What Is a Sales Funnel?

A sales funnel visualizes the stages of your sales process, showing the customer buying journey from awareness to purchase. The “funnel” shape reflects how if you added leads into the top of a funnel, the number decreases incrementally from stage to stage until only the small percentage that convert to customers reach the bottom. The metrics represented in sales funnel stages are useful for sales forecasting, managing goals, and improving performance.

Stages of a Sales Funnel

The stages of a sales funnel vary for each business depending on product or service offerings, operations, and tasks required to close a sale. Regardless, funnel stages typically include (one or more) stages when customers become aware of a business, are interested in what it offers, receive an offer, consider the offer, and make a purchase decision.

It’s important to note the distinct difference between a sales funnel and a sales pipeline. The stages of a sales funnel are current statuses of prospects, while sales pipeline stages refer to the activities undertaken to turn a prospect into a customer. The best way to relate the two visuals is by looking at a sales pipeline as the activities needed to get leads into the next stage of the sales funnel.

Sales funnel with pipeline activities

Here are the five stages of a sales funnel:

1. Creating Awareness

This stage is where potential customers or leads first become aware of your brand and what your business has to offer, and where they enter the funnel. Marketing activities, like advertising or special offers, are often used to start a customer journey. Sales activities including cold calling and email introductions are also a good way to create awareness.

2. Fostering Interest

To get leads into the fostering interest stage of the sales funnel, pipeline activities that pique the interest of leads are needed to encourage them to learn more about your company, product, service, or pricing. Similar activities to those used to create awareness can also be used to foster interest, such as cold calling and email introductions, assuming the lead is already aware of your brand or knows what your business does.

You can also use lead nurturing tactics to continuously follow up with a lead via phone or email. Additionally, offering a free trial or demo is an excellent way to get a lead interested in a risk-free environment before pricing is discussed. Qualifying a lead by asking relevant questions about their needs can also help foster interest.

3. Pitching Your Offer

In this stage, your lead is interested in receiving information to evaluate for potential purchase. Presenting the offer can be done through a sales pitch or as part of a product demonstration.

However, the pitch could also come in the form of a formal business proposal after receiving a request for proposal (RFP) or more casually by simply communicating the pricing and scope of services to the prospect over the phone or by email. A lead is not typically in this stage for very long as after an offer is received, as they either reject it or move to the next stage.

4. Consideration

After pitching an offer, the lead moves to the consideration stage. During this time, depending on the product or service, back-and-forth negotiation may be required to get everyone in agreement on pricing and terms of service.

This stage is also the time a lead may have additional questions about the offer presented. Lead nurturing may be required to move the needle by consistently following up on the potential purchase. For example, when you send a prospect a proposal or contract they need to sign, you may need to place phone calls or send emails to overcome any lingering objections and remind them to sign and return the form to finalize the sale.

5. Decision

After consideration, the lead makes a decision either to purchase from your business and become your customer, to purchase another option, or not to make a purchase at all. If the deal is lost, you can try again down the line, when they would be back in the fostering interest or presenting offer stages of the funnel, depending on how your sales process is structured.

If the lead decides to purchase from your business, the next step is finalizing the transaction, which may also involve a customer onboarding process. There could be additional stages for your business after a sale is completed for cross-selling, customer loyalty and retention, re-purchasing, upselling now or selling upgrades in the future, or some other form of recurring purchases.

How to Use Your Sales Funnel

Using a sales funnel is all about tracking sales information. Once your sales funnel stages are established, assign each lead into the appropriate stage and then move them into the next stage as their customer journey moves forward.

Your sales funnel can be used to calculate the conversion rates of a lead from stage to stage, which tells you exactly how many leads need to be in the funnel to produce your desired number of customers and meet your sales goals. Your funnel also tells a story on how effective your sales tactics are at each stage to identify adjustments to improve sales performance.

Customer relationship management (CRM) software is an excellent tool for monitoring your sales funnel since CRMs organize contacts and sales opportunities. The records of each lead (or opportunity) can be viewed and edited to show accurate contact information, deal value, and stage in the sales process, which can then be aggregated and converted into a funnel-style visual.

Salesforce, for instance, has individual records for opportunities that indicate where they are in the stage of the sales pipeline and their potential value. That information can be combined with other opportunities in the sales funnel to be converted and presented in a funnel chart.

