sales-funnel

What Is A Sales Funnel And Is It Still Relevant?

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.

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 fo 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, that of 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 it ends with the product referral.

pirate-metrics
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.

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 marketign 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 on 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

sales-cycle-stages

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.

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, it can be a critical element to sustain 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 to completely miss the targets.

From attention to desire

aida-model
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 sales people use a common language to understand the journey potential 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, to the desire stage, can lead to misleading action that can wreck the whole relationship with the prospect.

Freeterprise

freeterprise-business-model
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 sales people, to close deals in much less time, and to shorten the sales cycle.

Marketing automatons like in freeterprise models can help sales people identify the right opportunities that can become enterprise account for the organization.

The social seller

social-selling
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. Platforms like LinkedIn are power tools for business developers and social sellers.

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

digital-business-models

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 more users join the more the platform becomes valuable for the users coming next. With this sort of logic of consolidation of the business infrastructure, also 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.

When companies start to prioritize on this sort of strategy, that is when they align their marketing efforts around a platform business model logic.

Customers vs. ecosystems and communities

Many companies that we value today have focused their efforts on building ecosystems made of a few key players coming together. When the ecosystem becomes liquid (players interact freely, with a minimum effort from the central platform) that is when 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 pandemic times, trying to convert from physical, and local experience, to digital experiences.

airbnb-business-model
Airbnb is stretching its business model and experimenting with new formats like online experiences to transition toward fully digital experiences.

Flywheels and momentum

amazon-flywheel
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 selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

When Jeff Bezos scratched on a piece of paper what would become the Amazon Flywheel (at Amazon they called it virtuous cycle), this was a way to align the marketing effort with the fact that Amazon was transitioning at all effect 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).

etsy-flywheel

Other examples, like the Etsy business model also follow the same logic. 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.

liquidity-network-effects

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:

uber-market-expansion

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 whole new business model.

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.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here