Dec 152011

If you ask the average business owner what their sales conversion rate is the chances are you will get a blank look in response to the question or you will get a figure about 4-5 times higher than what it really is.  Why is that?  Because most small business owners don’t measure it or use a sales funnel to help them identify where they’re going right or wrong in the sales process.

A sales funnel is simply a system whereby the sales process is broken down into individual, discrete steps that help you take more control of the sales opportunities presented to you.  By breaking it down into separate sections and measuring what happens in each part you are also able to gain a lot of knowledge and understanding of what is happening.  In some businesses the whole sales process happens in a single engagement (for example, in a fast food restaurant) but in other businesses the process can take months and involve many visits by sales personnel.

Different companies adopt the basic process to suit their businesses but here are the fundamental steps, using a service based business as the basis for the example.  Let’s say we offer a virtual assistant service to small business owners.

New opportunity

This is the top of the funnel where you make first contact with a prospect or they first become aware and interested in what you offer.  Our advertising has pulled in 100 people who have gone to our website and filled their details in on the contact form.

Fact finding

The next stage is for us to contact the prospect and determine from them exactly what it is they want and to see if we can provide it for them.  This usually involves a person to person sales visit to get a better feeling for their company and for them to be able to ask questions of us so that they get a better understanding of what we do.  Cost will invariably arise at this stage but ideally we should only give approximate costs because we will not be able to determine exactly what our service will costs until we know exactly what the client requires.

At this stage we can expect quite a high number of people to drop out of the funnel for a variety of reasons; it might be more expensive than they thought, we might not be able to provide a key requirement or (as with many early prospects) they have simply lost interest.  Let’s say that after the initial fact finding meetings we have lost 70 people.

Solution proposition

Of the 30 prospects we have left we then have to develop a solution, explaining how we will service their requirement and how much it will cost.  Although prospects are now more engaged with us as a business they are by no means ‘in the bag’.  Some will undoubtedly have been speaking with other providers and so they will have a choice of who to go with depending upon their own criteria.

At this stage we can still expect to lose quite a few people and by the end we could be down to perhaps 20.

Negotiation and sign up

By now both sides know each other well and a strong degree of trust and understanding built up.  There should be be surprises at this stage as we are just getting the final terms and conditions and price agreed.  That’s not to say that late arising problems won’t happen; we may still lose people but the numbers should be low – perhaps 2 out of our remaining 20.

So, having started with 100 people wanting to buy our services we’ve ended up with 18 clients.  In our example the figures are, in a sense, irrelevant.  What is important is we now have a sales funnel process and know how many people we expect lose at each stage.  If we are to improve our business then what we need to do now is look at each level of the funnel and decide how we can reduce the losses.