How Do Sales Funnels Work? Key Concepts

Sales Funnel Conversion
Conversion rate optimization involves identifying congestion points and issues which may congest or impede the entry and steady flow of leads through a sales funnel.

How Do Sales Funnels Work? What does a sales funnel look like?

You could ask any sales person well before websites and digital marketing came along. Salespeople have long thought in terms of funnels especially in corporate environments.

When a lead is generated through advertising, the marketing process, or via face-to-face encounters out in the real world, then the lead turns into a prospect the salesperson will say that the prospect is “in the funnel”. This is the start of the process, the early funnel represented by the opening at the top, in the diagram above.

Depending on the average time from lead to sale, which varies dramatically by type of product or service, the salesperson may set an expectation about how long it will take to turn that prospect into a booked sale.

Prospects are going to move through different phases of consideration while in the funnel, deciding whether to act, usually simply whether to purchase the product or service. During this process, some of them will “fall out”; not every prospect entering a sales funnel will turn into a transaction. The desired outcome is usually to exit the funnel by effecting a financial transaction, but completion of the funnel doesn’t always have to be a financial goal.

Let’s not kid ourselves – there is no gravity in a sales funnel

Typically the sales funnel drawn as a physical funnel pointing down with the forces of gravity at work. As prospects move towards the funnel exit, because there’s less and less of them as you get towards the bottom of the funnel and the conversion process.

So let’s draw the sales funnel sideways

We prefer to look at the sales funnel from the sideways perspective because a vertical funnel, like a physical funnel, implies that with no action taken, no further action taken on the marketer’s or the salesperson’s part a certain percentage of them will just flow through the sales funnel and become converted sales, be converted into sales which occurs at point B.

So looking at the sales funnel horizontally you can see that a sales prospect will not always move to the outlet of the funnel through its own free will, sometimes they need a little push from a force known as the marketing process.

What happens inside a sales funnel?

Before the arrival of digital marketing the things going on within the funnel might include a follow up call from a sales person asking if the person needs more information, looking to further qualify the prospect; or perhaps overcoming sales objections verbally.

In today’s digital era, movement through the sales funnel still involves the person thinking a purchase through and perhaps doing some competitive shopping research; or perhaps just sitting on it for a while to decide if its something they would like to act on as a purchase. Some of these reasons are shown in the diagram above.

Remarketing to prospects in the sales funnel

There are also proactive marketing processes that we can use in digital marketing, one of them is to remarket the prospect. Say perhaps you are selling cameras, the lead has studied some articles about the camera on your website and becomes intrigued, fills out a form for information. Perhaps a few days later you show them a display ad from a display remarketing campaign and contact them via an email drip campaign.

Your remarketing list needs to be configured not to show ads too frequently, or to show ads to those who have already purchased the camera – those who have already converted. Instead it should provide a gentle nudge and reminder to those still in the funnel, that your site sells this camera and is the best place to buy it.

Remarketing lists or “audiences” can be customized and shaped in a number of different ways, in order to provide the most suitable type of reminder.

Dynamic remarketing at the product level

In Google Shopping (e-commerce) campaigns we can generate dynamic product remarketing campaigns which operate at a product level.

With dynamic product remarketing, if someone has seen a product in a shopping campaign, an image and text ad can show up from a display campaign, without the potential buyer even coming back to the website. This is accomplished by linking a dynamic product remarketing campaign into the Google Shopping campaign’s Merchant Account and associated product database.

Other methods of remarketing to the sales funnel

Traditional display remarketing campaigns that are not product specific. The variations of ways to remarket are endless including within search campaigns using remarketing lists for search ads or remarketing lists for search ads (RLSA) covered in another post on this site.

Short Sales Funnels

Many businesses have rather short sales funnels. For example, auto repair shops. Many auto repairs are not planned in advance, a car breaks down and the consumer need it fixed quickly. So if they don’t already have a shop selected, or can’t get into their regular shop quickly, they’ll go to the internet and the funnel can be completed within minutes.

Micro Conversion at funnel entrance.

Most sites can benefit from a “funnel entrance” conversion action. Typically that is accomplished by filling out a form (surrendering an email address) in order to obtain a useful white paper. This allows the site to remarket via email, pulling that prospect into the funnel.

