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What is a Sales Funnel and How to Create One?

When you’ve set up a business, but sales aren’t as high as you hoped they’d be, it can be tempting to rethink your product—but sometimes, low sales aren’t a sign of low demand. Often, it’s a good idea to rethink your marketing strategy first, especially if your market research suggests that people want what you’re selling. One theory behind a lot of marketing techniques is something known as a sales funnel, that represents the process of attracting customers.

What is a Sales Funnel and How to Create One?
Thinking of your marketing in terms of a sales funnel can help you identify points at which you might be losing customers. (© Unsplash)

If you’re thinking about revising your marketing strategy, it’s a useful concept to keep in mind to understand more fully where you’re going wrong. If you haven’t started selling yet, even better: knowing what a sales funnel is will help you get off on the right foot once you decide to start marketing your business.

What is a Sales Funnel?

Think of a funnel shape: larger at the top, tapering downward to a point at the bottom, to allow whatever is moving through it to a specific point at the end. If you think of that point as a purchase, the sales funnel represents the process of attracting customers from the point they are aware of your product or service to the point they are ready to buy from you. The concept is based on the idea that the act of purchasing something isn’t a single decision, but rather the end result of a series of decisions a person makes. This means that if there are hurdles your customers have to jump at any point in the sales funnel, it could mean losing business.

The Four Stages of a Sales Funnel

The funnel shape is a key part of this concept, because there are usually a lot of potential customers at the top of the funnel who want your product or service, with a smaller subset of those people who are actually interested in it and an even smaller subset who decide to buy something. A sales funnel has four distinct stages: Awareness, Interest, Decision, and Action. Here, we’ll break down these four stages and what they might look like to both a storefront and an online retailer.

1. Awareness

In this stage, the customer is aware of what they want and is searching for a product or service to get it. For someone with a storefront, this might look like a customer who goes to the mall to pick up a pair of jeans, for example. They know they want a pair, but don’t know who they’ll buy from just yet. For an online retailer, this might look like someone performing a Google search of the product or service and looking through the results. A retailer might build its customer base at this stage by buying advertising space on websites or podcasts, or through social media campaigns.

2. Interest

A smaller number of customers will actively express interest in the product. They might be comparing different prices and brands at this point, trying to decide which they prefer. For the mall shopper choosing jeans, they might put a pair on hold at a few different stores while they shop around for the right fit or the right price. For an online retailer, this might look like customers who bookmark a website to come back to it later, or who decide to keep the product in mind while they keep searching. Marketing to customers in this stage means having a unique and engaging brand identity to keep them coming back to your website and product.

3. Decision

An even smaller number of customers who express interest will decide on your brand or product over your competition. In the case of the person buying jeans, this might look like them deciding on a specific brand or store and going back to pick up the jeans they’d put on hold. For an online retailer, this might be a customer who puts items in their cart online. Marketing at this phase might include things like upselling, having a good user interface on their website, and generally making the shopping experience as painless and enjoyable as possible.

4. Action

The point at which a customer decides to buy the product or service. The person shopping in the mall is at the till with their jeans, and the person buying something online is purchasing the items in their cart. Having the ability to accept different forms of payment, a smooth purchasing experience, and getting purchasing customers to sign up for newsletters are all good marketing efforts in this stage of the game.

How it can Help Your Business

Thinking of your marketing in terms of a sales funnel can help you identify points at which you might be losing customers. For example, you might be losing customers in the awareness stage if you don’t have a website or social media presence, or if you aren’t doing enough to advertise. In the interest stage, you might lose customers by having a boring website, or an incoherent brand identity that seems at odds with what you’re trying to sell. If a customer decides to buy from you, you might still lose them in the decision stage if your website is hard to navigate, or you don’t give enough details about your product for them to be sure they want to buy from you. In the action stage, you might lose customers by only accepting certain payment methods, or by making the payment somehow inconvenient otherwise.

The sales funnel concept can also help you figure out your conversion rate—how many people who click on an ad, for example, actually end up buying a product? If 5 out of every 100 customers do, then you have a 5 per cent conversion rate. By comparing the amount of profit you’re making to the amount you’re spending on marketing, you can calculate whether or not your marketing efforts are worth it. This is particularly easy to do online, since most of the time, it’s easy to access analytics that tells you exactly how many people have engaged with your ads. If you know that for every $50 you spend on advertising you make a $300 profit, then you can be confident that your advertising efforts are working.

Sales funnel concepts are used widely in marketing efforts, and even if you’re not a marketing professional, they’re easy to apply and use! By breaking down the purchasing process into a series of individual decisions, it’s easier to understand why someone might decide to buy your product or service—and why they might not.

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