Sales Funnel Stages

A sales funnel can be thought of as a representation of where all of the people or companies are along the way to purchasing your product or service.  It is important for two main reasons, firstly, to look at it like a funnel as the more prospects that you insert into the top of the funnel. The more that will come out the bottom i.e. new customers for your business.  Secondly, if set up correctly it will provide some important metrics which you can use to determine sales goals and objectives to fall in line with your overall organizational goals and objectives.

What Is a Sale Funnel?

We are going to examine a simplified view of a sales funnel for the purposes of illustration of our points here.  It is possible to add many additional stages and levels of complexity as you like but for the sake of this example we are going to look at a 3 stage sales funnel.

Top Tier

The people or companies that fall into this category will be everyone that we can think of that might have a need or interest in our product or service.  So for the sake of a simple example we will look at a local hardware store and say that our top tier would be everyone that lives within a 20 mile radius that is subscribed to a home renovation magazine or is in the building or landscaping trade.  In certain areas this would be a large pool of people that might be good clients but may or may not know anything about our business and these are the people that we want to move towards a tier two

Middle Tier

Using our example this would include any person or company that has visited our store or subscribed to our newsletter.  They have expressed interest in learning more about our business and potentially making a transaction with us at some stage in the future.  They are much more qualified than the top tier and are likely to be lower in number.

Bottom Tier

Again following the hardware store example these would be the people that we have sent out a quote for them to review and approve.  We have held discussions with these peoples about their needs and requirements and they have signaled a clear intent that they want to do business with us by requesting a quote.  Again the people or businesses in the bottom tier are much more qualified than the middle tier and likely to be lower in number.

So as you can see from our example above we are gradually filtering people through our funnel as they progressively become more and more qualified. It is out of the bottom tier that our customers come from, they are much less likely to come from the top tier and directly become a customer.

Why Should I Allocate Customers A Spot In A Sales Funnel?

Using this method over time you will begin to see trends emerge which are likely to become pretty reliable indicators of what you need to do in order to achieve specified goals and objectives.  Continuing with our hardware store, let’s say that over a given month we had added 1000 people to the top tier which resulted in 100 people signing up to our newsletter, 10 quotes and one sale.  In order to double our sales the following month we would need to add 1000 people to our top tier and on average the funnel would take care of the rest so we could focus on simply adding new prospects to our top tier.

The other way that we could look at it is that we might be disappointed that out of 10 people we did quotes for last month only one of them made a purchase.  We could focus our strategy on improving our ratio.  The point being we can use this as a way to target the areas of concern that we need to work on improving in an intelligent way.

How else have you used a sales funnel in your business.  What other insights has it given you which has helped you grow?