions, receiving academic support.
Ongoing Sessions: Learners continue attending sessions as needed to achieve academic goals.
Language Learning App Sales Funnel:
Download: Language learners download language learning apps from app stores.
Trial: Users complete free trial lessons, experiencing the app’s language learning features.
Subscription: Customers subscribe to premium plans with access to advanced language courses.
Skill Improvement: Subscribers use the app to improve language skills through structured lessons.
Key takeaways
Sales funnels are useful tools that enable sales and marketing teams to prioritize their work.
While sales funnels are useful for digital and platform business models, the flywheel can be more effective.
Indeed a flywheel marketing model can help build an ecosystem that becomes the main asset of the platform.
Key Highlights:
Sales Funnel Overview:
The sales funnel is a marketing model that represents the ideal customer journey from potential prospects to actual customers.
It helps structure sales and marketing processes for scalable and repeatable tactics.
Representation vs. Reality:
The sales funnel is a simplified representation of the customer journey and has limitations, including assuming a linear sales cycle and a one-size-fits-all approach.
Consumer-Centered Approach:
Sales funnels introduced a consumer-centric approach, aligning marketing efforts with potential customers and identifying actions to unlock a product’s potential.
Team Prioritization Tool:
Sales funnels help teams prioritize actions at each stage of the customer journey based on identified issues or challenges.
AARRR Funnel:
The AARRR funnel is an extended version of the sales funnel, particularly relevant for subscription-based or SaaS companies, covering stages from awareness to product referral.
Shortening the Sales Cycle:
Understanding the sales cycle, especially for larger customers, is critical to preventing delays in closing deals.
Sales funnels help prioritize actions and fill the sales pipeline.
AIDA Model:
The AIDA model (Attention, Interest, Desire, Action) is another marketing model that helps optimize marketing activities based on customer journeys.
Freeterprise Model:
Freeterprise combines free and enterprise models, with free users converted into enterprise accounts by sales teams using marketing automation.
Social Selling:
Social selling involves developing trust and rapport with prospects through online platforms like LinkedIn, enhancing the sales cycle’s effectiveness.
Digital Platforms and Ecosystems:
Digital platforms leverage network effects and ecosystem building, leading to a shift in marketing’s role from acquiring customers to ecosystem development.
Flywheels and Momentum:
Flywheel models like Amazon’s Virtuous Cycle focus on customer experience, driving platform growth and creating entrepreneurial ecosystems.
Uber’s example shows how a scaling market can necessitate a new business model.
Key Takeaways:
Sales funnels are valuable for prioritizing sales and marketing efforts.
For platform-based businesses, the flywheel model can be more effective in building and sustaining ecosystems.
Marketing plays a crucial role in ecosystem development and platform scaling.
Sales Funnel Types Case Studies
Scenario
Description
Implications
Example
E-commerce Sales Funnel
In e-commerce, the Sales Funnel outlines the stages a website visitor goes through from browsing to making a purchase, including product discovery, adding items to the cart, and completing the checkout process.
– Identifies drop-off points and areas for website optimization. – Guides retargeting and abandoned cart email campaigns. – Helps forecast sales revenue and set conversion goals.
Example: An online clothing store’s Sales Funnel includes website visitors, product viewers, cart additions, and completed purchases.
B2B Sales Funnel
In B2B sales, the Sales Funnel represents the journey of a business customer, from initial contact or lead generation to deal closure and contract signing, with stages like lead, prospect, proposal, and negotiation.
– Supports lead scoring and prioritization of high-value leads. – Aids in pipeline management and sales forecasting. – Assists in identifying bottlenecks and improving sales processes.
Example: A software company’s B2B Sales Funnel includes leads generated through website forms, followed by prospecting, product demos, proposals, negotiations, and contract closures.
SaaS Subscription Funnel
SaaS companies use the Sales Funnel to illustrate the process of acquiring and retaining subscription customers, starting with sign-ups or free trials and progressing through onboarding, activation, and subscription renewals.
– Helps analyze user behavior and optimize onboarding experiences. – Guides efforts to reduce churn and increase customer engagement. – Provides insights into user segmentation and feature adoption.
Example: A cloud-based project management tool’s Sales Funnel begins with free trial sign-ups, followed by trial usage, activation, subscription conversions, and ongoing renewals.
Real Estate Sales Funnel
In real estate, the Sales Funnel represents the steps a potential homebuyer takes, starting with property search and inquiry, proceeding to property viewing, offers, negotiations, and closing the sale.
– Assists in tracking leads and managing buyer-agent relationships. – Helps real estate agents understand buyer intent and preferences. – Guides marketing efforts for property listings and open houses.
Example: A real estate agency’s Sales Funnel tracks leads generated from online listings, inquiries, property showings, offers, counteroffers, and final sale agreements.
Lead Generation Funnel
Lead generation funnels are often used in marketing to illustrate the process of turning website visitors or social media users into leads through content marketing, email capture, and lead nurturing, leading to sales conversions.
– Informs content creation and email marketing strategies. – Measures lead quality and conversion rates. – Enables continuous optimization of lead generation efforts.
Example: A digital marketing agency’s Lead Generation Funnel begins with website traffic, followed by lead capture through gated content, lead nurturing emails, and conversion into paying clients.
Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, and sales typically leverage a one-to-one approach. The business development’s role is that of generating distribution.
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.
A sales cycle is the process that your company takes to sell your services and products. In simple words, it’s a series of steps that your sales reps need to go through with prospects that lead up to a closed sale.
RevOps – short for Revenue Operations – is a framework that aims to maximize the revenue potential of an organization. RevOps seeks to align these departments by giving them access to the same data and tools. With shared information, each then understands their role in the sales funnel and can work collaboratively to increase revenue.
In negotiation theory, BATNA stands for “Best Alternative To a Negotiated Agreement,” and it’s one of the key tenets of negotiation theory. Indeed, it describes the best course of action a party can take if negotiations fail to reach an agreement. This simple strategy can help improve the negotiation as each party is (in theory) willing to take the best course of action, as otherwise, an agreement won’t be reached.
In negotiation, WATNA stands for “worst alternative to a negotiated agreement,” representing one of several alternative options if a resolution cannot be reached. This is a useful technique to help understand what might be a negotiation outcome, that even if negative is still better than a WATNA, making the deal still feasible.
The ZOPA (zone of possible agreement) describes an area in which two negotiation parties may find common ground. Indeed, ZOPA is critical to explore the deals where the parties get a mutually beneficial outcome to prevent the risk of a win-lose, or lose-win scenario. And therefore get to the point of a win-win negotiation outcome.
Revenue modeling is a process of incorporating a sustainable financial model for revenue generation within a business model design. Revenue modeling can help to understand what options make more sense in creating a digital business from scratch; alternatively, it can help in analyzing existing digital businesses and reverse engineer them.
Customer experience maps are visual representations of every encounter a customer has with a brand. On a customer experience map, interactions called touchpoints visually denote each interaction that a business has with its consumers. Typically, these include every interaction from the first contact to marketing, branding, sales, and customer support.
AIDA stands for attention, interest, desire, and action. That is a model that is used in marketing to describe the potential journey a customer might go through before purchasing a product or service. The AIDA model helps organizations focus their efforts when optimizing their marketing activities based on the customers’ journeys.
Social selling is a process of developing trust, rapport, and a relationship with a prospect to enhance the sales cycle. It usually happens through tech platforms (like LinkedIn, Twitter, Facebook, and more), which enable salespeople to engage with potential prospects before closing the sale, thus becoming more effective.
The CHAMP methodology is an iteration of the BANT sales process for modern B2B applications. While budget, authority, need, and timing are important aspects of qualifying sales leads, the CHAMP methodology was developed after sales reps questioned the order in which the BANT process is followed.
The BANT process was conceived at IBM in the 1950s as a way to quickly identify prospects most likely to make a purchase. Despite its introduction around 70 years ago, the BANT process remains relevant today and was formally adopted into IBM’s Business Agility Solution Identification Guide.
The MEDDIC sales process was developed in 1996 by Dick Dunkel at software company Parametric Technology Corporation (PTC). The MEDDIC sales process is a framework used by B2B sales teams to foster predictable and efficient growth.
STP marketing simplifies the market segmentation process and is one of the most commonly used approaches in modern marketing. The core focus of STP marketing is commercial effectiveness. Marketers use the approach to select the most valuable segments from a target audience and develop a product positioning strategy and marketing mix for each.
The sales funnel is a model used in marketing to represent an ideal, potential journey that potential customers go through before becoming actual customers. As a representation, it is also often an approximation, that helps marketing and sales teams structure their processes at scale, thus building repeatable sales and marketing tactics to convert customers.
Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables to understand what metrics and channels to look at, at each stage for the users’ path toward becoming customers and referrers of a brand.
The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.
Business storytelling is a critical part of developing a business model. Indeed, the way you frame the story of your organization will influence its brand in the long-term. That’s because your brand story is tied to your brand identity, and it enables people to identify with a company.
Enterprise sales describes the procurement of large contracts that tend to be characterized by multiple decision-makers, complicated implementation, higher risk levels, or longer sales cycles.
Outside sales occur when a salesperson meets with prospects or customers in the field. This sort of sales function is critical to acquire larger accounts, like enterprise customers, for which the acquisition process is usually longer, more complex and it requires the understanding of the target organization. Thus the outside sales will cut through the noise to acquire a large enterprise account for the organization.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
Zero to One is a book by Peter Thiel. But it also represents a business mindset, more typical of tech, where building something wholly new is the default mode, rather than building something incrementally better. The core premise of Zero to One then is that it’s much more valuable to create a whole new market/product rather than starting from existing markets.
Palantir is a software company offering intelligence services from governments and institutions to large commercial organizations. The company’s two main platforms Gotham and Foundry, are integrated at enterprise-level. Its business model follows three phases: Acquire, Expand, and Scale. The company bears the pilot costs in the acquire and expand phases, and it runs at a loss. Where in the scale phase, the customers’ contribution margins become positive.
Consultative selling is a sales approach favoring relationship building and open dialogue to adequately meet the needs of a prospective customer. By building trust quickly a consultative selling approach can help the customer better meet her/his expectations and the salesperson hit her/his targets more effectively.
A unique selling proposition (USP) enables a business to differentiate itself from its competitors. Importantly, a USP enables a business to stand for something that they, in turn, become known among consumers. A strong and recognizable USP is crucial to operating successfully in competitive markets.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
