What is a Sales Funnel? Definition, Types, Strategy and Examples

What is a Sales Funnel?

A sales funnel is defined as a marketing and sales conceptualization that attempts to segment a potential customer’s journey from branding and first contact to conversion into a buyer and customer.

A sales funnel is closely related to a customer journey map, since each contact of a buyer with the brand comes with the potential to either move them closer or further away from a final purchase. A well planned sales funnel aims to bring a potential customer closer to making a final purchase through a series of planned steps and actions.

For example, if your email campaign succeeds to get a new user to your brand’s website’s article from Google search, what will be the next desired steps of their engagement? The product page? Another article that leads them closer to a purchase? Downloading a digital asset like an ebook or research study?

These are the questions that originate while planning sales funnel stages- the stronger your planning, the less you have to leave conversions to accidental engagements.

A typical sales funnel has the following key stages:

1. Awareness/ discoverability

There is a time when a potential customer may know about your brand but may not have had any contact with your business. This awareness of your brand/ product / services may be through word-of-mouth from existing customers, a result of your marketing efforts, earned media coverage or all the causes.

2. First contact

This stage opens up when a potential buyer has their first engagement with your business, via digital or physical channels. These may be an outbound or inbound phone call, your website, your marketing emails etc.

First contact may in some cases come simultaneously with brand awareness. This is often the case with search engine ranking articles when a user is exploring a concept and clicks on your article and enters your website for the first time. What is even more interesting is that your brand may establish awareness, first contact and even later stages - all at once, depending on the buying stage the customer is already in.

3. Evaluation

The evaluation stage is where a potential customer is currently evaluating your products and services, perhaps with other competitors. Here, the customer is cross-checking product/ service features and pricing to understand if they want to select you for shortlisting, potentially alongside other products from competitors.

Here, the customer is already aware of your brand, knows about your offerings and you are considered a candidate for the final deal.

4. Selection

A customer enters the selection stage when they have made up their minds on a final vendor. At this stage, after evaluating pricing models and features, the customer has selected a brand to potentially confirm the deal. However, even at this stage, negotiations are typically still continuing to arrive at the best pricing between the vendor and the customer, especially in B2B businesses.

5. Purchase

A customer is at the stage of making the final purchase once the deal has been formally struck. This is where the customer is guided through the purchase process and related paperwork, and invoices are filed. This marks the stage where a consumer/ potential customer becomes a full fledged customer of the business. This is a change in relationship from a business standpoint.

6. Loyalty

A customer’s lifetime value is judged by the amount of potentiality for upsell/ renewal/resell. This in turn depends on cultivation of brand loyalty by ensuring product quality, service, account management and other meaningful customer communications.

Types of sales funnels

While every business has the right to plot their own funnels based on their unique goals and targets, broadly there are 4 types of sales funnels:

- Self-liquidating lead sales funnel

This type of funnel is used typically by self-service software products such as cab booking apps, food ordering apps, e-commerce portals, B2B SaaS products (non-team editions) etc. The reason they are called self-liquidating, is because the process of purchase does not include any person-to-person engagements or negotiations and the customer needs to buy the product/service at the fixed rate.

Such a model is most commonly used for e-commerce websites and mobile apps.

- Affiliate sales funnel:

Affiliate sales differ from your standard sales funnel because affiliate marketers are responsible or marketing your product, establish first contact and move them down the funnel. An affiliate marketer is only paid a share of the final deal and not just for passing on a potential lead. However, in order to run a successful affiliate marketing program and attract affiliate marketing partners, one needs to help improve conversions. For instance, in case of ecommerce, an affiliate lead lands on the product page from the affiliate marketer’s site - how efficiently the lead converts is also dependent on the quality and effectiveness of your landing page, graphics, sales pitches, taglines, available product demos, product description etc. The funnel for your company is therefore smaller, but lead conversion success depends on you as much as the affiliated partners.

