Sales Funnel - Meaning, Importance, Stages & Example

Published in Marketing and Strategy Terms by MBA Skool Team

What is Sales Funnel?

Sales funnel is the representation of the different stages in a journey of target customers' first interaction with the brand to the completion of a sales objective like purchase, contact, lead generation etc. It is also the stepwise process of converting a targeted customer to a paying loyal customer. The sales funnel approach is where a prospective customer is presented with a message, converted to a lead, then a prospect & eventually converted to a loyal buyer.

At every step, disinterest customers drop off, creating a funnel like structure. Sales funnel uses the expertise of sales team to basically convert a business opportunity to a revenue generating customer.

Importance of Sales Funnel

The goal of every business is to get new customers and then make sure that there is repeat business as well. Now getting customers and getting them to stay with your brand is long process. It is not a 2 stage process where a customer sees your product and either buys or it or not. 

The actual process or journey taken by a customer is much longer. In B2B scenarios it can become even longer. Now to actually see how the product or brand is performing, sales funnel is a good way to visualize it. The sales funnel shows the conversions at each stage taken by overall target audience. This becomes very important if the business wants to improve and understand at which stage customers are not converting. It can be that the order or pricing step is where the percentage falls then a company needs to rethink the pricing strategy.

Stages of Sales Funnel

The entire process of creating a sales funnel can be broken down in several stages or steps.

Sales Funnel

The main steps to sell products to a customer are:

1. Target customer promotion

The sales funnel starts with the company targeting the customers who they want to sell their products & services. At this stage the company reaches out to the entire target audience via mass advertising.

2. Lead Generation

out of all the people targeted, the people show an interest towards the product or service are qualified as a lead. Leads are generated by capturing customer email ids, phone number & other details.

3. Sales Calls

Once leads are generated, the sales team contacts these set of interested customers & briefs them about the product, benefits & price in details, and also removes any doubts which the person has.

This is the stage where salespersons need to show customer the value of the product and service.

4. Prospects

Out of all the leads, many customers drop off as they do not seem ready to buy the product immediately. The prospects stage is where a business should focus a lot as these customers understand your product and positioning and may be willing to pay for the product/service if they see value.

If they are not converting and decide not to purchase the product at this moment, this can be a potential issue which can be resolved.

5. Customers

After narrowing down from target to lead to prospects, some interested prospects find the product beneficial & they pay for it. These paying customers bring in revenue to the company.

This is the ultimate goal of any business. If a sales funnel does not reach the customers stage or the number is very low then rethink of the strategy has to be done to improve the conversions

6. Loyalty

The sales funnel can be further analyzed & evaluated to keep a track on repeat customer purchases who are loyal to the brand & product. These loyal customers are essential is being in repeat business & are also advocates of the brand and product.

Sales Funnel Example

Consider a company selling a product worth $100. The company identifies that target audience they want to promote it to are around 1000, and they promote to them. Out of these, 20% customers respond, and hence these 200 people are the leads. The sales team then reaches out to them to explain the product & benefits. However, out of these 200 leads only 25% seem interested buy. Hence the total prospects are 50. Out of the 50 prospects, around 40% or 20 customers actually pay for the product, generating a revenue of $2000 for the company. Further, 10 customers become loyal & give a repeat business.

Thus, the overall sales funnel can be summarized as:

Stage 1: Target audience= 1000

Stage 2: Leads- 20% of 1000= 200

Stage 3: Prospects- 25% of 200= 50

Stage 4: Paying customers- 40% of 50= 20

Stage 5: Loyal repeat customers- 50% of 20= 10

This shows the funnel like trickling down of customers at every stage based on their interest & purchasing decision.

Hence, this concludes the definition of Sales Funnel along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 1800 business concepts from 5 categories.

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