One of the most important concepts for anyone selling products or services is known as the sales funnel (also called sales tunnel or sales pipeline). In this lesson, we will explain the concept and illustrate how you can use it to structure your marketing activities and to increase your revenues.
The Classic Sales Funnel
The main purpose of the sales funnel is to offer a visual representation of the steps that customers need to go through, from the moment they first hear about your company or its products, to the moment when they make one or more purchases. By mapping those different layers and by understanding what forces are affecting them companies can increase their sales and, consequently, their profits.
There are several ways to create a sales funnel, depending on the company and business model. A company that sells tailored software solutions, for example, would need to include a step to discuss with potential clients about their requirements and another step for the customer to evaluate the software solution once it is done. A company that sell shoes, on the other hand, would not need those intermediate stages.
It is possible to create a generic sales funnel that will represent the basic sales process of most companies, though. It is divided into five layers: marketing campaigns, leads, opportunities, customers and accounts.
1. Marketing campaigns: The first step in most sales funnels is to raise the awareness of people about the company and/or its products. Traditionally this was done with broadcast advertising, direct mail, trade show marketing, telemarketing, seminars and other offline advertising methods. After the explosion of the Internet companies are gradually integrating online marketing into their campaigns as well.
2. Leads: Of all the people who will be exposed to the marketing campaigns of the company, some will express an interest either in purchasing the product or in getting to know more about it. These are called leads. The sign of interest could be a telephone contact with the company, a response to a television promotion, the attendance at a seminar being held by the company and so on. Sometimes the lead will not personally express his interest, but the company will identify him as a potential buyer from indirect sources (e.g., a list of people divided by income brackets or other demographic factors).
3. Opportunities: At the third stage the sales team of the company will analyze all the leads, determining whether or not they really have a problem that the company can solve, whether or not they meet the financial requirements to pay for the company’s products and so on. The leads that get evaluated positively will pass to this stage and will be called opportunities (or prospects).
4. Customers: The sales team will now work closely with the identified opportunities, present quotes, negotiate on prices and possibly close the deal. Those that end up purchasing the products or services of the company are the customers.
5. Accounts: Companies that sell to a relatively small number of clients (e.g., airplane or mobile phone manufacturers) usually have customer accounts. Each account will be handled by one or more employees of the company, and the objective of the account manager is to build a solid relationship with the client, making sure that the company will satisfy all its needs and that the client will buy from the company as often as possible.
The Online Sales Funnel
The sales funnel described above is quite suitable for large organizations selling offline products and services, with a team of sales people working throughout the pipeline. For a company that sells exclusively online, and that is managed by few people (if not by a single entrepreneur), that funnel becomes obsolete, and here are the reasons.
An online business will predominantly use online marketing campaigns to promote its products and services, and this can be seen as traffic generation.
Secondly, thanks to the interactivity of the Internet, online lead generation is a much more efficient process than offline generation. This means that an online company will work with a much higher number of leads, and it would be impossible to analyze each of those leads individually with the goal of identifying opportunities.
Finally, online businesses are also likely to have many small clients scattered all over the world, so creating individual customer accounts would not be efficient.
Considering all those points it is possible to create a much simpler online sales funnel, with three main layers: traffic, leads and customers.1. Traffic: For online businesses, it all starts with traffic. Any online marketing campaign will have the objective of driving traffic to your website. Those will range from blogging to the release of reports and ebooks, from banners to PPC and social media optimization.
2. Leads: Of all the people who will visit your website, some will express an interest in your products or services. This interest might be a message via the contact form, a subscription to your email newsletter, or even a comment in one of the posts inside the company blog.
3. Customers: The last step is to work with the leads to maximize the chances of closing the deal and converting them into customers. Depending on the number of leads that you have, you will follow up with them individually or automate the process, with an email auto-responder, for example. Some online businesses will have a small number of clients (e.g., a premium web design company). For those it would make sense to create customer accounts and try to solidify the relationship with each client.
The AIDA Funnel
In 1898 E. St. Elmo Lewis, an American salesman, developed the AIDA sales funnel, which was supposed to illustrate the emotional stages that customers need to go through before making a purchase. Those four steps were: awareness, interest, desire and action.
Over time the sales funnel evolved into what we described in the first part of this lesson, where awareness is equivalent to marketing campaigns, interest is equivalent to leads, desire is equivalent to opportunities and action is equivalent to customers.
The AIDA funnel is still useful, however, because it allows companies to understand the emotional triggers that they need to use. For example, it would be a mistake to try to close a deal before the customer has an actual desire for your product or service. That is why sales copy is usually crafted around the benefits of the product to the customer, and not on its features. Benefits create desire, features don’t.
Selling to Existing Customers
A very common mistake businesses make when working with the sales funnel concept is to assume that taking people to the “customer” layer is the ultimate objective. In order words, once a lead purchases the product, the business owner or sales person will consider his job done and move on to work with new leads.
Why is this a mistake? Because with such an attitude that business would be leaving a lot of money on the table. The secret behind most profitable businesses is the ability to sell over and over again to existing customers.
There are two reasons for this. First of all selling to existing customers is much easier, because they have already trusted you with their money in the past (without getting burned). Some studies have found, in fact, that closing a deal with an existing customer is 10 times easier than convincing a new lead to purchase from you. Secondly, existing customers have already experienced the quality of your products and services, making them willing to purchase bigger ticket items.
Obviously we are not saying that you should trick your customers into spending money with you for products or services that they don’t need. Repeat sales will only happen if you provide an outstanding experience for your customers, and if your products really solve their problems and work as promised.
What we are saying is that you should always be trying create more value to your customers (while charging for it, obviously).
Here is an example to illustrate how this strategy works. Let’s suppose that you want to create a business to sell information products in the weight-loss market segment. First of all you would create a website to attract traffic and to convert that traffic into leads.
Your first product could be a weight-loss ebook that sells for $9.99. This would be the front-end of your offering.
After you have sold a bunch of those, you could launch a membership site where customers would get exclusive weight-loss material (e.g., articles and video tutorials) and access to a private forum. You could charge $29.99 monthly for that.
On top of that offer you could have a “Premium Membership” where customers would be able to participate in two live webinars every month. This option could cost $49.99 monthly.
Finally, you could also create a “Weight-Loss Bootcamp” where customers would be able to attend a two-day live event with some intensive learning and sharing. This item could cost $1,990, and it would represent the back-end of your offering.
As you can see, this model would gradually move your customers to bigger ticket items. At the same time it would offer more and more value to them, so it is a situation where everyone is happy.
This strategy is so powerful that many businesses have affiliate programs where they offer up to 200% commissions on front-end products. In other words, for an ebook that costs $9.99, they would pay a commission of $20 for every referred customer.
They are willing to lose money in the front-end offers because they know that many customers will move up to bigger ticket items over time, and that is where the profits will be made.
- If you are going to sell products or services online, draw your own sales funnel and understand what stages your customers will need to go through until they purchase from you.
- Evaluate how you can optimize each of the layers of your sales funnel (i.e., how you can get more traffic, how you can convert more of that traffic into leads, and how you can convert more leads into customers).
- Create a strategy to sell to existing customers over and over again. It is also important to consider how you can expand your product offering, adding bigger ticket items that will also carry larger profit margins.
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