Sales Funnel Bible — Chapter 26

Sales funnels are the most important part of your business. Get an early glimpse into how they can help your business by reading this early draft excerpted from my Sales Funnel Bible book.

Early draft of Aaron Hoos' book Sales Funnel Bible

Chapter 26: Gain an understanding of your ratios

In an earlier chapter I talked about the importance of metrics and tracking in your sales funnel. I also hinted that an important way to understand some of these metrics is to compare the numbers on two steps in a ratio or percentage.
Salespeople do this all the time by quoting their closing ratio. Savvy marketers also understand ratios (such as click-through percentages, for example).

In building your sales funnel, you should strive to get some rough numbers for each step and then compare them to the first step in your sales funnel, the last step in your sales funnel (i.e. the point where they become customers), to the previous step in your sales funnel and to the next step in your sales funnel. Yeah, that sounds like a lot but it’s not as bad as it sounds.

Let’s take a theoretical 5-step sales funnel with some really easy numbers to illustrate:

  • 10,000 people enter your sales funnel
  • 1,000 people progress from the above step to this step
  • 100 people progress from the above step to this step
  • 10 people progress from the above step to this step
  • 1 person becomes your customer

Using these numbers, you can make some observations:

  • In each step of our sales funnel, we move 10% of the people forward.
  • The ratio of initial people entering the sales funnels (often defined as leads) to people who become customers is 10,000:1.
  • The ratio of people in the second-last step of the sales funnel (often defined as prospects) to people who become customers is 10:1.

The numbers you find for your business will definitely be different. (Specifically, you might have very different rates from one step to the next instead of the over-simplified 10% that I’ve used as an example).

Knowing these numbers is helpful. It gives you a window into how people are moving through your sales funnel, and the effectiveness of each step. It helps you to accurately predict how your business will do in the coming days, weeks, and months. And when you monitor these numbers, you can quickly see if something moves off of the standard. I’ve already covered a lot of these concepts in an earlier chapter.

But what I really like about these numbers is that it can help you to direct your marketing.

Most business owners I meet are at a loss as to what they should do next in their marketing. There are an almost unlimited number of options for marketing and very little direction in how to use them. But smart business owners who focus first on their sales funnel can use the information they get from their sales funnel ratios to help them decide what kind of marketing channels to adopt, and then measure how those new channels work.

Rather than using any and every marketing channel to dump more people into your sales funnel, you should instead look at your marketing channel options and think about how you can use each one to improve the ratios in your sales funnel, thus sending more people through to the next step.

 
 
This chapter is excerpted from an early draft of my book. Comments and constructive criticisms are welcome. Please be aware that the chapter content and chapter order may change by publication.
 
 

Sales Funnel Bible — Chapter 25

Sales funnels are the most important part of your business. Get an early glimpse into how they can help your business by reading this early draft excerpted from my Sales Funnel Bible book.

Early draft of Aaron Hoos' book Sales Funnel Bible

Chapter 25: Assign dollar values to the people in your sales funnel

Imagine the benefit of knowing well in advance how much you are going to earn. Imagine the control you have over your own financial destiny, as well as the way you run your business, if you could peek into the future and see what kind of income you’ll generate.

That’s what makes sales funnels so powerful. They can tell you how much money you are going to make well before you actually deliver the goods and send the invoice. They can alert you to dry spells or financial deluges and allow you to modify your business accordingly.

Not only that but what I’m about to show you will help you to increase profitability and decrease the amount of money you’re wasting.

You can do this by assigning a dollar value to every person in your sales funnel, based on some average numbers. You need to know the following numbers:

  • The average number of people in each step of your sales funnel
  • The ratio of people who move from one step to the next
  • The average amount that a customer will spend.

Then simply divide the amount of money that one customer spends into the number of people in each step of your sales funnel. This tells you how much each person in each step of your sales funnel is worth to you.

Let’s say that you have a four step sales funnel – where people in your target market drop into the top of your sales funnel and eager-to-buy people become customers at the fourth step. And let’s say that you move 10% of the people forward each step and you sell (on average) $25 per sale.

