What Is The Sales Funnel?

Large corporations often use what’s called the “open house,” or brand-building, model of advertising, which is expensive, time-consuming, and requires a lot of brand equity and trust over time before people make decisions to buy from them.

With the “marketing funnel” model, a person makes a small purchase (yes, supplying an email or physical mailing address is considered a payment of sorts), and over time you “funnel” your customers towards more and more high-end products and services, step by step, by selling them to the next level.

The two are entirely different business models, and they both work in their own ways. For most entrepreneurs, however, the brand-building model is too cost-prohibitive and time-consuming to use by itself, involving many resources that simply aren’t practical. That doesn’t mean you shouldn’t use it within your means. In fact, you’ll soon see how to incorporate both the open house and marketing funnel models in your system (for starters…we’re just getting warmed up!).

So by “funneling” (others call it “backending” or “up-selling”  your prospects into paying customers, you’re setting the stage to provide tremendous value to them. So much value, in fact, that your customers begin to look forward to receiving content from you. And with that value comes the opportunity to take your customer to the next level, where you can sell higher-end goods to them.

And this isn’t a one-sided benefit. Both you and your customer benefit by this relationship. Your customer benefits when he gets even more value…something he really wants. You’re helping him in that regard. And of course you benefit as well by slowly graduating your customer to your “A” list, where you can provide even more value.

I once knew a salesman from a large workforce management company. This company sold expensive computer systems that helped call centers forecast their incoming call volume, determine how many customer service people they needed to handle those calls, and even generate the most efficient schedules for those reps in order to maintain a desired level of service.

This guy was an old pro when it came to managing his leads. When a potential client company would issue a request for proposal to him (basically an opportunity for his company to provide a quote based on the issuing company’s needs), he would keep track of all the people involved in the decision-making process, plus any supporting personnel. Basically anyone’s info he could get his hands on.

Now when he learned that a key person moved from one company to another (which was fairly common), and that new company was in the market for his product, he would personally contact his “lead” from the old company (now working for the new one) and continue his funneling efforts there, while still maintaining the funnel at the old company.

Now imagine he was doing this for all of his leads, wherever they ended up. He had funnels in place everywhere. Do you think he had skinny kids?

Personally I think every sale he made was well earned. Anyone who can keep track of all those funnels and people hopping companies deserves to earn a profit.

Figures 2-1 and 2-2 show the typical marketing funnel. Figure 2-1 shows an offline version of the funnel model, and figure 2-2 shows the online equivalent. Note that the only differences are at the top of the funnel, signifying the manner in which you obtain your leads. Online they visit your website before they supply their information and become a lead. In the offline world, they would receive your offer in some other manner.

A truer representation might represent your target market as suspects, who become prospects only after raising their hands (i.e. they become your prospects when they become your leads), but however you view them, the goal is to obtain leads, where you will then attempt to convert them into paying customers.

Notice how the width of the funnel gets smaller towards the bottom? The width represents the number of customers at that height, or stage, of the funnel. However, the smaller the width, the more money they are spending with you. In fact, the amount of money they spend with you can be thought of as being inversely proportionate to the width of the funnel (more or less). So the 20 percent responsible for 80 percent of your profits are at the bottom of the funnel. The other 80 percent that give you 20 percent of your profits are towards the top. This distribution is a general observation and not a mathematical absolute. As I mentioned earlier, it might be 70/30 or 90/10 or somewhere in between.

This is no accident. Your “A” customers, your biggest advocates, are in the smallest segment of your customer base…the bottom of the funnel (but the top in terms of the value you deliver to them).

Let’s walk through each step of the funnel to gain a clearer understanding of how the funnel works.

  1. Your prospect enters the funnel by responding to your incentive or “ethical bribe” to raise their hand and give you their contact information. He is now a lead on your mailing list.
  2. You continue to provide value to him, but you want him to make the transition from a non-paying lead to a paying customer. As a result, you give him a front-end, or entry-level, offer on a product or service directly related to the value he received when opting to join your list. You may make the offer at a breakeven or even an initial loss, because you know you will more than make up for it on back-end sales.
  3. If he doesn’t purchase your front-end product, you continue to sell him on the same offer or different front-end offers—ideally both, because he just may not be in the market for your initial offer at this time, but may be later.
  4. When he purchases your front-end product, he is now a customer. You are now “warming him up” to doing further business with your company. Once he sees that you over deliver on your promise of value, he’ll feel more comfortable buying from you again.
  5. You want to graduate him to the next price level, so you make him an offer on a higher-end product or service related to the entry-level one he already bought. If he doesn’t buy, you follow a similar approach as step 3 above. That is, you continue to make him offers, but this time on the mid-level product.
  6. Once he purchases your mid-level product, you move onto the high-end product. He is now conditioned to buy from you with confidence and without worry, because he knows what an outstanding value you’ve been giving him. He’s seen the results of your products first hand, so his buyer’s resistance is reduced. He is now on his way to becoming one of your “A” clients, the 20 percent responsible for 80 percent of your profits.
  7. You continue to sell him higher ticket items and provide even greater value to him.

The steps I have listed are a very simplified approach. You’ll soon see that there is much more to it if you truly want to be successful in the long run, but it’s not rocket science by a long shot.

After s/he buys, you’ll want to ask him for referrals, a testimonial, and do everything in your power to make sure s/he is satisfied. You want him to be satisfied so he’ll buy again of course, but you want also want to reduce your refund rate and gain his or her endorsement. You want him/her  to tell all of his friends and colleagues about his positive experience with your company.

You probably know when someone has a bad experience with a company they’re more likely to tell others about it than when they have a pleasant experience. You want to encourage them to tell all about their pleasant experience.

And then you’ll want to develop some kind of residual income, where they pay you so much a month or year forever until they cancel. Not everyone will do that, of course, but your “A” customers probably will. And you can create different residual levels, just like you have different product levels, all at different price points.

This  only illustrates the types of transactions you should be thinking about for your business. In the long run, you’re going to need a plan that will sustain your business for a longer stretch of time, rather than a week-to-week, month-to-month approach.

That’s the real secret to building a long-term business building success.

Exercises like asking yourself where you’d like to see your business two years from now or five years from now or 10 years from now can really make a difference in whether your business will be a short-term overnight success that will fizzle quickly, or whether it will sustain the test of time and provide a lifetime value for you and your family.

Ideally, you like to plan for the latter. And this report has barely scratched the surface.

But it does give you something to think about, because most entrepreneurs focus on the short term rather than looking at the bigger picture that will last them a lifetime.

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