Ah the proverbial sales funnel. All of us in sales have lived by it and some of us have died by it in our careers. What is it? Has it changed? Who changed it? The sales funnel is a metric driven tool used to measure sales conversion ratios. That is to say the percentage that successfully converts to the next stage in the sales engagement process. It is often used by both sales and marketing to determine effectiveness and for planning purposes. In other words, if we need to produce $X in new revenue for 2010, what do we need to invest in lead generation and lead nurturing programs to generate enough qualified leads and qualified sales opportunities to achieve our revenue goals. This is typically based on historical lead gen ratios and sales engagement conversion ratios. What are the marketing and sales investments and activities in demand generation necessary to convert or produce the revenue goals for the company? I can spend hours getting in to a philosophical debate about how important it is for sales & marketing to be completely aligned in their definitions of the sales funnel stages and the way they get measured and rewarded. Suffice to say that I have a distinct sales bias and firmly believe that qualified sales opportunities and actual revenue produced are the two key metrics that sales & marketing should be aligned, measured and rewarded on.
A basic sales funnel would typically include stages such as:
* lead * qualified prospect (meets BANT criteria) * qualified sales opportunity (engaged in actual sales process) * closed new customer or revenue
There are conversion ratios for each stage of the funnel. It varies for every product or service, new company versus established company but an example would be the following:
* 10% of leads convert to qualified prospects * 25% of qualified prospects convert to qualified sales opportunities * 50% of qualified sales opportunities convert to closed customers/revenue * you can even have a conversion ratio for additional sales to existing customers as a metric
Once you have accurate sales conversion ratios, you need to know the average sales cycle length and the average deal size. Marketing should be responsible for the lead gen conversion ratios above the sales funnel; they should be able to predict based on historical evidence the leads that they can generate from their various lead gen campaign investments. Assuming you have all of those metrics and they are accurate, you can plan what lead gen campaigns, how much of the mix and when you need to do them to produce enough qualified sales opps to produce the revenue the company needs.
When sales funnels work and are accurate, they are a thing of beauty. I was VP of Sales at an established company and 6 weeks in to every quarter we could look at our sales funnel and know that we would close 28-30% of the qualified sales opportunities. The good news is that our forecasting was very accurate. The bad news is that by the time we could accurately predict what that quarter’s revenue would be (i.e., 6 weeks in to the quarter), it was too late to back up and generate new leads and allow enough time for the sales cycle to make up any revenue shortfalls. That leads to end of the quarter discounting and trying to commit heroic sales acts, such as closing a deal a quarter or two before it would naturally close without the customer having the same sense of urgency.
The problem is for a start up there isn’t historical data to base your sales funnel on. The other challenge is that the market tends to be very dynamic so what worked last year may not work this year or works at a very different conversion ratio. Has the definition for a sales funnel changed? I would submit that the high level definition for a sales funnel hasn’t changed but that the dynamics of a sales funnel has changed dramatically. Specifically, you need to figure out how to engage prospects effectively much higher up in the cloud and nurture them. It is a huge sales & marketing problem/challenge these days. As much as sales would like to believe that it’s a marketing problem, it is a joint sales & marketing problem.
Well, who had the audacity to change the sales funnel? The answer is the market did☺ Buyers are now researching, evaluating and making decisions far differently than ever before. They can easily avoid sales interaction and they do. With the proliferation of free content everywhere (web 2.0) that allows you to interact and get information without having to speak to a live person, companies and buyers are doing exactly that. This new dynamic is further complicated by the fact that most companies do a poor job of messaging, differentiating and conveying their value proposition. Due to this, it only motivates the buyer to try to avoid engagement with sales reps at all costs because they are not perceived as adding value. Rather, the sales reps are viewed as adding confusion and pressure to their evaluation and decision so the buyer will try to avoid them at all costs. Also, most companies don’t do a good job of developing valuable content and then leveraging it to engage with the prospect.
How do you engage your customers in the blogs/communities/forums where they spend their time and they trust? How do you reach and engage the influencers so they can make others aware? It’s all about building credibility, trust and domain expertise. That’s why the new world sales funnel needs to extend upward in to the cloud (blogs/forums/communities) where you start to educate, make aware and engage prospects. This is very different from the old world sales funnel where you started paying attention at the prospect/lead or inquiry stage. Sales conversion ratios have fallen for the 5th consecutive year according to CSO Insights 2010 survey. Are you still doing things the same old way and expecting different results? Start engaging in the new sales funnel world primarily through better content and sales engagement processes and watch your sales conversion ratios improve dramatically.