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What Is a Sales Funnel?

A sales funnel is a way of moving your prospective customers, or prospects, through different stages of awareness and consideration as they gradually make the decision to—hopefully—purchase your product or use your service. 

To make the analogy clearer, think of an actual funnel, like the kind you’d find in your kitchen. At the top of the funnel, there’s a large quantity of potential prospects, some of whom might be interested in your business (but many of whom may not). Some of these prospects will progress to the next stage of the funnel, which becomes narrower and narrower until a still-smaller group of prospects completes a sale—and converts to customers.

While it’s a relatively simple idea to grasp, sales funnels are foundational to the very concept of marketing—and when it’s time to promote your business, you’ll need to have a solid handle on yours. Want to learn more about what defines an effective sales funnel (and why they’re so important)? Let’s walk through the basics.

Stages of the Sales Funnel

There are a number of different ways of thinking about the sales funnel, but one typical approach breaks it down into the following four stages:

  1. Awareness
  2. Interest
  3. Decision
  4. Action

We’ll go into more detail on these stages shortly, but here’s the top line: The early steps, known as the “top of the funnel,” speak to a broad (but not infinitely broad) group of people who are just starting to learn about your business. The later ones (the “bottom of the funnel”) are tailored to those closer to making an actual purchase.

These stages don’t exist in a vacuum. As a marketer, it’s your job to find creative, effective ways to nudge your prospects from one stage of the sales funnel to the next, whether it’s via catchy calls to action, compelling eBooks, or a promotion that’s too good to pass up.

In other words, a sales funnel isn’t so different from the traditional tactics someone would use to turn a casual shopper in a brick-and-mortar store into a customer—and a repeat customer at that. The difference is that instead of drawing them inside with an eye-catching sign or landing a sale with stellar customer service, you’re using a slew of digital marketing strategies to ultimately make that conversion.

Stage 1: Awareness

Let’s take a closer look at the different stages of the sales funnel. In the first stage (awareness), your prospects are coming in completely fresh. They’ve likely never heard of your business, and it’s your job to catch their attention and get them to care—whether it’s with a clever tweet, an Instagram post, or a high-ranking article in Google search.

Even though your prospects are just becoming aware of your business, you can take steps to put yourself in front of prospects likely to care about your product or service, known as your target audience (rather than leaving it to chance and speaking toward an undifferentiated mass). Let’s say you run a business selling high-end umbrellas. If you run a content marketing blog on your website, you can use SEO to optimize your articles so that someone searching for umbrella information on Google is more likely to end up on your website. So when you snag someone’s attention with a catchy post about a topic they’re already interested in, they’re already one step closer to the next step of the sales funnel—and a select few may end up converting right then and there.

Stage 2: Interest

Now that you’ve captured your prospect’s awareness, they have a solid understanding of what your business is all about and are ready to move on to the next stage. Prospects in the “interest” section of the funnel are typically conducting research and seeking solutions as they try to settle on one product or service, or another. They likely have varying levels of confidence or specificity when it comes to what they’re looking for—if you’re running an umbrella business, your prospects could be searching for “best umbrellas” as “best outdoor gear.”

One great approach to capturing and maintaining a prospect’s interest is to create an email newsletter. Your job here begins a step earlier, in the awareness phase: You’ll need to ask prospects to share details like their email address and country of residence, usually in return for sharing a free piece of content like an eBook or whitepaper. From there, you can add them to your newsletter distribution list and share compelling, useful content designed to sustain their interest and nudge them toward conversion. Just don’t nudge too hard—the goal is to create content they’ll actually want to explore, not a thinly veiled sales pitch that could end up turning them off.

Stage 3: Decision

Now we’re getting closer to the bottom of the funnel, when a prospect finally purchases your product and converts to a customer. But first, you’ll need to convince them to take that last step by proving that you’re a cut above the competition.

Customer testimonials can be helpful here, as can positive reviews or media mentions. These don’t need to be hidden away on your website—written and video testimonials are great fodder for digital advertising and can help tip a prospect that’s on the verge of converting over the edge.

This is also your moment to break out the big guns in the form of enticing offers and limited-time deals. You can attract new customers by providing free shipping on their first order, a special discount, or a BOGO offer. Do some research into what your competition is offering, and do them one better. Scarcity economics can also be your friend here—when your language emphasizes that a special offer is limited to a certain time period or maximum number of customers, prospects are more likely to take advantage of it.

Stage 4: Action

This is it—the moment when your prospect converts and all your effort pays off. 

But wait—your work is far from over. Now that you’ve created a customer, it’s your job to retain them as a loyal customer and make that purchase the first of many. This begins at the very moment they place their order, with language that thanks them for the purchase and gives them the opportunity to provide feedback. You can also start targeting them with coupon offers designed to retain them, and even add them to an entirely separate email list with content aimed at existing customers.

Why Sales Funnels Matter

By understanding what happens at each stage of the sales funnel, you can get a better handle on when and why some prospects drop out—allowing you to identify weak points and shift your marketing strategy as needed—while others convert to customers.

Building out your sales funnel also forces you to think about who exactly your customers are, and what are some of the best ways to reach them. Prospects at later stages of the funnel will have different needs and interests than those at the top, so you’ll need to be smart about how your messaging is tailored and make sure the right language, offers, or content are getting in front of the right people. Fortunately, there are countless ways of doing this, whether it’s via a well-placed Facebook ad or an email newsletter. More on that in a moment.

Scaling Your Sales Funnel

What separates entry-level marketers from truly effective ones is the ability to break down each of the expenses that go into your sales funnel and calculate the cost of converting a single customer. This is a complex process, and you’ll need to know everything from the click-through rate of your emails to the bounce rate of your website (both of which will also help you identify leaks in your sales funnel).

Once you have a handle on the metrics, you can calculate the cost of conversion by looking at (for example) the number of people who make a purchase compared to the number that enter the sales funnel. So if 300 people visit your site and 30 convert, your conversion rate is 10%. From there, you can figure out your customer acquisition cost (CAC)[1] by comparing what you spent to drive prospects to your site to the number of people who converted. Once you know that number, you’ll have a better sense of how to scale your marketing strategy for maximum effectiveness.

Head spinning? Don’t worry. Many online advertising tools, like Google Analytics and Facebook Ads, will help you crunch some of these numbers automatically. And don’t be afraid to experiment with your sales funnel. Performing A/B tests on emails, social media posts, and different types of offers can give you more clues to what’s working and what isn’t. In the end, a sales funnel isn’t a static concept—it’s only natural that it will change and evolve as you continue to grow your business.

Article Sources:

  1. NeilPatel.com. “Customer Acquisition Cost: The One Metric That Can Determine Your Company’s Fate

The post What Is a Sales Funnel? appeared first on Fundera Ledger.

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