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Why is the sales funnel important? How does it work? How should you use one?

Last updated

23 March 2024

Author

Hugh Good

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The concept of a sales funnel is a cornerstone model for understanding and illustrating customer acquisition and retention in marketing. The model illustrates the theoretical customer journey from the moment they first become aware of your product or service to the point of purchase and beyond.

This article looks at the different steps within the sales funnel, explores why it can be helpful when crafting an effective marketing strategy, and how it can offer practical guidance when you use it to its full potential as part of your marketing strategy and planning.

Why is the sales funnel important?

The sales funnel provides a useful framework for businesses to analyze and strategize around their marketing efforts. By having a model of the customer journey from start to end, you can tailor your marketing messages to meet potential customers' needs at each stage. 

Using the funnel approach can increase the efficiency of your marketing efforts, and assuming you do a good job at each stage, it can lead to higher conversion rates and, ultimately, improved sales and profitability.

Furthermore, you can use the sales funnel to segment your audience based on their stage in the funnel. 

Segmentation enables you to deliver more personalized and relevant content to customers, depending on where they are in the journey, e.g., communications around discounts for first-time purchases at the front of the funnel or messaging around loyalty rewards for customers who are at the end.

Understanding the sales funnel

From wide to narrow:

It is important to note that the shape of the sales funnel is not by chance. Its design symbolizes the gradual decrease in potential customers as they move downward through the various stages of the sales process, from initial awareness (where there are many potential customers) to the final purchase and loyalty stage (where only a few customers have committed to your product or service and are retained as loyal customers).

Additionally, "top of funnel" and "bottom of the funnel" can further describe your whereabouts. The top of the funnel signifies the initial awareness stage with a broad audience. In contrast, the bottom of the funnel represents the later stages, where customers are closer to purchasing and developing loyalty. 

Let's look at the funnel stages in detail:

There are various versions of the sales funnel. However, the classic model consists of six stages: Awareness, Discovery, Evaluation, Intent, Purchase, and Loyalty.

These stages represent the mindset of the potential customer at each point in their journey, the following looks in more detail at what each step entails. 

Awareness: 

  • This is the stage where potential customers first learn about a brand or product and where your businesses must make a strong first impression. 

  • It is the widest part of the funnel model where you are trying to generate as much (positive) awareness of your brand, product, or service as possible to maximize your potential customers, who will then move through the funnel.

  • Marketing techniques like Search Engine Optimization (SEO), content marketing, your social media presence and campaigns, and traditional mass advertising (TV/radio, outdoor, print) all support this awareness and fill your funnel.

Discovery: 

  • Customers enter the discovery phase after becoming aware of your brand and seeking more information about the product or service. 

  • This is where more detailed, informative, or educational content becomes relevant to your audience, e.g., blog posts, webinars, FAQs, brochures, etc., all provide the necessary information to encourage a potential customer to progress down the sales funnel.

Evaluation: 

  • At the evaluation stage, potential customers compare your business's offerings with equivalent competitors. This is where potential customers will look for reviews, testimonials, and case studies to make up their minds. 

  • Businesses can facilitate this process by providing comparison guides, product demos, or free trials to showcase their value propositions. Knowledgeable sales representatives are also important at this stage to sell the virtues of the products.

  • Encouraging customers to leave (hopefully positive!) reviews of your product or service by prompting or incentivizing them to post-purchase will ensure they have something to support their decisions. It’s important not to underestimate the power of a positive customer review. Research by Power Reviews revealed that 98% of consumers see reviews as an important part of decision-making, with 45% saying they won’t purchase a product without them.

Intent: 

  • The potential customer's interest manifests as a specific intention to purchase in the intent stage. 

  • To capitalize on this, businesses offer special promotions, free consultations, or detailed product information to nudge the customer toward making a decision.

  • There are various nudges that you can include to convert a wavering purchaser into a converted purchaser. For example, putting countdowns on purchase screens in e-commerce or mentioning that many others are looking at a limited volume product (e.g., a hotel room or airline ticket at a certain price) can push people down the funnel to the ultimate goal…purchasing!

Purchase: 

  • At this pivotal conversion point, the prospect decides to buy. Here, ensuring the purchasing process is as frictionless as possible is crucial. Otherwise, you risk losing both the new customer and valuable revenue.

  • Elements like an inviting, easily accessible purchase location, a simple and clear user experience when checking out online, and secure, trustworthy-looking payment options are all valuable at this stage.

  • Beyond this, post-purchase support and clear communication about product delivery timelines can enhance the customer experience and make customers more likely to follow through on this stage.

Loyalty

  • After the purchase, the focus shifts to turning new customers into repeat buyers and brand advocates.

  • Activities like enrollment into loyalty programs, excellent post-purchase care, asking for feedback (and resolving it if it’s negative), offering incentives for future purchases, or offering benefits to those who share your product or service with other potential customers can all foster a strong, loyal relationship with customers, and round out the sales funnel.

Not all funnels are created equal

It’s worth noting that the importance of different stages in the marketing funnel will vary by product, service, and category. 

Products or services requiring more involvement, such as luxury cars or complex software solutions, necessitate a more detailed decision-making process and more time spent in the discovery and evaluation stages. 

Conversely, for lower engagement items, like everyday household goods or impulse purchases, consumers swiftly move through the funnel towards purchase without extensive thought or deliberation. 

With this in mind, you need to tie your strategies to the buyer journey for your specific product, service, or category and customize each stage to align with the likely level of consumer engagement and involvement expected across the different steps.

