A flawed metaphor
For sure, the metaphor is flawed. Real-world funnels don’t leak, and everything that flows into the top tends to flow out from the bottom. And – unlike sales opportunities – the liquid they contain doesn’t normally flow back uphill again or evaporate completely.
But despite all its manifest flaws, the idea of a funnel is still a powerful way of visualising the sales process (or, for the more advanced readers amongst you, the buying decision process), and the shape formed by the different stages is a powerful indicator of the health of the funnel.
Few funnels are smooth
You see, whether you measure the volume or value of deals, there tend to be more at the top of the funnel at the bottom. And unless a handful of rogue sales people (I’ll name no names, but you probably know who they are in your organisation) insist on sandbagging and reporting opportunities unnaturally late in the process, the number of opportunities usually tends to reduce from stage to stage rather than increase.
Purists might think that a nice regularly shaped funnel with constantly sloping sides would represent sales process perfection. But few if any sales pipelines look that regular in practice – and anyway smoothly sloping sides turn out not to be the optimal shape for a sales funnel.
The value of velocity
In order to accurately measure the true shape of your sales funnel, you need to know a number of things. Some are obvious – like the volume and value of opportunities at each stage, and the conversion rates from one stage to the next, or from the current stage to the end.
There’s another measure that’s less obvious (and less widely reported on in many CRM systems) but equally valuable – and that’s sales velocity. Sales velocity measures the time taken for opportunities to flow from one stage to the next or from the current stage to the end, and it turns out to be a critical predictor of sales success.
Research by the TAS Group and others has shown that, on average, it takes 150% longer to lose a deal than it does to win one. That’s in part because that deals that get stuck in stage for an unnaturally long period of time tend never to close at all. Some have already been lost to a competitor or to “no decision” – it’s just that your salesperson hasn’t recognised it yet.
Fit – or flabby?
How healthy is your sales funnel? Here are a couple of typical pipeline profiles. The first one contains large numbers of opportunities at each stage until close to the bottom. The second narrows rapidly after the first few stages. Which would you rather be managing?
Appearances can be deceptive. The first (flabby) funnel may seem to contain more opportunities – but it is hopelessly inefficient. Opportunities tend to get recognised as lost or qualified out at a very late stage of the process – typically after huge amounts of wasted effort have already been applied.
Contrast that with the second (fit) funnel. Opportunities are rigorously vetted at an early stage in the process – only the best qualified survive. The (relatively fewer) remaining opportunities have a significantly higher conversion rate and (often) a dramatically shorter sales cycle.
Find and close more of the right sort of prospects
And, of course, concentrating on those fast-closing, highly qualified sales opportunities frees up capacity to go out and find, qualify and win more of the right sort of prospects, rather than wasting time on deals you are never likely to win.
High-performing sales people tend to understand these dynamics instinctively. But their less confident, middle-of-the-road colleagues often tend to hang on to poorly qualified opportunities like a shipwrecked sailor clinging to a life raft.
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Bob Apollo is the Managing Partner of Inflexion-Point, and an accredited align.me Funnel Coach. To read more of his insights, go to the Inflexion-Point blog.