Do you have a sales funnel in your business? Its a popular concept amongst sales professionals, but just in case you haven’t come across the idea here’s a brief description.
At the heart of the sales funnel concept is the numbers game – the more people a sales guy talks to the more deals she wins. Every 100 cold calls results in 10 first meetings which in turn results in 1 proposal. 1 in every 3 proposals results in a sale. In this example there’s one successful sale to come out of every 300 cold calls. The word funnel describes how the number of prospects reduces as the cold call, first meeting, proposal, sale process is executed.
The numbers quoted are simply examples and don’t mean anything. Its the concept which counts and it operates differently in every business.
So how come the sales funnel is so popular if its bad for business? Good question. There are ways its good for sales operations. It recognises there’s a process and the probability a prospect will buy increases as that process completes. It provides everybody on the team with a common language covering revenue generating activities. Most important – it gives management simple measures they can use to monitor operations and forecast outcomes. And everybody in sales understands it. The sales funnel is part of the folk lore.
That’s quite a lot of upside, so where’s the downside?
The sales funnel wastes an awful lot of sales resource.
In our example numbers, for every successful sale there’s been cost of sale spent on 299 prospects who were never going to buy. There are two ways of looking at this – neither of them pretty.
If the average cost of sale per prospect is $500 the cost for the 300 in the funnel totals $150,000. If the business could reduce that cost by half, the result might be much lower prices to better compete in the market, or another $75,000 in pure profit, per deal.
On the other hand the opportunity cost – what could the sales team do if it wasn’t wasting effort on 299 prospects who weren’t going to buy – is equally frightening.
Simply by reducing the number of cold calls needed to produce a sale by half the company could increase profit by employing fewer sales guys, or increase sales in other markets by redeploying them.
The biggest overhead cost in any sales operation is the prospects who don’t buy, and the simplest way to improve sales performance is by spending less time on them, and more on the ones who do.
And that means sales strategy – figuring out who will buy, how, and for how much. Then focusing marketing, prospecting, and selling on executing efficiently.
If you’d like to know more about sales strategy, how to decide on it and how to execute it, you’ll find our eBook Succeeding in Sales Management particularly helpful.
Your article is interesting, but imo, your logic is somewhat flawed.
It’s not the concept of the sales funnel that results in having 299 dud prospects. It’s the poor prospecting and marketing.
And your statement here is just wrong.
“The sales funnel wastes an awful lot of sales resource.”
Poor prospecting and poor marketing and Yes, poor sales strategy wastes an awful lot of sales resource. Not the sales funnel.
For many businesses, the funnel is real. Don’t beat up on the concept.
It is the execution of the management of the flow into the funnel and through the funnel that determines the successful use of the concept.
If 300 calls lead to 1 sale you need to get a better sales team! But I agree that targeting your market is key to improving conversation rates. Cold calling is labour intense and costly. Targeting the right keywords, capturing mailing list emails and designing your site to convert is much more effective in my opinion. I hate cold callers, if I want something ill proactively search for the best deal. Capturing those searches is crucial.