So your sales funnel looks something like this:

  1. 1000 people enter the top of your sales funnel
  2. 100 people move on to the next step
  3. 10 people move on to the next step
  4. 1 person becomes a customer and spends $25

With this information, you can figure out how much each person is worth to you by dividing $25 into the number of people in each step:

  1. 1000 people/$25 = $0.025. Each person entering your sales funnel is worth two and a half cents
  2. 100 people/$25 = $0.25. Each person in this step of your sales funnel is worth a shiny quarter
  3. 10 people/$25 = $2.50. Each person in this step of your sales funnel is worth two dollars and fifty cents.
  4. 1 person/$25 = $25. Of course this is your customer who spent $25.

Here’s another way to look at this exercise: Collectively, those thousand people who entered your sales funnel will result in one sale of $25. Therefore, each of those thousand people are worth two and a half cents. (Maybe you’re familiar with a similar concept in sales: Salespeople will often think of their closing rate and consider all of those “no’s” as a necessary part of the one “yes”.)

Obviously this is a theoretical exercise, since you’re not going to actually get a shiny quarter from each of the 100 people in the second step of your sales funnel. But this exercise helps you to understand the impact that each and every person has on your sales funnel.

So what can you do with this information? An awful lot, actually.

  • Use it as a way to measure the profitability of a particular step in your sales funnel. In our example above, we need to find marketing channels that bring people from our target market into our sales funnel for less than two and a half cents each.
  • Use it as a way to predict your earnings for the future. If you suddenly get more people into your sales funnel, you can compare that number to the percentage of people who move forward in your funnel and estimate how much you will earn.
  • Use it as a way to help you measure the success of your sales funnel. Your goal is to increase the dollar figure that people ultimately spend, and increase the number of people going through each step of your sales funnel, and improve the percentage of people who move from one step to the next. These numbers provide a benchmark that you can compare your performance against.
  • Use it as a decision-making tool when considering what to do next. If you have the choice of one marketing channel or another, or if you are trying to decide on a new strategy for your business, compare the information against these numbers. You might realize that trying to get customers to spend more has a greater immediate effect on your business than trying to increase the number of people in your sales funnel (which is often the first step most business owners take when looking to improve their marketing).

 
 
This chapter is excerpted from an early draft of my book. Comments and constructive criticisms are welcome. Please be aware that the chapter content and chapter order may change by publication.
 
 

Sales Funnel Bible — Chapter 24

Sales funnels are the most important part of your business. Get an early glimpse into how they can help your business by reading this early draft excerpted from my Sales Funnel Bible book.

Early draft of Aaron Hoos' book Sales Funnel Bible

Chapter 24. How proper measurement in your sales funnel solves your inventory problem

It doesn’t matter whether you sell products or services, you have an inventory. If you sell products, your inventory is your product, of course. If you sell services, your inventory is (usually) your time.

An inventory is a limited quantity of something that you sell. Businesses need to maintain their inventory at optimum levels. Carry too much inventory and you won’t have enough cash flow to support that amount of inventory. Carry too little inventory and you risk angering your customers by running out.

There is an optimum level of inventory for each business. Unfortunately, many businesses (especially new businesses, small businesses, and businesses that sell services) struggle with finding the right levels of inventory. There are a few reasons for this:

  • The business lacks the history that would inform them of buying trends
  • The business owner doesn’t understand the importance of proper inventory management
  • The business owner perceives inventory management as a time-consuming task that should be subordinate to marketing and sales activities
  • The service-providing business doesn’t perceive their time as a type of inventory
  • This is the biggest reason: There is a conceptual disconnect between the sales funnel and the inventory

Fortunately, if you master your sales funnel, you master your inventory as well. That’s because a well-built sales funnel can inform you of your inventory needs well ahead of when you need it.

Every sales funnel has its own tempo or rhythm – the average amount of time a typical person takes to move through the sales funnel. They might be a day on one step or a couple minutes on another step or a few weeks on another step. The total amount of time that these people spend in your sales funnel is the duration of your sales funnel. And you’ll notice that each step will have its own duration as well.

Knowing this information helps you to manage your inventory – you’ll have a better idea of how many people will be purchasing from you in the future if you are paying attention to the number of people at each step.

Here’s an example from my own business: When I was a freelance writer, I would sometimes have more work than I could handle and I would sometimes have no work at all. It was a boom/bust business, which isn’t that unusual for freelance service providers. Sometimes I was scrambling to work 24 hours a day to get through all my work; other times I was scrambling to find work! But then I started tracking the people in my sales funnel, paying attention to how long it took them to go through my funnel. Here are some of my findings. (If you’re a service provider like I was, don’t just pull over these numbers because they might not apply for you. I’m just providing them as an example in my own business, and these numbers are now a few years old).

