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.