Real-world examples of the sales funnel in action

Example 1: Spotify

Spotify, the popular music streaming subscription service, is an excellent demonstration of transitioning users from free to paid-for accounts, moving users through all the funnel steps effectively and embedding loyalty every step of the way.

Awareness: Spotify drives potential customers' attention through various media, including targeted advertising on social media platforms and artist partnerships. This broad outreach introduces the service to a wide audience, generating maximum brand awareness.

Discovery: Once potential users are aware of Spotify, they move into discovery, where they can explore the service via a free version. This ‘freemium’ tier has limitations, such as ads, no offline listening, and the inability to skip songs on a particular album or select a specific song for playback. Still, Spotify Free allows potential customers to explore the vast library of music and podcasts, driving interest and engagement, all without a financial commitment.

Evaluation: As users become more familiar with the product and enjoy it more, they progress into evaluation. Here, Spotify leverages in-app notifications and personalized emails to showcase the advantages of upgrading to a premium subscription. It also emphasizes premium features such as ad-free listening, unlimited skips, and offline playback, encouraging users to consider the benefits of purchase more seriously.

Intent: There is some blurring between the evaluation and intent stage, but driven by app usage and engagement data, Spotify will continue to engage non-premium users, presenting offers, such as a discounted rate for the first few months of a premium subscription—this tactic aims to convert users' consideration into a decisive intent to purchase by initially making the premium options more affordable. 

Purchase: This is the stage where intent transforms into action. Spotify simplifies the subscription process, making it effortless for users to upgrade. An initial discount, such as a low price for the first few months or cheaper student rates, acts as the final nudge. By reducing as much financial friction as possible, purchasing becomes an easy yes. 

Loyalty: Spotify actively cultivates loyalty among its premium subscribers. Through personalized playlist recommendations, exclusive content, and responsive customer support, Spotify ensures premium users feel valued and satisfied, encouraging long-term retention—and potentially transforming them into brand advocates. While many companies using a freemium-to-premium conversion model typically manage to convert 2-5% of users, Spotify surpasses industry averages. Using a well-defined funnel and robust product offer, they enjoy remarkable 40%+ conversion rates.

Example 2: Rolex

Rolex, the prestigious watchmaker, also utilizes the sales funnel stages to great effect, encouraging new customers to join the brand while retaining its loyal customer base.

Awareness: High-profile advertising campaigns, sponsorship of elite sporting events like golf majors, and celebrity endorsements like Roger Federer all help Rolex generate initial awareness. These efforts aim to establish Rolex as a luxury watch brand and a symbol of success and prestige.

Discovery: Here, prospective customers encounter Rolex watches through curated brand experiences. This might include visiting a Rolex boutique, exploring the brand's rich history and craftsmanship at an exhibition, or engaging with detailed product showcases on the Rolex website. These experiences deepen potential customers' understanding and appreciation of the brand's values and product quality.

Evaluation: As potential customers become more interested, they move into the evaluation stage. Here, Rolex distinguishes its offerings through detailed product information, showcasing its watches' unparalleled precision, durability, and design. Customer service representatives and brand ambassadors play a crucial role in educating customers about the unique features and heritage of different models, helping them to evaluate their choices.

Intent: Next, Rolex encourages customers' decision-making through personalized consultations, either in-store or virtually. Sales professionals assist customers in selecting the perfect watch that fits their style, needs, and aspirations, addressing any hesitations and reinforcing the value of the investment. Exclusive previews of new models or limited editions may also be offered to select customers, further enticing them toward a purchase.

Purchase: Facilitated by providing an exceptional buying experience, the purchasing stage includes offering a luxurious in-store atmosphere, attentive customer service, and ensuring the availability of desired models. Buying a Rolex watch is made memorable and significant, with detailed attention to packaging, certification, and after-sales support, emphasizing the watch's long-term value and the brand's commitment to quality.

Loyalty: Post-purchase, Rolex focuses on building loyalty by offering comprehensive after-sales services, including maintenance, repair, and personalization options. Owners are invited to exclusive events and informed about brand developments, fostering a sense of belonging to the Rolex community. Through these efforts, Rolex retains its customers and turns them into brand ambassadors who advocate for the brand's excellence and timeless appeal.

How to apply the sales funnel to your business

  • Segment your funnel audience: Identify and segment your audience based on their stage in the sales funnel. Tailor your marketing efforts to address the needs and concerns of each segment.

  • Create targeted content: Develop content that speaks directly to the audience at each funnel stage. For those in the awareness stage, informative blog posts or videos can introduce your product or service. For those in the interest or decision stages, testimonials, case studies, and detailed product information can help sway their decision.

  • Employ analytics: Use analytics to track the performance of your marketing efforts at each stage of the funnel. This data will help you understand what works, what doesn't, and where there's room for improvement.

  • Nurture leads: Implement lead nurturing campaigns to move potential customers through the funnel. Email marketing, retargeting ads, and personalized follow-ups can be effective strategies to ensure your funnel is filled.

Conclusion: Get funneling!

Understanding the sales funnel is extremely useful for any business looking to improve customer acquisition and retention strategies. 

By understanding and catering to the needs of potential customers at each stage of their journey, businesses can customize their marketing and enhance its effectiveness, ultimately leading to higher conversion rates and increased sales. 

Employing the practical tips outlined above, such as segmenting audiences, creating targeted content, and using analytics for refinement, can empower businesses to leverage their sales funnel to its maximum potential.

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