  • I submitted proposals on a lot of projects that were posted online (at a freelance job board I used). I found that my most promising prospects were those who had posted their project within the past week. In fact, the closer I bid to their “posting” day, the more likely I got the job.
  • I also found that it took an average of 1 week from the day I submitted the proposal to hear back from the potential client. This time lessened if I posted closer to the posting day, and it lessened further if I followed-up with a friendly email. Usually the next step was to arrange a phone call so we could chat in-depth about their project and they would make the decision then whether or not to hire me.
  • It usually took 1-3 days to work out a time to call. The sooner the call, the better.
  • If I could close the deal on the phone, I could usually start the project within the week and, depending on the project, finish it anywhere from a day to a month later.
  • Final payment usually followed up a week after the project was finished and, by the time the payment was processed (by Paypal or my bank) it was another week by the time the cash would be in my hands.

So my sales funnel – from initial meeting to final payment – was about 2.5 to 3.5 weeks long for smaller projects and about a month and a half for larger projects.

This was very helpful to my business: I could ramp up smaller or larger projects, depending on my availability, and I could safely schedule projects for when I wanted to work. If I knew a week-long vacation was coming up, I could submit several proposals, knowing that I would probably have some responses by the time I returned from my vacation a week later. If I knew I would be really busy for a few weeks, I would ease up on filling my funnel but as soon as I was about a week or two away from running out of work, I could ramp up my marketing again.

What was true in my service-based business is true for all businesses, whether you sell products or services. The average time it takes for your typical target market to move through your sales funnel gives you “triggers” that alert you to inventory needs. A spike in new people “2 weeks away” in your sales funnel means that you need to have more inventory two weeks from now. A drop in new people “3 weeks away” means that you don’t need to stock up on inventory as much as you have been.

 
 
This chapter is excerpted from an early draft of my book. Comments and constructive criticisms are welcome. Please be aware that the chapter content and chapter order may change by publication.
 
 

Sales Funnel Bible — Chapter 23

Sales funnels are the most important part of your business. Get an early glimpse into how they can help your business by reading this early draft excerpted from my Sales Funnel Bible book.

Early draft of Aaron Hoos' book Sales Funnel Bible

Chapter 23. Telling the time in your sales funnel

Since the dawn of humankind, people have been telling the time in various ways – they use primitive methods like simply watching the sun; or they use more sophisticated methods like sun dials, calendars, and clocks.

In your business, your sales funnel can tell the time as well. In previous chapters we’ve covered the idea of your target market moving through different steps that are associated with their mindset evolution. Those steps take on their own tempo or rhythm, in which the average person moves from one step to the next in a set amount of time. In the early steps, they might move more slowly. In the later steps (if you are effectively highlighting their problem) then they might move more quickly.

You’ll find that, on average, most people will spend the same amount of time on a specific step. Yes, there will be some who move faster and some who move slower but most people will spend the same amount of time on each step.
Here’s an example: Let’ say someone is following you on Twitter, which you are using to raise awareness as an early-in-the-sales-funnel step. They might take a couple of weeks before they respond to one of your tweets. And once they click through a link in your tweet and get to your blog post, they might read your blog post and sign up for your newsletter right away. Then they read your newsletters and usually respond by the 8th or 9th weekly newsletter by getting in touch with you via email to get more information. Then you present your solution to them in an email and they might require a week of thinking and follow-up.

The above example illustrates the rhythm of the sales funnel. If this is the average time it takes for people in your sales funnel to go from the early steps to purchase, then you can plot out your sales funnel against a calendar: Two weeks for tweets, one day for a blog and newsletter sign-up, 8 weeks for newsletters, and one week for email-based interaction that results in a sale.

In total, this example sales funnel lasted about 11 weeks. Again, your sales funnel might be shorter or longer, depending on what you sell and who you sell it to.

Determining the tempo of your sales funnel gives you a lot of power because it helps you to watch for patterns and anomalies, and it helps you to predict the future.

