MaRS Library Stages of the sales funnel
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Read the highlights
- The sales funnel is a metaphor for the sales process from initial contact to final sale.
- The funnel has five stages: lead, prospect, qualified prospect, committed and transacted.
- Toward the bottom of the funnel, time to closing decreases and the probability of the sale occurring increases.
- Sales opportunities that do not progress are removed (i.e., the sales funnel is “leaky”).
The sales funnel visually describes the sales process from initial contact to final sale. It uses the metaphor of a leaky funnel, into which a seller can “drop” sales opportunities. At some point, sales opportunities are removed from the funnel because potential customers become uninterested or you determine their lack of fit.
The stages of a sales process refer to a potential customer’s degree of readiness to commit to a deal (from the seller’s perspective). Or put in a different way, readiness may be seen as the probability of the sale taking place.
As a sales opportunity moves down the funnel, time to closing decreases and the probability of the sale occurring increases. The sales funnel metaphor enables you to analyze and manage a portfolio of sales opportunities.
Mechanics of the sales funnel
In the process of pursuing a sales opportunity, you essentially work to remove barriers to the sale. When you remove a barrier, the opportunity moves to the next stage. Barriers include uncertainty about your product’s fit and value, lack of budget or the customer’s buying process.
As you gain experience in working with customers and sales processes, you can create your own version of the sales funnel, complete with specific steps and actions to move prospects from stage to stage. What we have described here can act as a starting point or template.
Stages in the sales funnel
Lead (or, Suspect): A lead (also known as a suspect) is someone you have not spoken to. But if a lead appears similar in profile to your target customer, you may decide that they are worth pursuing. Track your most fruitful sources of leads (that is, leads that become customers).
Prospect: A prospect has confirmed interest in your offering. You have had a conversation, provided the person with information about what you do, and both of you have agreed to a next step in the sales process.
Qualified prospect: Qualification is the most critical and demanding stage of the sales funnel. In the qualification process, you verify that the prospect has a need for your product, that the prospect sees value in your offering, that there is sufficient budget for a deal, that you have access to the decision-maker, and that there is an agreed-upon timeline for the sales process. The qualification process can be complex and lengthy, and can be managed with a Sales Call Talk Track and stakeholder management chart.
Committed: Ideally, you want to close the deal when all red flags have been dealt with. In reality, most deals close while critical red flags still exist. At this point, you have provided the customer with a proposal that outlines key contractual terms. When a customer has agreed to move forward with a deal, they are “committed” (also known as “verbal commitment” or “verbal”). What remains is to work out the details of the contract, delivery and payment, all of which have the potential to“undo” the commitment. The commitment may be offered contingent upon certain terms being met.
Transacted: A sale has transpired when a contract is signed by both parties. From a salesperson’s perspective, the fulfillment of the contract is the responsibility of other parts of the organization, and the salesperson can now focus on the next opportunity. In the case of early-stage start-ups, however, frequently the person that sells is also involved in fulfilling the contract. A signed contract can be booked as revenue from an accounting perspective.
The leaky funnel
If a sales opportunity does not move down the funnel, the sale will not happen and the opportunity should be removed, hence the “leaky” funnel. A leaky funnel is not necessarily bad; as a salesperson, you want to focus on opportunities that are likely to yield results. It is the nature of sales to have to remove an opportunity from your funnel. It does not mean that you will not sell to that account (a positive action by the customer can put them back into the funnel), but for the time being, you should centre your attention on opportunities that remain in the funnel.
Summary: The sales funnel is a metaphor for the sales process from initial contact to final sale—as an opportunity passes through different stages down the funnel, time to closing decreases and the probability of the sale occurring increases.
Next up: Manage Your Sales Funnel