The Sales Funnel

With the idea of the Sales Funnel, we use the
metaphor of a funnel (wide at the top, narrow at the bottom) to
monitor the sales process.
At the top of the funnel you have "unqualified prospects" – the very
many people who you think might need your product or service, but to
whom you've never spoken.
At the bottom of the funnel, many sales
and delivery steps later, you have people who have received delivery
of your product or service and have paid for it.
The metaphor of the funnel is used because people drop away at each
stage of a long sales process: For example, many of your unqualified
prospects may have existing suppliers with whom they're very
satisfied. Others may have needs which other competitors are
better-placed to satisfy. Still others may love your products, but
not have the budget to buy them.



Why Use the Tool?
By using the sales funnel, and by quantifying the number of
prospects at each stage of the process, you can predict the number
of prospects who will, in time, become customers.
More than this, by looking at the way in which these numbers change
over time, you can spot problems in the sales pipeline and take
corrective action early.

For example, if you spot that very few mailings have taken place in
a month, you might expect that in a few months time, sales might dry
up. Next month, you should make sure that more mailers than normal
are sent out.

Use of the Sales Funnel shows roadblocks and times of standstill, or
if there are an insufficient number of leads at any stage. This
knowledge allows you to determine where sales people should focus
attention and efforts to keep sales at the desired level and to meet
sales targets.

The funnel can also point out where improvements need to be made
within the sales process. These may be as simple as implementing
additional sales training or ensuring that sales representatives put
sufficient focus on all steps of the sales process.
In the example shown in figure 1, a manager might be pleased by the
amount of early stage prospecting in the month, but might worry that
there's been a drop off in activity later in the sales process.
In the next month, he or she might work with sales people to
increase the effort put into solution development and negotiation.
Tip:
If you're to use sales funnel reporting effectively, it's a huge
benefit to have an effective and properly maintained sales
contact management system, with a prospect status and
progression workflow in-built. Without this, reporting can be
hard work and very time-consuming.

How to Use the Tool
The first stage in setting up sales funnel reporting is to
understand your sales process fully (perhaps using a technique like
flowcharting). While sales processes are often quite similar from
company-to-company, there can be points of difference depending, for
example, on the size of the order and the consequences to the client
of making the wrong purchase decision.

Brainstorm the sales process with your sales and marketing people to
make sure that it is correct and comprehensive.
From this, identify the key sequential steps in the sales process,
and from these, create status codes. Try to keep these to a
reasonably small number – otherwise reporting will be arduous, and
it will be difficult to see meaningful patterns within the data.

Next, classify your prospects by the status codes you've identified.
(Again, this will be much easier if you have a sales contact
management system, and if people are disciplined about keeping this
updated. Even better is if there's a sales workflow in place, so
that as key tasks are performed, status codes are updated
automatically.)
Finally, work out the number of prospects of each status, and
calculate the change since the last month.

Tip:
As you build up a picture of your sales funnel from month to
month for several months, you'll start to be able to see
expected conversion rates from one stage of the process to the
next.
By comparing these against the conversions other people are
achieving, and comparing them against what you think you should
be able to achieve, you can start to understand where you can
improve your sales process. More than this, you can start making
changes to the way you do things, and measuring the effects of
these changes on conversion rates.