Do you have a sales funnel? Or maybe you call it a pipeline? Maybe you don’t call it anything, but no doubt, you have a list of prospects that are somewhere in the buying process. Many smaller companies use Excel or Word to keep a simple list with company names, the buyer’s names, a price and the date the deals are expected to close. For other companies, their sales funnels are reports from the CRM or are complex reports sales leaders build in Excel. These sales funnel or pipeline reports, regardless of how they are built, should forecast sales accurately.
So, the question I have for you is, how do you do it, and is it working for you?A funnel is more than a list of leads. It is a critical part of executing both the business and sales strategy @LizRHeiman Click To Tweet
For me, a funnel is more than a list of leads. It is a critical part of executing both the business and sales strategy. Once you establish goals, the funnel is the tool that tells you whether or not you are on track to hit those numbers and what it will take to get you back on track.
Everyone seems to use the term pipeline today to represent the flow from lead to opportunity, but I prefer the term funnel. Here’s why. A pipeline represents a steady flow of incoming leads like a faucet. Everything is just flowing through at the same velocity. While that sounds great, the flow through the pipe depends on how fast things are coming in the top at what rate they are falling out of the bottom. We wish that leads just flowed in and out at the same velocity and none got lost along the way. It just doesn’t happen that way, so the representation of flow doesn’t tell me enough about my current situation. I want to know if the flow of leads is sufficient to close enough deals to hit my number.
A funnel is about ratios, and so, the shape matters. It’s large on the top because we all know that we have to put a lot of leads in, to get a few deals out. When I look at it that way, my sales funnel should always have exponentially more opportunities in the top than it does in any other section. By looking at it that way it helps me conceptualize where I am toward hitting my goal and where I need to be. Let me explain.
A funnel needs to have about 5 stages. We call them:
The idea is that there are clearly defined stages with expected activities in each of those stages. Keep it simple so that it is easy to use. It is not necessary to make each activity its own stage. We often see a stage called “Submit Proposal”. That is not a stage, it is an activity that happens during one of the stages. It is not necessary to have the activities on the funnel, only for the sale reps to understand the sales process well enough to know which activities happen in each stage. We call that mapping the sales process. The best thing about the sales funnel is when it is designed and used well, it makes it easy to forecast.The best thing about the sales funnel is when it is designed and used well, it makes it easy to forecast @LizRHeiman Click To Tweet
Funnel Stages Defined
By defining the stages so everyone on the team is using them the same way,
we increase the level of predictability. Here are the definitions we use:
Prospect: Your team is reaching out to people who have not indicated an interest. They are, people from companies you believe will be interested. In this stage, your team is using tools like email, social media, content, networking, even advertising to build awareness and hopefully stimulate interest.
Qualify: The prospect has indicated some interest, but you still need to determine if there is budget, a fit, and a timeline. During this stage, your team might exchange email, get on the phone or do a video meeting. They will be asking questions and giving some preliminary information to develop the interest and qualify the lead.
Verify: During this stage, your team is meeting with all buyers involved in the sale. They are confirming fit and building interest. It is also when they will identify potential objections and work to mov
e the sale forward on all fronts. During this stage, they should be gathering the information needed to create a proposal. This kind of work requires face-to-face-face or video meetings.
Close: During this stage, the sales rep is focused on finalizing the details and getting a commitment from the buyer(s). Ideally, that would be a contract or agreement. Sometimes using an online signature tool can speed things up.
Won: This should be the simplest stage, but it may be the one where there is the most confusion. Different companies define “Won” differently. In some companies, a signed contract signifies a closed deal. In other companies, it might require an executed check. Whatever the case, at this point the lead moves from sales to delivery. Although sales should still be in touch, looking for future business and seeking out referrals.
Funnel Ratios Defined
Once everyone on the team is using the funnel the same way, you will begin to see patterns. Those patterns will define the needed ratios to achieve sales goals. The patterns you will see are:
- Length of your sales cycle
- Close ratio
- What factors influence velocity
- At what rate things fall out of the funnel
Once you understand those items for the team and individuals, you can begin to build ratios you can manage against.
In truth, a funnel functions more like a sieve than a pipeline or even a funnel. Everything that comes in the top of the funnel does not come out the other end in a closed deal. In fact, if you are moving through the sales process effectively, more things fall out of the funnel than close. A typical expectation is that for every 10 things that go in the top of the funnel, only 1 will actually close. A 10:1 ratio. This is not a bad thing. During the prospecting process, your team will discover that some companies don’t have a need. While qualifying your team will discover that some opportunities are not a good fit. While verifying, it will be discovered that you aren’t going to be able to overcome all of the obstacles in every opportunity. That is normal and allows the team to keep focusing on the opportunities that are the best fit, the most profitable and the most likely to close. For each of those stages, an appropriate ratio will begin to come clear. It might look like this:
Prospect to Qualify = 10:5
Qualify to Verify = 5:2
Verify to Close is 2:1
Close to Won = 1:1
By consistently using the funnel, it will become clear what percent of leads fall out of the funnel at each stage. What percentage close once they get into Verify and Close, and how long the sales cycle is.
When there isn’t enough coming in the top of the funnel, the team tends to focus on leads that aren’t a good fit or aren’t going to close. The opportunities end up stuck in the funnel and reps end up wasting time. They become afraid to let anything go because they have nothing to replace it with. If the funnel is full of leads, they will expect some to fall away and they let go more easily.
Here is what all of this tells you. Let’s say, that of the leads that have shown an interest, but not yet been qualified, there is a 5 to 1 chance they will close. If your average sales cycle is 5 months, then by looking at the number of leads in Qualify, you will know if there is any chance you will hit your numbers in 5 months. Of course, each sale is unique and these are just stats, so there is always a possibility that more or less will close. However, if you don’t have 5 in qualify for every close you need 5 months from now, then you aren’t likely to hit your goals.
By the time a lead is in Close all the leads that were a poor fit or chose a different vendor are gone, leaving just the leads that a have a 90% chance of closing in the next 60 days. That is revenue you should be able to forecast.
If your team is carefully trained to accurately maintain their funnels, you will be accurately forecasting and adjusting activities and priorities to make sure that you will hit your goals.
The best way to make sure that funnels are accurate is to do a monthly funnel review with your team. By doing that, your team knows you are serious about your commitment to accurately and effectively managing sales revenue. When you are serious about using your funnel and managing the funnel, you will see significant changes in the results you get and the success you have forecasting. Now, you can set goals and truly know whether or not you are positioned to hit your goals and what you need to do to change your positioning to achieve success.
Do you need help learning how to manage your funnel or do you have more questions? Let’s have virtual coffee and I will guide you through it! Or sign up for our Online Sales Acceleration course where you will learn the systems of building your funnel.
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