The Sales Funnel

A key component in the effectiveness of salespeople is the sales Funnel cycle. The sales funnel can be measured in steps, in days, or in months. It is shown as a sales funnel because there are more potential customers at the beginning of the process (leads), than at the end (customers).

The cycle starts with a lead, which is often nothing more than contact information of someone who might be interested in the salesperson’s product. To follow up on the lead, the salesperson might phone or drop by to see the person identified in the lead. This stage of the sales process is called the approach. During the approach, the salesperson introduces themselves and their company to the buyer. If the buyer shows interest, the salesperson then moves to the next step in the sales process.

A suspect is a person or company that seems to have an interest in an offering, but it is too early to tell what or if they are going to buy. They’ve agreed to meet with the salesperson and will possibly listen to the sales script or participate in a needs-identification process. During the needs-identification stage, the salesperson is trying to qualify the account as a prospect. Qualifying a prospect is a process of asking questions to determine whether the buyer is likely to become a customer. A prospect is someone with the Budget, Authority, Need, and Time (BANT) to make a purchase. In other words, the person has the money to make the purchase and the authority to do so; the person also needs the type of product the salesperson is selling and is going to buy such a product soon.

Once the purchase has been made, the sales cycle is complete. If the relationship between the company and the buyer is one that will be on-going, the buyer is considered one of the salesperson’s “accounts.” Note that the buyer made a decision each step of the way in the cycle, thereby moving further down the funnel. She decided to consider what the salesperson was selling and became a suspect. She then decided to buy something and became a prospect. Lastly, she decided to buy the salesperson’s product and became a customer.

Metrics Used by Salespeople

Salespeople are evaluated on the revenue they generate. Sometimes the average revenue generated per customer and the average revenue generated per sales call may be measured to determine if a salesperson is pursuing customers that are the most lucrative. How many prospects and suspects a salesperson has in the pipeline are two other measures. The more potential buyers there are in the pipeline, the more revenue a salesperson is likely to generate.

Conversion ratio is important metric. Conversion ratio measures how good a salesperson performs at moving customers from one stage in the selling cycle to the next. For example, a 10:1 ratio could mean it took ten leads for a salesperson to get one suspect agreeing to move to the next step. This is measured at each stage of the funnel. Their conversion ratios also tell them how many sales calls they have to make each day or week to generate a sale and how many calls must be made on leads, suspects, and prospects to convert them.

The number of sales calls of each type a salesperson has to make in a certain period of time is called activity goals. Activities and conversions drive sales (Figure 12.4). More calls translate into more conversions, and more conversions translate into more sales.

A win-loss analysis is an after the sales opportunity review of how well a salesperson performed. Each sales opportunity after the customer has bought something or not is examined to determine what went right or wrong. When several professionals are involved in the selling process, a win-loss analysis can be particularly effective because it helps the sales team work together more effectively in the future. When the results are fed to managers, the analysis can help a company develop better products. A marketing manager who listens carefully to what salespeople say during a win-loss analysis can develop better advertising and marketing campaigns. Communicating the same message to the entire market can help shorten the sales cycle for all a company’s salespeople.

Another important metric used by many salespeople is how much money they will make. Most salespeople are paid some form of incentive pay, such as a bonus or commission, which is determined by how much they sell. A bonus is paid at the end of a period of time based on the total amount sold, while a commission is typically a percentage of, or dollar amount paid on each sale. A bonus plan can be based on how well the company, the individual salesperson, or the salesperson’s team does. Some salespeople are paid only on the basis of commission, but most are paid a salary plus a commission or a bonus.

Commissions are more common when the sales cycle is short and selling strategies are more transactional than relationship oriented. Perhaps one exception is financial services. Many financial services salespeople are paid a commission but expected to also build a long-lasting relationship with clients. Some salespeople are paid only a salary. These salespeople sell very expensive products that have a very long sales cycle. If they were only paid on commission, they would starve before the sale was made. They may get a bonus to provide some incentive, or if they receive a commission, it may be a small part of their overall compensation.

Metrics Used by Sales Managers

The sales manager is interested in all the same metrics as the salesperson, plus others. Sales managers may use sales cycle metrics to make broader decisions. Perhaps everyone needs training in a particular stage of the sales process, or perhaps the leads generated by marketing are not effective, and new marketing ideas are warranted. Sales cycle metrics at the aggregate level can be very useful for making effective managerial decisions.

Sales managers also look at other measures such as how much of the market is buying from the company versus its competitors; sales by product or by customer type; and sales per salesperson. Sales by product or by product line, especially viewed over time, can provide the sales executive with insights into whether a product should be divested or needs more investment.

The time of year and sales data comparing one period to the next. If the company’s sales are declining, is it because of the season (e.g. more winter boots are sold to stores for consumers to buy in the Fall and Winter) or does it have a serious, ongoing problem (e.g. sales are down compared to the previous year)?

Sales managers are also continuously reviewing how the company’s sales are doing relative to what was forecast, or estimated to occur. Forecasts turn into sales quotas (i.e. minimum levels of sales performance). In addition, forecasts turn into orders for raw materials and component parts, inventory levels, and other expenditures of money. Poor forecasts can be problematic for the company whether they are higher or lower than forecasted. In the case of higher than forecasted sales, the company will lose money because they will run out of products before they can restock them. In the case of lower than forecasted sales, the company will increase costs built up inventories and are storing products are not selling quickly enough or at all.

Sales managers don’t just focus on sales, though. They also focus on costs. Why? Costs are associated with profit. If the company spends too little, sales and profits may fall. If the trade show budget is cut for example, the quantity and quality of leads salespeople get could fall and so could their sales. However, if the company spends too much on trade shows, the cost per lead generated increases, with potentially no real improvement in sales.

Customer satisfaction is another important metric. Salespeople and their bosses want satisfied customers. Dissatisfied customers not only stop buying a company’s products, they often tell their friends and family members about their bad purchasing experiences. Consumers may post bad product reviews on websites such as Google Reviews. In the case of large business customers, word of mouth is common and a customer being unwilling to provide a referral to another company, is a way to measure customer dissatisfaction.