Companies that are unable to sell their products or services will fail. They will not generate the revenues that cover their costs. But for some companies, especially technically-oriented companies, selling products can be a challenge. What activities do you need to undertake when you want to sell your products? Who is involved in what part of the process? How to measure the success of your sales process? This blog discusses the sales funnel. The sales funnel is a helpful tool to streamline the sales efforts in a company.
The sales-funnel
The sales funnel describes the different phases of the sales process, from awareness creation and prospect creation to sales conversion and relationship building, see the picture below. The reason that a sales funnel is called a funnel is because the process starts with a large amount of (potential) customers and ends with a smaller number of customers who actually buy the product. There are different models of the sales-funnel with different phasing, based on the type of business, for instance whether it concerns the business-to-consumer (B2C) or business-to-business (B2B) market. Some sales-funnel models describe only the phases till the sale of the product, while I think that the later phases also deserve attention, because they are crucial in growing your business. In this blog a simple, generic, model will be presented, which could help you with organizing your sales activity and can be applied to both consumer and business markets.
Disciplines involved.
In each phase, different activities take place and different disciplines are involved. The most important disciplines are marketing, sales and customer service. Marketing is primarily responsible to define the so-called marketing mix: Product, Price, Place and Promotion (the 4 P’s). The marketing mix provides strategic direction which guides most activities of the sales funnel. Sales is primarily responsible for the customer contacts, sales transactions and follow-up sales. Customer service is primarily responsible for customer support after the sales transaction, but could also have a pre-sales responsibility to provide information about available products. All these disciplines play a crucial role in the sales process. In case of technical products, engineering could also play an important role in the sales process.
The phases of the sales funnel
In the part below, the different phases of the sale-funnel are explained. The phases in the model are described based on the objective of each phase.
Awareness creation
The goal of this phase is to create awareness about your company and the products or services it offers. This can be done in a number of different ways. In the professional business (B2B) this can be done for instance through events or exhibitions, professional magazine ads, newsletters, blogs or whitepapers. In the consumer business (B2C) this can be done through TV, online, magazine or online advertisements, social media, newsletters and blogs. This phase is done primarily by marketing and communication professionals.
Prospect creation
The goal of this phase is to create qualified sales prospects for your products. Prospects are potential customers who are interested in your product. Ideally, this is a two-way approach. First, your company needs to qualify leads. In the business market this is done by creating a prospect list or lead list with potential customers. For each potential customer, the potential value for your company and the effort it takes to win and maintain a customer is estimated. The potential value is determined based on an estimate of the potential sales revenue over the life-time of the customer relationship. The effort is based on the amount of work (hours) it takes to win and service a customer. Now the potential customers can be ranked in the list based on who has the highest value/effort. When the value/effort is too low, these potential customers are not qualified, an no effort is made to get them onboard. In the consumer market a similar approach is followed for potential target groups. The targets groups are ranked based on potential value deviced by the effort to acquire and keep them.
Next, your company needs to convert leads into qualified sales prospects. Qualified sales prospects are prospects which are committed to buying the product. In the business market, this is done to reach out to the sales prospects to present the product or service and to validate whether the product or services meets their needs. It is recommended to reach out to customers early in the development process, to validate whether your assumptions are correct, and to create interest for your product. For complex technical products sometimes tests (‘prove of concepts’) with the customer are done, to demonstrate the benefits of the product. In this phase potential concerns about the product need to be addressed. In consumer markets, commitment by consumers takes place based on direct marketing and promotions, as well as positive test results. For both the consumer and business markets it is important to take the competitive offering into account.
The prospect creation phase is primarily done by sales professionals. For technical products, also product management or engineering is involved. In some models of the sales funnel, the qualification of leads and conversion into qualified sales prospects are described as different phases. In this model, both activities are seen as one phase, because qualification and validation happen more or less in parallel and both activities are needed to come to a list of qualified prospects.
Sales conversion
The goal of this phase is to realize sales of your product. In business markets offers are made to qualified leads. An offer typically consists of the product, its specification, the price and delivery time. In some cases additional negotiations are done. When the offer fits the customer’s needs, the chance is high that this results in a sale. In consumer markets sales is frequently realized through promotions or advertising. After the sales, the product is delivered and installed. When a product is not plug-and-play, additional support could be provided. The delivery and installation is also an important part of the sales process. When the experience is not good, this can lead to product returns. This phase is primarily done by sales and service professionals.