Salesforce opportunity record with pipeline
(Source: Salesforce)

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Salesforce opportunity pipeline converted to funnel format
(Source: oreilly.com)

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CRMs can also be used to show conversion rates of each stage. Not only can this help with sales forecasting, but it also enables you to evaluate where bottlenecks are in the sales process to make adjustments and get leads through the funnel faster. HubSpot does this by taking aggregated data about each lead or opportunity stage and translating it as a conversion percentage.

HubSpot funnel with conversion rates
(Source: SuperMetrics)

Benefits of a Using a Sales Funnel

Designing and managing a sales funnel provides your business with numerous advantages. Some of these benefits include giving you visually organized sales information, improved sales forecasting capabilities, insights for improving overall sales performance, and a reliable way to track sales goal progress.

Here are the top benefits of using a sales funnel:

Visualizing the Sales Process

A sales funnel is an effective way to visualize your sales process and manage potential opportunities. You can find out how many leads go from one stage to the next, how long a lead stays in each stage, and how many or what kind of sales pipeline activities are most likely to move them along. This is done using aggregated views and analysis of current leads, prospects, and customers currently going through the sales process.

Improved Sales Forecasts

Because a sales funnel works by visualizing how prospects go through the sales process and convert to the next stage, it can also be used to predict future revenue. Using information like conversion rates from the consideration stage to the purchasing decision stage of the funnel, you can calculate the percentages of leads you expect to close and multiply it by the total estimated deal value in the funnel, giving you a sales forecast.

The formula for calculating a sales forecast is based on the number of prospects in the consideration stage, the deal closing probability of each prospect, and the estimated deal value of each opportunity. This gives you an estimate for how much sales revenue you expect to generate in a given time period. The formula is as follows:

Sales Forecast = (% Likelihood of Prospect A Purchasing x Estimated $ Deal Size) + (% Likelihood of Prospect B Purchasing x Estimated $ Deal Size) + (% Likelihood of Prospect C Purchasing x Estimated $ Deal Size)

A sales funnel example that includes forecasting capabilities is seen in HubSpot CRM. Users can view the status of each lead or opportunity in the form of a funnel with conversion rates, as well as the total potential deal values in the pipeline, creating a reliable sales forecast.

HubSpot sales deal forecasting with funnel style
(Source: HubSpot)

Improved Sales Performance

The idea of visualizing leads going down a funnel through stages provides opportunities to improve sales performance at each stage. For example, if you discover certain stages of your sales funnel are taking longer to get a lead through than others, it can be used to create training for sales reps on specific tactics for moving a lead to the next stage.

Also, you can use funnel information to allocate additional resources needed to maximize conversion rates at each funnel stage. This might entail anything from technology that improves the speed of a workflow, such as sales automation software, to financial support in the form of additional funding for a project or advertising. It may also involve human resources, such as hiring additional employees to help with sales tasks like lead research and qualifying.

Managing Sales Goals

Monitoring and tracking team and individual sales goals isn’t just about total sales revenue generated—it can also refer to total conversions and conversion rates of a lead to the next sales stage. Since a sales funnel is essentially a visual of sales stage conversions, it is an effective way to view progress in relation to the current goals in your sales plan.

You can also use sales funnels to determine how many leads are needed in each stage to hit your sales goals. For example, let’s say your goal is to close four deals by the end of the year and you know the funnel conversion rates are as follows:

• 25% of leads aware of your business are interested in learning more
• 40% of your interested leads want to receive an offer
• 80% of your leads offered need further consideration
• 50% of your leads in the consideration stage agree to purchase

This means to hit your goal of four deals closed, you’ll need to create awareness for at least 100 leads, of which 25 will be interested in learning more. Of those 25, 10 will accept an offer, and eight will need further consideration. Then, four of those eight considering leads will agree to purchase.

Bottom Line

A sales funnel is a visualization used to manage the sales process by viewing each stage of the funnel as it relates to the customer journey. Your company can use sales funnels to assist in forecasting sales, making adjustments to improve performance, and setting and managing sales goals. Plus, sales CRMs leverage technology to help you track sales information, and make it easier to compile data and produce a sales funnel.