Stages of the sales funnel and how they affect your bottom line

 

Stages of the sales process and how they affect your bottom line

I previously did some research for a mobile phone company making an entry into an emerging market. I discovered a wealth of knowledge especially about the sales process and how each stage affects the bottom line. It is this information that I am going to share with you and hope that you can apply the same within your own pipeline.

It is evident that a company sales process determines how much they will make in terms of revenue and profits. However, not all businesses have an official sales process or funnel that guides their leads to buying customers. On the other hand, those that do are unable to ascertain the impact of the stages in their sales process. This leads to the application of inappropriate sales processes by the business. At this point, I would like to make it clear that there are different sales processes that work suitably in different business segments and products. Some industries may require a longer sales process due to procedures and bureaucracy while in other segments the sales process need to be kept brief. For instance, dealing with governments and their agencies makes it inevitable to conform to a longer sales process depending on their tendering system and how purchase decisions are made. (It is also important to remember that although most governments guarantee payments these funds may take a while to be released). On the other hand, an online based business needs to apply a shorter sales process, of course by reducing the number of stages involved. The reason behind this may include competition and the fleeting nature of online consumers. Implement a long sales process and you will likely lose the customer to your competitor offering a more concise sales process (It takes less than 60 seconds for a lead to find a similar offer online! Google search anyone?). Delay the sale and the customer changes their mind after they remember other financial obligations, a new handbag maybe, and opts out.

So how do you determine the stages in the pipeline that you will include in your sales process?

You first need to understand the process customers go through before making a purchase. For this, we refer to the 5 stages of the consumer buying decision process by Engel, Blackwell, and Kollat.

Need/problem recognition
Customers would not normally buy what they don’t need. It is thus important for the prospect to recognize that they need your product or that your product would solve a certain problem they have or encountered. The customer would recognize the need or problem if there is a gap between their actual situation and the ideal situation. However, for the buying decision to occur, the ideal situation, which in this case provides the solution to the problem or satisfy the need, should be important enough to the prospect to initiate the buying process. The need or problem may be recognized directly by the prospect or induced by the seller (think lead magnet).
Information search
The consumer has recognized the need what follows is the customer will seek information about the possible and available solutions. Some of the information may be available to the consumer from previous iterations with products or brand awareness (this information is enough for the buying of products that the consumer interacts with every day, not much information is required to make a purchase). However, for big bill items and products or services, the customer knows nothing about they will be forced to seek more information from family, friends, product reviews, and advertising among other sources.
Alternative evaluation
This is where things get murky especially for online based businesses and even retail enterprises. Ideally, no business owner would want their prospect to come into contact with a competitor’s product for purposes of comparison. However, this may be unavoidable and the consumer would most likely choose to evaluate the existing alternative offers, and select the best that satisfy their need or solves their problem. The burden here shifts to the seller to inform the prospect of the products features, superior aspects of the same compared to the competitors offer and communicate how the product is best placed to solve their problem. What you are basically seeking to achieve is to inform the customer not to bother with your competitor because you’ve got the best product!
Purchase decision
Success! This is the point where the customer digs in for their wallet or logs into their online money agent $$. However, the customer may still be likely in evaluation mode, looking for a coupon, reviewing your return policy and terms of sale (warranties and guarantees).
Post-purchase behavior
At this point, the consumer evaluates the performance of the product or service. Have they received the solution or satisfaction they set out to achieve? The answer to this question would directly impact future purchase decisions by the customer with regards to not only the initially purchased product but other products that the business may be selling. A satisfied customer becomes a repeat customer and grows to even become the brand’s ambassador (Think social media) and recommends you products to other consumers, the best scenario for any business.

Because we now know the consumer purchase behavior which should be linked to the sales pipeline let us delve deeper into the stages of a typical sales process and show how these stages affect the bottom line.

It can be time-consuming to have more that 7 steps in the sales pipeline (however, this is unavoidable for some products and in some sectors). Another thing that more steps do is it increases your sales cycle. Thus, if this cannot be avoided it is imperative that proper management structures to manage the sales funnel are in place. The sales steps often begin with;

•    Establishing customer-business contact- corresponding to need recognition and information search in the purchase process
•    Qualification
•    Meeting
•    Proposal- corresponds to alternatives evaluation by present solution and alternatives
•    Establishing business-customer contact/follow-up
•    Close- corresponds to the purchase decision in the purchase process
•    Support- corresponds to post purchase behavior (sadly this has been lacking in a majority of the pipelines/funnel designs leading to customer complaints)

Depending on the industry or product these steps can be interchanged, eliminated or added. For instance, some clients request proposals before the actual meeting while in some pipelines the meeting may occur before the proposal is done.

It is important to think of the sales funnel as a sieve where prospects are left behind at each step until an actual buyer has been reached at the end of the sieving process. However, the sieved out prospects are not dumped but revisited later when different techniques are applied to achieve conversion.

So how do the steps in the funnel impact the bottom line?

For instance, you have an informational product. You establish initial contact with 50 prospects, 30 qualify by showing interest in your product, you make contact with the 30 showing interest, only 15 responds with various reasons; too expensive, will purchase from next paycheck e.t.c. You finally end up closing 5 representing 10% of the total prospects. This will help you infer the number of buy-ins depending on the number of prospects contacted (for 100 initial prospects, buy-ins expected = 10 representing 10%). It is also important to note that changes occur with every step in the sales pipeline. For instance, out of the 50 who made initial contact, let’s say 40 qualify by showing interest in the product. This signifies a change in the expected buy-ins, leading us to the conclusion that a sales pipeline works as a tool for predicting and forecasting actual sales. Thus, information provided by the sales funnel can only be as good as its design and how each step is executed. Of course, tweaking and alignment over time will improve the accuracy and reliability of the sales system. Here is another example of the pipeline steps affecting the bottom line.

So what to do next?

After reading this article you should be able to design your sales funnel and measure each stage's impact on the bottom line following the formula above. Remember to ensure that the sales funnel complies with the basic customer buying process. The buying process shared in this article is the basic standard and different industries build upon it. So review the different stages to ensure they also comply with your specific industry standard.
More resources can be found here;
Pipedrive.com
Petovera.com
Of course, for further assistance you can leave a comment below.