You don’t have to be working around sales people for very long before you start hearing about “Sales Funnels” or “Sales Pipelines”. But what are they and how do they affect you?
Or rather, why should you care about them and do you need one?
If you don’t understand yours, you’re missing several tricks and definitely losing sales and profit!
The concept of funnels and pipelines is simple. They are aids (tools) for transforming and narrowing down the almost limitless number of sales opportunities in the world into individual successful contracts which support your strategic business plan. They are useful for generating capture strategies and helping managers to readily understand the relevence to the core plan and maturity of each of the sales opportunities being pursued – helpful for monitoring future order intake against time.
How is a sales funnel useful?
The key thing about a sales funnel – I prefer that term as I find it more descriptive of what it’s all about – is not just being able to describe the stages in the funnel. That is pretty straightforward, so long as you know how your market works – hint: creating one will certainly show if you actually understand how your market works and how your customers’ operate.
Each step in the sales funnel generates events and actions which you need to close out to make sure you are positioned as best as you can to win the business.
In effect a sales funnel determines your sales and marketing process and helps develop a strategy to capture opportunities. Knowing where in the funnel the opportunities you are chasing provides an at-a-glance indication for your likely order intake.
What’s in a Sales Funnel?
There are a few companies out there that have developed sales and marketing methodologies to teach new marketers and improve the performance of those already practising. Their output is usually sold in book or course form. Miller-Heiman pioneered a strategic approach to sales in 1985 called Strategic Selling which is still very popular today and the organisation offers training courses and books to assist budding marketing professionals to learn and perfect their craft. At the time of writing the book is discounted by about 60%. Miller-Heiman developed their own vocabulary for elements of the sales funnel and I will reference those in this article too.
Shipley Associates – an industry renowned capture, bid and proposal training company – on the other hand, doesn’t mention sales funnels or piplines in its Capture Guide – Winning Strategic Business. But understanding what one is helps a great deal when learning the Shipley process for winning strategic business. An interesting omission.
For me the sales funnel breaks down into simple stages:
- Outside: I include this for completeness really. Strictly speaking it isn’t in the funnel but is everything outside of the funnel. It includes all of opportunities from every conceivable market. It is unrefined and not segmented in any way. Miller-Heiman calls this stage “The Universe” and describes it as a stage analagous to prospecting.
- Chasing: Those opportunities which you/your organisation are going to chase. It is segmented to include opportunities in your market vertical which meet your business’s defined criteria for opportunities to chase – as captured in the business plan. With effort on your part, there is a reasonable chance of conversion into a sale/win.
- 1st Hurdle: Here are the opportunites where you have passed the first hurdle – whatever form that might take. Usually this is for opportunities where the potential customer has decided to allow you to enter into the selection process. From this point forwards different customers have different processes. Highly structured organisations – government organisations or big industry – may require further stages of pre-selection (a second and/or third hurdle) which you are required to pass before being invited to provide a proposal against a formal request for quotation or request for price. Miller-Heiman collects this stage and the previous one and terms it “Above The Funnel“. This is analogous to qualification and usually involves an interaction with the customer who may have expressed interest in your products or requested further information. In effect it is similar to prospecting but on a smaller group of more likely customer candidates. A key feature is that some form of interaction with the customer will have taken place.
- 2nd and Subsequent Hurdles: If the customer uses them. These might include a preliminary qualification questionnaire issued to help the potential customer down-select further from a large pool of interested companies. It could equally be that you are required to demonstrate that you hold appropriate quality, safety, manufacturing or other accreditations which indicate that you would satisfactorily complete the work. Miller-Heiman refers to this stage as “In The Funnel”. It usually involves further consolidation of information about the opportunity and the customer and how it wishes to procure. Success in this stage takes you to the next stage.
- Invited to Bid: The potential customer has determined that you should be invited to provide a proposal/bid/pitch – usually in competition against other companies. In Miller-Heiman terms this represents “Best Few” where you are one of the last companies standing in the customer’s procurement process.
- Selected: You’ve won!! You’ve beaten the other bidders and now have to negotiate.
- Contracted: You have a contract in your hands. Now you just have to produce and deliver… Miller-Heiman refers to this as “Closure of the Order”.
- Performed: Deliver to the customer’s satisfaction!
- Raving Fans: There is a further step in a funnel – not often shown but shown here. That is to turn your hard won customers into raving fans by consistently delivering high quality product which is good value for the customer and addresses their hot buttons. Do this and they will return time and again – and will talk about you to others!
To create a simple funnel diagram for your market – whichever market you’re in – think about the series of steps and decisions being made by your customer between deciding they want to buy something and placing the contract.
How does your customer decide who to award contracts to?
Customer organisations usually include the following steps in their procurement processes:
- Need identification – something (usually a problem) that has to be resolved
- Budget approval/authorisation for the purchase.
- Setting purchase strategy (i.e. will the purchase be made through full competition, limited competition or sole source to a preferred supplier).
Knowledge of your customers’ purchase strategy is very important for effective sales and marketing.
Because if you know how the potential customer functions, you can influence it to your advantage.
If you can answer the questions:
- what are they buying?
- how are they buying it?
- whom do they want to buy it from?
- how much are they prepared to pay?
Then you are well prepared to craft your offering to make sure it gets considered favourably.
Purchase strategy questions you must be able to answer, include:
- How will the opportunity be advertised?
- Will there be a pre-selection process (for competitions) to narrow the competitive field?
- Is it for something that’s already available or will it need to be developed?
- Will a solution to the need be straightforward or challenging to deliver (i.e. how risky is it?)
- How will the requirement be described?
- How many people or departments are involved in defining and generating the requirement?
- Who will assess proposals and offers?
- Who will approve the final expenditure and what evidence will they need to satisfy themselves that it is an effective use of their money?
Think, also, about how you (or your organisation) decide which opportunities to pursue:
What criteria do you have for deciding if they are worth expending effort on? Factors generally include:
- strategic objectives of your business – does it fit your core business and does it support your core plan?
- value of the opportunity
- profit potential (if you will make an acceptable profit after costs of delivery are taken into account)
- cost of pursuit (how much it will cost you to be part of the competition)
- Do you have the right skills? Do you need to team with other companies to be able to make an offer which satisfies the complete requirement?
The important thing about the sales funnel is to understand how you exploit it to get an advantadge over your competitors.
Because that’s what you need.
To be better than your competitors.
In my next post, I’ll take the elements I’ve described above to show how you tailor the knowledge into a working sales funnel and, from there, generate an effective business capture process.
A key element of your business plan.
To your business capture success,
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