- Channel partner sales funnel (products):

Much like affiliates, channel partners are required to have their own business set up, only branding, actual product and product-related materials are passed on to the partnering business to help them kickstart and start selling. Unlike affiliate sales however, in this case the channel partners are responsible for the final sale of the products as well. For example, if a company owns a cloud communication software suite, then a channel partner of this organization will be responsible for driving brand awareness and customer acquisition within a geographical region, under the brand name of the original company who made and owns the product.

For channel partner sales funnel, the entire funnel, except for branding, is owned by the channel partner, while the original product company takes a cut of the deal. In exchange, the channel partner gets a product to sell with brand awareness and recall, and does not need to create and establish a product and invest in related resources. However, in order to drive more leads, these partners may invest in local/ regional branding of the product.

- Upsell sales funnel

Upselling a product comes with many advantages to businesses, over acquiring new customers. Comparatively, upselling is easier because there is no additional investment in marketing and first contact establishment. Instead, a business needs to plan a funnel and invest in customer touchpoints to improve overall experience and brand loyalty. If the funnel’s customer satisfaction and engagement strategy works, then with less investment, a business may be able to seal a bigger deal during renewal or even earlier, based on customer needs. An upsell sales funnel is therefore made up of only 3 stages: Satisfaction->Need Evaluation-> Purchase. Need evaluation is the middle stage between being a satisfied customer and final decision because some companies may be satisfied with your product but may not have expanded enough themselves to require a bigger deal or additional products. This is where a company evaluates if they need anything additional from your business, despite satisfaction.

3 Key Sales Funnel Strategies for 2021:

1. Trial/ experience driven sales

A trail or experience driven sales funnel strategy aims to push users from evaluation to purchase stage. Here, a user has already made contact, is using the product under trail and is yet to pay any price to the business.

The businesses' aim is to make the trail experience good enough that users will want to expand to a paid version of the license. In other words, special attention needs to be given towards planning this experience, such that it demonstrates the best qualities of the products, while still under limited conditions. Some businesses choose to outgrow this by allowing full feature licenses for a limited time period, although this model may not be conducive to all types of products, especially those products which are needed for short periods of time.

A great example for experience driven sales funnels are gaming apps, where the entire funnel post-download of the game is driven by the experiences during the game. For example, if a demo version of a game is good, a user may purchase the full version.

Another type of experience driven sales funnel is compulsion-based and is typically only used in gaming apps as a rather deviant strategy. Here, a game developer ends up making a game’s stage so difficult that a player will only be able to move forward if they make a purchase or can more forward organically under exceptional gaming skills. Such strategies are used quite often in games which allow users to move quickly through the initial stages but need to make purchases to move faster in later stages of the game.

Another example of experience driven sales would be news apps and publications, where a free trial allows readers to evaluate the quality of content and based on experience they make the decision to pay for a subscription.

2. ‘Freemium’ conversion funnel for SaaS products

A freemium conversion model is built between the evaluation and purchase stages of an online product, where some basic features of the product are given for free for lifetime, and remaining features need to be purchased for use.

Given its nature, this funnel strategy definitely elongates the potential for continued evaluation until the need for additional features arises. However, it also better prevents chances of competitor evaluation or detraction and when done right, the only thing standing between the company and revenue is ‘customer needs’. But if and when the need arises, your company would get the first evaluation shot because of platform/product change concerns such as- data storage and mobility, user interface familiarity, feature use familiarity etc. In other words, a sales funnel actually closes only when the user makes a purchase, even though they may be using the product for a long time.

Freemium sales funnels are effective for organizations who need a competitive edge and whose overall business model requires an abundant buffer of non-paying users. Such businesses are usually confident in their post-lead conversion model, such that a certain percentage of users can be predicted to move to a paying license over a period of time.

3. Separating high-end deals from self-service sales funnel

There is a reason why most SaaS company websites list pricing for individual licenses but ask you to contact them for enterprise/ organizational/ team licenses - it is because bulk sales can be negotiated and supplemented with unique strategies for closing big ticket deals. Such deals are important for businesses as they guarantee a large revenue from a single source, which brings in a certain level of business continuity assurance.