Freemium Sales Funnels

The freemium model that has become so popular with internet based companies, where you allow someone to come in to use your product free for a trial period can be understood better by looking at how it effects the funnel a sass company with a $40 a month subscription service might have a funnel like something on the right. The number of daily prospects exposed to their ad, say 1 million daily ppc ad spend X type of campaigns, Google and Bing, Display, shopping, search, and remarketing.

A freemium site will have a wider funnel entrance, as shown below:

As an example, a non-freemium SAAS company with a $40/mo price point might get 1,000 prospects into the opening of their funnel per day. If they offered a Freemium model, they might be converting 50,000 leads into prospects daily, depending of course upon the nature of their product, and the terms of their freemium offering.

Issues to consider with Freemium

Freemium means providing more pre-sale support to non-paying (trial) customers. There are other hidden operating costs in Freemium, so the KPI’s need to be identified, quantified, and understood in order that management can make the best decisions.

This might include the terms of their freemium models such as length of trial, number of features/size of databases to be provided to Freemium-mode customers, advantages, or incentives giving to people length of sales contract.

This should all be factored into a freemium business model design to determine impact on the the sales funnel, and the total cost of ownership for the business included.

Lead Handling and Sales Funnel Leakage

Sales objections might typically be handled through e-mail or phone call. In the case of phone calls, by using call tracking services and reviewing the recorded calls to our clients we have been able to pinpoint major problems with sales funnel lead handling. This is a huge sales process choke point for many businesses both small, and large. By understanding their sales funnel better they can improve the phone calls handling process, converting more prospects into sales.

An example of typical sales funnel breakage/leakage point is a dentist who advertises for telephone call leads while their office is closed, then sends the prospect to voice mail.

This practice will often result in the loss of 50-60% of people seeking dental treatment. It’s better to have a form-fill with a reassurance that you will call in the morning at the open of business, than to leave a disappointed caller. Or, at a minimum to have the voicemail system programmed appropriately many of these types of issues.

The same type of problems are also encountered in large businesses, resulting in valuable lead flow is being wasted. We have seen extreme examples of this, even in companies with $250 million and up in revenues.

Getting leads into the funnel

A major aspect that characterizes a successful sales funnel is that it behaves as if there is a powerful magnetic attraction pulling leads into it.

Some sales funnels are so powerful that anyone that gets near their entrance is literally sucked into it by the force of nature. Things like free car, only a hundred applicants will be entered into this contest, will have an incredibly high interest rate and will be over subscribed in minutes on the internet.

Other products have more narrow interest and are more narrowly targeted and may take weeks to build a size-able sales funnel. And it depends on the scale of the business, their marketing strategy, how the product was positioned, what the competition looks like, and many other factors.

What kind of personas tend to be attracted into a sales funnel?

Each business has it’s own unique ‘code’ to crack to figure out what the stages are in their sales funnel, and how typical buyers behave, and what is helpful in addressing or overcoming their concerns (‘sales objections’).

Often advertising tactics are used to pull prospects closer to the inlet of your funnel and then the real marketing heavy lifting is done when a well engineered funnel is designed to overcome the most common sales objections inhibiting factors preventing a transaction. Sometimes it’s simple as time needs to lapse for people to consider a decision and a bigger purchase tends to have a bigger sales cycle.

Using personas to develop a clearer understanding of a funnel

It is often helpful to create so-called ‘personas’ for your prospects, each representing the profile of an aggregate class of buyers. A business may typically have three to six personas who think and behave in similar patterns, but each of which potentially could become converted prospects.

Until you understand a business’s personas you can’t really understand the appropriate marketing process to make the sales funnel more efficient. Each business has a unique set of ‘buttons they need to push’ to help prospective buyers overcome their concerns and get the information they need to move towards the next step towards becoming customers.

Summary

The sales funnel is a powerful visual tool to represent what your potential buyers and customers are going through as they become aware of your products or services, and through the process of becoming paying customers.

The better you understand the sales funnel for your business, the more likely you’ll be able 9to succeed in creating a digital pipeline which moves the highest percentage possible of suitable customers towards a transaction with your business.

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