Manage Your Business with the Funnel
Every company has a list of leads, whether in a spreadsheet or CRM, but few have a structured opportunity management system. I call that a Funnel. It is a system, when used and managed correctly, helps leaders manage opportunities, sales reps, revenue, and growth.
Your funnel is a critical part of executing both business and sales strategies. Once you establish goals, the funnel is the tool that tells you whether or not you are on track to hit those goals and what it will take to get you back on track.
Funnel or Pipeline?
The term pipeline has become the standard in the industry. We talk about a marketing funnel, but a sales pipeline. I prefer the word 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 pipeline depends on the volume of opportunities coming in the top, the velocity each flows through the funnel, and the percent that come out the bottom as closed business.
It would be glorious if leads kept flowing in at the same volume and through at the same velocity, and none got lost along the way. It just doesn't happen that way. The pipeline representation of flow doesn't tell you enough about your current situation. For this construct to be useful, it needs to tell you at any time if the flow of leads is sufficient to close enough deals to hit your number.
A funnel is about ratios, and so, the shape matters. It's broad on the top because we all know that you have to put a lot of leads in to get a few deals out. When you look at it that way, it is clear that your sales funnel should always have exponentially more opportunities at the top than you expect to close. By looking at it that way, it is easier to conceptualize where how you are positioned at any given time, hit your goals, and where the problems lie. Let me explain.
How to Build a Funnel
A funnel typically has about five stages. CRMs often include many more stages than that, but experience has shown that too many stages dilute the process and cause confusion. The stages most commonly used are:
*I have seen stage three called: verify, pursue, and cover the bases.
The goal is to have clearly defined stages with associated activities in each of those stages. Keep it simple so that it is easy to use. It is not necessary to make each activity a stage. It isn't uncommon to see a stage called "Submit Proposal." That is not a stage; however, it is an activity that happens during one of the stages.
The activities that happen in each stage are critical, but they aren't stages. Your team will require a map that lays out the activities that occur in each stage. That can reside in the CRM, in a playbook, or even an infographic.
The best thing about the sales funnel when it is designed and used well is that it makes accurate forecasting possible.
Funnel Stages Defined
By defining the stages, so everyone on the team uses them the same way, you increase the level of predictability. Here are the definitions you could use:
Prospect: Your team is reaching out to people who have not yet indicated an interest. You can prospect in existing accounts or new companies. In this stage, your team uses tools like cold outreach, introductions for referrers, social media, content, networking, and 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 a budget, a fit, and a timeline. During this stage, your team might exchange emails, 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.
Cultivate: During this stage, your team is meeting with all buyers involved in the sale. They are confirming the fit and building interest. Cultivate is also when they will identify potential objections and work to move 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 or video meetings.
Close: During this stage, the sales rep focuses on finalizing the details and getting buyer commitment. Ideally, that would be a contract or agreement. Sometimes using an online signature tool can speed things up.
Won: This should be the most straightforward 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 Explained
Once everyone on the team uses 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
- 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. 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 ten things that go in the top of the funnel, only one will 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 find that some opportunities are not a good fit. While cultivating, it will be discovered that you aren't going 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 Cultivate = 5:2
Cultivate to Close is 2:1
Close to Won = 1:1
Here is what these ratios tell you. Let's say that for the leads in Qualify (they 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, 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 with a 90% chance of closing in the next 60 days. That is the revenue you should be able to forecast.
By consistently using and managing the funnel, you will see patterns that will help predict velocity and close ratios. You will know what percent of leads fall out of the funnel at each stage.
What Your Funnel Can Tell You
If you watch closely, you will see trends when they are happening.
For example, when there aren't enough leads coming in the top of the funnel, sellers tend to focus on leads that aren't a good fit and probably won't close. These opportunities bounce around in the funnel but don't move forward. Sellers end up wasting time because they don't have anything to replace it if it falls away. If the funnel is full of leads, sellers will focus on leads that they can close and let go of the others.
So, if leads are bouncing around in the funnel for longer than your average sales cycle, it is time to find out what is going on. If sellers are chasing unqualified leads because there is not enough in the top of the funnel, it's time to focus on the funnel. If they are bouncing around for another reason, training may solve the problem.
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 your results. Now, you can set goals and know whether or not you are positioned to hit your goals and what you need to do to change your positioning to achieve success.
Want to talk about using your funnel to grow your business? Schedule a Free Strategy Session below and I will guide you through it!