On September 14th, Market-Partners Inc. CEO and Founder, Martyn Lewis, hosted a virtual micro-workshop covering the myths and faulty assumptions behind most sales funnel structures – and demonstrated the true magic of what this tool should do for your business!
This free micro-workshop followed our 30-30 format. The first 30 minutes were an interactive presentation of the content summarized below. Afterwards, those wishing to explore the topic deeper were invited to stay an additional 30 minutes dedicated entirely to questions and discussion.
The first 30 minutes have been summarized below, covering everything from the origin of the sales funnel, how it is being misused, the myths and truths of this tool, and how you can improve it for your business.
You can also watch the video replay here.
Summary
The concept of the sales funnel was first proposed in 1898 by advertising executive and Advertising Hall of Fame inductee, E St. Elmo Lewis. He outlined what has since been coined the AIDA model, an acronym for the four stages of the purchase process – Awareness, Interest, Desire, Action. It cannot be over emphasized that even in its original form, the sales funnel had nothing to do with sales process or forecasting, only the customer’s perspective and decision making.
Fast forward to today, and the sales funnel remains one of the most important and strategic business tools. It informs sales teams how to effectively manage a portfolio of opportunities. It provides the business radar allowing for coordination within an organization. It matches supply to demand, serving as a critical planning and diagnostic tool for understanding where revenue is coming from and what is changing in projections.
However, this is rarely how the tool is used in today’s businesses. In fact, investments into the sales funnel often yield meager returns. But if it is so critical for all the reasons above, why is that the case? For starters, the sales funnel is not only being misused as a forecasting model, but it is cumbersome, gamed, and sandbagged to suit a sales team’s needs. This results in a funnel that’s more time than it’s worth, and tactical at best.
So how can we fix these broken funnels? We believe it is best to start from the ground up.
First, let us begin by dispelling the common myths and misconceptions surrounding sales funnels, and from there, uncover the truths of how to make this tool work for your business.
The Seven Myths
1. The stages in the sales funnel are not forecast probabilities
2. The stages in the sales funnel are not your sales process
3. The stages in the sales funnel are not “won,” “shortlisted,” “no decision,” or any characteristics of an opportunity either
None of these three “stages” represent a meaningful or grounded progression of an opportunity for your customer. They are the status of the opportunity, not the step that it is at.
4. Stages in the sales funnel do not directly correlate to forecast probability
Forecast opportunity is an attribute of a sales opportunity. For example, there is a huge difference between probabilities when you are selling an add-on to an existing customer versus when you are trying to convince a customer to switch to you from their incumbent. For this reason, you should not try to force a forecast probability onto a stage. As a result, the sales funnel will simply become a forecast classification system.
5. It’s a myth that the sales funnel should be three times the quota
This is for three main reasons. First, different businesses require different funnel metrics. It could be more or less depending on your offering or market.
Second, funnel size is not a useful metric – what you actually want is flow through the pipeline.
And third, if you ask for 3x the quota, you will get 3x – but it will most likely not be real opportunities!
6. There is rarely one sales funnel within a business
If you have multiple offerings, you need more than one pipeline, as different products come with different cycle lengths, number of prospects, conversion ratios, and order sizes.
7. The “sales funnel” is not always funnel shaped
As stated before, you don’t want to manage funnel size or shape, as you want leads to be passing through the early stages very quickly.
The Seven Truths
1. The stages are the stages of the Customer Buying Journey
The Buying Journey gives firms both observable and objective behavior and exit criteria to categorize the meaningful progress of their opportunities.
2. Divide the business into sub funnels
Pipelines have different metrics based on the different areas of the business they represent. Therefore, the total business must be divided into its sub-components, or funnels, for there to be meaningful management.
3. The missing element is time
Time is the main factor to consider, because as stated in Myths 5 and 6, you want your Sales Funnel to flow. The movement of opportunities into and through the funnel has to be the primary concern.
4. There are four vital funnel metrics
Input: how much is being put into the top of the Funnel
Time: how much time does it take to go from step to step, from lead to order
Conversion: how many opportunities from each step do we convert to the next?
Order Size: what is the order size coming out at the end of the funnel?
5. You do need these opportunities during the course of a year – but not all at one time
So, what should your funnel look like at any one time? You can calculate this using the four vital metrics mentioned above, telling you how many opportunities need to be at each stage to close the desired number of orders.
6. Don’t manage the size of the total funnel, manage the input, time, conversion, and order size
7. Effective funnel management is at the heart of productive selling
Gives sales teams a direction of where to invest their time, the ability to discover best practices, and is at the heart of performance coaching
The sales funnel, or pipeline, should be the most valuable tool for sales professionals, sales managers, and anyone else dependent upon the development of revenue through sales opportunities. There is no such thing as “above the funnel;” every opportunity that is known to an organization must be tracked. It is only by managing the sales funnel that businesses know what is happening, what is about to happen, and what they need to make happen.