What is a sales funnel?

A sales funnel is the process prospects go through to become a customer. Each stage of the funnel takes the buyer one step closer to making a purchase. A well-planned sales funnel will define the actions your business needs to take to push prospects to the next stage.

The buying process is described as a funnel because it starts by attracting many people, before narrowing them down until you are left only with those who buy your product.

This drop off is inevitable — you will never be able to convert everyone. However, effective funnels will turn the highest number of people possible into buyers. Businesses should continually optimize and experiment with their funnel to make it more effective.

Sales funnel explained: How does it work?

Every one of your customers has been through a process that ended with them buying. This process involves them discovering your brand, finding out more about your product or service, deciding to buy, and then actually doing so.

For some products—typically lower-priced, consumer goods—this process can happen in a matter of minutes.

A customer may be browsing social media, see an advert for a pair of shoes, click on the link to read more about the product, decide they are a good fit for their needs, and then buy them. For these products, the sales funnel is straightforward, involving little more than an eCommerce store and a way of attracting customers to it.

Although, a company can still optimize the funnel by providing an excellent customer experience and creating opportunities to upsell the original item.

Other products have far more complicated funnels. Selling high-ticket enterprise software often involves multiple layers, such as email marketing, webinars, sales calls, downloadable resources, and in-person presentations. In these cases, it can take months for a buyer to go from being a prospect to a customer.

The key is to create a sales funnel that is effective at guiding potential customers through the different stages of the funnel to a point where they are ready to buy your product or service.

Why do you need a sales funnel?

All businesses that make sales have some form of marketing sales funnel, even if they have not defined it.

A website for a service that attracts people via word-of-mouth is a basic sales funnel, as is using search ads to direct people to an eCommerce store.

While some businesses see success with these strategies, many others would benefit from creating a funnel that better guides users.

The service-based business above, for example, may find success by creating an email list that people who visit the site can sign up to, even if they are not yet ready to buy. They can then work on nurturing leads via email until they make a purchase.

Here are some reasons why you should create an effective sales funnel.

A focused sales and marketing strategy

Putting in place a dedicated sales funnel means you are no longer relying on a scattergun approach to selling your product. Instead, you have laid out steps and actions to take at each stage of the process. Defining your strategy is the first step, and all the other benefits follow on from this.

More sales

As you learn which activities result in prospects buying your product, and which put them off, you can focus your efforts on sales-generating activities.

Making fewer mistakes can lead to you getting more sales from the same number of prospects, as well as getting more new leads into your funnel in the first place.

A better sales funnel can also help you earn more revenue per sale. For example, by adding a step to your funnel that allows customers to choose add-ons related to their initial purchase, your business may be able to earn more per customer.

Increase forecast accuracy

By tracking how leads move through your sales funnel, your company can make better predictions about future purchases. This can help you make decisions around cashflow, budgeting, and demand.

If you know that on average 10% of people who sign up to your mailing list ultimately buy from you, you can estimate how many sales you will make based on the number of new subscribers you get every day.

Higher profit margins

Having a deeper understanding of your sales funnel lets you make better customer acquisition cost estimates. This can show you which methods of gaining customers are the most profitable.

Imagine you are spending on both Google and Instagram ads. If you find it costs $10 to gain a customer on Google and only $9 to acquire a customer on Instagram, you can focus on the later, thus increasing profitability.

This is a simple example, but the idea is sound: look at where you are spending money and what is effective to reduce costs and increase profitability.

You can also increase profit margins by testing your individual sales funnel stages. If you A/B test two landing pages and find that one converts at a higher rate, you can increase sales without spending more on customer acquisition.

How do I optimize my sales funnel?

Sales funnels are useful because they give businesses and sales teams a defined strategy they can use to generate sales. Once you understand the definition of a sales funnel and have set up the basic version of it for your business, you should continue to add to it and test it to optimize each stage. Here are ways you can optimize your funnel.

1. Create more targeted content for each stage of the funnel

When you first set up your funnel, you will likely do so in a generalized way that targets a high number of customers. For example, to get email addresses, you may create a downloadable resource that you can use across your whole website.

A more effective strategy is to create targeted content for either each page or each subset of visitors. This content is more likely to appeal to specific groups of people and, therefore, get them into the top of your funnel.

2. Experiment with new strategies

Just because a strategy is successful doesn’t mean that it is either the best or the only method that will work. While you don’t want to move away from things that are working, once your funnel is set up you can still experiment with other strategies.

For example, while you may find that social ads are an effective way of getting people into your funnel, you may be able to attract a different type of customer by creating informative YouTube videos, or by starting to network on LinkedIn.

Dipping your toes into new strategies allows you to test whether they have potential and, if they do, pour in resources.

3. A/B test existing material

A/B testing is an important way to optimize specific parts of your sales funnel by testing out two versions to see which is better.

Imagine you are directing users to a landing page. It is performing well, but you feel it could be doing better.

Instead of swapping out the landing page for a different one, a better option would be to create a new landing page that you think will be more effective and then send traffic to each page.

You can then test conversion rates and see if the new page actually performs as you think it will. If it does, great. If it does not, you can easily switch back to sending all your traffic to the existing page.