Sales Funnel – Predicting Revenue
Do you have a sales funnel? Regardless of your business – yes, you do have a sales funnel. The funnel may just not be documented. The purpose of a sales funnel is to understand the number of leads needed to generate a target revenue. Let’s look at the high-level steps to begin your journey toward having a predictable revenue model. The model will also provide a way to and gain insights on where deals are stuck or lost. It is a data-based methodology to assist with decision making and focus on specific areas to make changes that will lead to sales acceleration and ultimately attainment.
- Map your sales process – A typical sales funnel is 4-7 steps / stages. Create a simple list of the major steps in your process. It typically begins with lead generation, moves to qualification, demonstration, proposal, and finally close. Too few steps – difficult to diagnose. Excessive steps adding unnecessary complexity.
- Conversion rate – This is the percentage of prospects that move from one stage to the next. Cloud based software will help automate and reduce the manual calculations.
- Stage duration – In conjunction with the conversion rate, we need the average days a prospect spends in each stage. This process will assist in forecasting and calculating the estimated revenue.
Sample stages and calculation:
Below we have an example using 5 Sales Stages. We started with 1,000 leads and along the way we used conversion rates and duration to see the result. It took 104 days to win 3 sales. Knowing your average deal size, this will give you anticipated revenue.
With a baseline established, we can now look at changes over time and adjust accordingly. For example, if we are seeing the conversion rate drop between lead generation to qualification, we may have a competitor challenging our offer. Likewise, an increase in time from demonstration to proposal may mean we have a staffing or scheduling challenge. Monitoring the numbers on a regular basis will give you insights and early warning of problems as well as indicate success and highlight initiatives you may want to invest in or replicate.
Once you map and understand your funnel, it will assist in forecasting and give you a tool to make business decisions. For example, if based on the math, you need 1,000 leads to generate one sale, how many leads need to enter the funnel to make the revenue target and meet growth goals? Is there a stage prospects are “stuck” in. The levers you have are; working to increase conversion rates, speed the conversion rate, increase the funnel. Changes to any of those areas will help you build a predictable revenue stream.
If after reading this article, you need more help, consider having a short-term engagement with a marketing and sales consultant to map out your process and evaluate automation tools specific to your business. Without understanding your funnel, revenue is left to chance and luck. Ask yourself as Clint Eastwood did in Dirty Harry, “Do I feel lucky?”
About the Author:
Gregory Woloszczuk is an Entrepreneur and experienced tech executive that helps small business owners grow their top and bottom line. Gregory believes in straight talk and helping others see things they need to see but may not want to with a focus on taking responsibly for one’s own business. He and his wife, Maureen, started GMW Carolina in 2006.
Gregory has been fortunate to have been part of building teams for companies that went through hyper-growth as well as his own company. He also has experience in working through economic downturns and taking responsibility to fix what is in his control. The focus has always been working with partners, customers, and building a successful business channel. His range of experience includes marketing, sales, support, training, and operations.
Gregory holds an MBA from Nichols College.