Relationship building
To generate sales it is easier to create additional sales from existing customers than to find and attract new customers. From this perspective, the phase after sales conversion is an essential phase. This is a phase of the sales-funnel which is frequently forgotten. The goal of this phase is to build relationships with your existing customers and make them loyal to your product or services. In some cases, when the customer is really delighted with your product, the customer could become an ambassador and help to promote your brand and create additional sales. When you have a good relationship with your customers, this will help you to collect feedback about how the customer is using your product and whether the customer is satisfied with it. This helps you to investigate whether the customer is interested in accessorees or additional products and when the customer is ready to buy a new product. Also, in some cases existing customers could help you to define requirements for the next generation of products. This phase is primarily done by sales and marketing professionals.
Product push versus product pull
To optimize the sales process, it is important to understand the difference between product push and product pull. With product push, the company focusses on creating sufficient supply of the product, so that the product is available and can be sold to the customers. Activities are production of products and shipment to the point of sale. With product pull, the company focusses on creating demand for the product. Activities are advertising and promotions, so that the customer asks for the product. It is important to understand that both approaches are sub-optimal. With product push, the product is available, but customers still need to be convinced to buy the product. With product pull, the demand is there, but the product is not available. Both approaches cost energy and are therefore sub-optimal. To create an optimum sales process, focus should be on both product push and market pull. In that case there is both supply and demand, and no energy is lost in the process.
Functional versus emotional benefits
Another important aspect of the sales process is the way the customer is approached: functional versus emotional. Successful sales people are able to operate on both levels. Sales on a functional level is about the sale of the functional benefits of a product. Examples of functional benefits are the ease-of-use and performance of a product. Sales on an emotional level is about the sale of the emotional benefits of a product. Examples of emotional benefits are the brand image or sense of belonging. In some markets, like consumer electronics, watches or clothing, the emotional benefits are as important of even more important as the functional benefits. My personal experience is that some companies have problems to sell their products because they focus only on the functional benefits of a product, but overlook the emotional benefits.
Multi-level sales
The next thing to be aware of is that in some cases sales happens on multiple levels. This is in particular the case in the business market for sales to large companies. In general three levels can be distinguished: the technical level, the commercial level en the (top-)management level. On the technical level the technical specifications are discussed. The goal is to make sure that the product fits with the requirements of the customer. On the commercial level, the commercial aspects are discussed. The goal is to make sure that commercial terms (e.g. price, delivery time) meet the requirements of the customer (e.g. budget, launch time). On top-management level strategic aspects are discussed. The goal is to ensure that a commercial deal does not compromise or supports the higher strategic goals of the customer. A common mistake is that companies sell on one particular level, without taking the wishes of the other levels into account. The result could be that a deal is blocked, because the other levels have certain requirements which are not covered by the offer.
Sales performance measurement
With the sales-funnel, the performance of the sales process can be measured and optimized. The overall goal is to create the most sales with the least effort. All steps can be expressed in measurable performance indicators. They are for instance the % of awareness amongst potential customers, the % of prospects, the % of sales and the % of loyal customers that do repeat sales. Because of the conversion from each phase to the next phase, the % at the start of the process must be high to create sufficient sales at the end of the funnel. Also, the higher the conversion rates are in the subsequent steps, the more sales will be the result.
Summary
In this blog the sales funnel has been introduced. The sales funnel is an excellent tool to manage the sales process. It describes the different phases of the sales process: 1) awareness generation 2) prospect creation 3) sales conversion and 4) relationship building. The process is called a funnel, because it goes from a large amount of potential customers to a small number of customers who actually buy the product. The sales process does not stop at the sales, the relationship building is essential to collect feedback about your product and to create follow-up sales. In the sales process, different disciplines are involved: marketing, sales, customer service. In case of technical products, engineering could be involved as well. They are all needed to create an effective sales funnel. To optimize the flow through the funnel it is important to create both market push and pull. In order to create successful sales, it is important to take both the functional and emotional aspects into account. Also it is important to realise that sometimes sales takes place on multiple levels. When some of the levels are not taken into account, deals run the risk of being blocked.
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