Watch for patterns and anomalies: You can watch for patterns and anomalies and adjust your sales funnel accordingly. A pattern might be that, during the pre-Christmas buying rush, people start to pick up in your sales funnel. So you might take note of that and build a leaner sales funnel that you would implement in October or November. Another pattern might be that people under the age of 35 take a little longer in your sales funnel than people over the age of 35. So you might create a separate sales funnel to branch the under-35’s into, according to how they are most likely to buy from you. Or you might spot anomalies – like some people who take forever in your sales funnel and some people who run through our sales funnel in hours instead of days. In these cases, you might set up separate deals, separate sales funnels, or even separate brands to deal with them.

Predict the future: You can watch your sales funnel to help you predict the future. If you know that your sales funnel usually takes the average person a specific amount of time to get through to a purchase, you can know ahead of time how much business you can handle. In our 11-week-long sales funnel (from the example above), we can predict how much staff we need and how much inventory we need up to 11 weeks from now simply because we’re paying attention to what happens earlier. A spike in new people entering your sales funnel – either by accident, by trend, or because of some marketing that you did – can give you a hint about what you’ll need to do in the coming days (or weeks or months – depending on how long your sales funnel is) to prepare.

 
 
This chapter is excerpted from an early draft of my book. Comments and constructive criticisms are welcome. Please be aware that the chapter content and chapter order may change by publication.
 
 

Sales Funnel Bible — Chapter 22

Sales funnels are the most important part of your business. Get an early glimpse into how they can help your business by reading this early draft excerpted from my Sales Funnel Bible book.

Early draft of Aaron Hoos' book Sales Funnel Bible

Chapter 22. Trackable channels versus non-trackable channels in your sales funnel

Channels are the various media and methods that you use to deploy your marketing and sales methods. It might be a billboard or a telephone or a radio or direct mail or face-to-face conversations or Twitter – a channel is any media or method you use communicate your message.

Not all of these channels are going to be appropriate for your business. Your business might do really well with some channels and really poorly with other channels; there might be regulations restricting you from using certain channels; your competition might dominate one channel, which could inspire you to seek out another channel for a particular marketing effort. And you should always consider this question: “What channels will my target market interact with, and be likely to respond to?”

With all of these considerations, I’m going to add one more for you to remember: Trackability. As much as possible, you should implement your marketing and sales messages into channels that allow you to track the people inside your sales funnel.

I’m not just talking about measuring responses. Click-throughs, for example, measure responses to online ads. It’s good to monitor those metrics in your sales funnels. But I’m talking about actually tracking specific people in your sales funnel, and preferably tracking each person all the way through your sales funnel.

An ideal sales funnel gathers the name of someone from your target market as they enter your sales funnel in response to some of your attention-getting advertising. Then, it tracks that person all the way through the sales funnel, paying attention to what actions they take, and when, and how long they spend at each step. This ideal sales funnel watches as this person goes through the finals steps of your sales funnel and decides to buy, and they hand over their cash.

Of course, we don’t live in an ideal world and the ideal sales funnel is nearly impossible to create. A variety of factors influence this, including privacy laws, technological limitations, and your target market’s “I’m just browsing” desire not remain anonymous until they are ready to act. But as much as possible, you should strive to build a sales funnel that tracks individual people through the funnel. And even if you can only track some of the people, some of the time, you should. I’d rather have a glimpse into parts of my sales funnel contacts than no glimpse at all.

The first reason you want to track people in your sales funnel is to help provide feedback on the effectiveness of your marketing and sales efforts. If 100 people enter your sales funnel and only 1 person ultimately buys from you, it is in your interest to find out where the other 99 went to. Are they stuck at a specific step in your sales funnel? Did they move on? If you discover that those 99 people were stuck at a specific step in your sales funnel, you can make adjustments to find ways to get them unstuck. For example, you can test price points or product alternatives or shorter or longer sales funnels.

The second reason you want to track people in your sales funnel is to measure the age of your leads and prospects. I don’t mean their actual age; I mean their age in your sales funnel. You want to pay attention to how old they are. Fast sales funnels are good, so in most sales funnels you want people moving through your sales funnel as quickly as possible (although, of course, you only want them moving through as quickly as they are comfortable – it’s a balance). When you see really “old” people in your sales funnels, you can incentivize them to move forward or remove them from your list so you stop wasting time with them. When you see a whole bunch of really “old” people in your sales funnel, you can use that as a signal to warn you that some steps in your sales funnel are highlighting the pain of their problem effectively enough.

 
 
This chapter is excerpted from an early draft of my book. Comments and constructive criticisms are welcome. Please be aware that the chapter content and chapter order may change by publication.