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.
In the past few chapters you’ve read about the importance of investing in your sales funnel, innovating in your sales funnel, and hiring in your sales funnel. I’m trying to provide a new way of thinking about your business – as something that should be built almost entirely around your sales funnel. Investing for growth sounds really attractive for businesses and the sales funnel provides an excellent way to direct your investing. However, all of that investment should come with a warning and that’s what this chapter is about.
You’ve probably heard the startling statistics about the number of businesses that fail within the first year or within the first two years or within the first five years. The number of businesses that actually survive is quite small. So why is the failure rate so high? There are several reasons, of course, but one of the biggest reasons is related to sales funnels.
Actually, this sales funnel problem is not only a problem for new businesses but it’s also a problem for existing businesses – it’s just not as big of a problem for those existing businesses because they usually have some cash flow to help them get through the problem without really noticing it when it occasionally does arise. All businesses face this problem but new businesses don’t survive because they lack the resources to carry them through the blips that occur when this problem happens.
So here’s the situation (and why it turns into a problem): Sales funnels operate with a balance – an equilibrium. A sales funnel that operates within this equilibrium brings in just enough customers to buy up the available inventory. (I’m defining inventory as being either the products you sell or the time you have available to deliver your services). The right number of customers show up to buy your inventory and they walk away happy.
A good business finds this balance fast – just the right balance between customers who buy and the amount of inventory available. And this is the first area where new businesses struggle because it’s hard to find that balance; it’s too easy to end up with too much of one thing and not enough of another.
Too many customers (compared to inventory) and you end up with angry buyers who go elsewhere to solve their problem; they never come back and they tell their friends about how you wasted their time offering them something you couldn’t deliver. Too much inventory (compared to customers) and you end up with unpaid supplier bills and warehousing costs and not enough money to run your business.
That equilibrium is made even harder to achieve because of trends in the marketplace: Perhaps a competitor offers a huge discount on the same product you sell; or maybe a negative news story comes out about your industry; or maybe everyone in your sales funnel stalls because a massive hurricane pulls people’s attention away from the problems you solve and on to more pressing issues; or maybe a massive hurricane disrupts your supplier and tightens up your inventory too much. Whatever happens, the result is that equilibrium is very hard to maintain. But if you can find something close to a balance – a sort-of “window” of equilibrium that you can survive in – then you’re good.
Unfortunately, that’s not the only equilibrium problem. It’s actually only the first part of the problem. Assuming the business survives that part of the equilibrium problem, they discover quickly that the problem actually continues (in fact, it gets worse) as the business grows.
A growing business needs to maintain that equilibrium by scaling the sales funnel AND scaling the balance between customers and inventory. It can’t just start dumping new people from the target market into the top of the sales funnel without making adjustments to the inventory. Again, too much of one and not enough of another leads to lost revenue, and either angry buyers or angry suppliers.
So how can you maintain equilibrium. It starts with metrics and tracking. As much as possible, apply metrics to your sales funnel and track those metrics diligently. Watch your ratios and get a sense of how many people at each step of your sales funnel move forward, and how many of them ultimately become customers. That will give you an approximate inventory number you need. Then, carefully test changes. What happens, for example, if you increase the percentage of prospects advancing to become customers? A small increase can tell you a lot and help you prepare for a big increase later.
When you know these numbers, use them as triggers to alert you to adjustments you need to make. For example, if you have a 10-step/10-week funnel (and each step takes approximately 1 week), and you know it takes 4 weeks to get more inventory, then find out what percentage of people in step 6 turn into customers and watch that number closely. If the percentage increases, you have time to make adjustments to inventory. The reverse works as well: If you sell your services and you want to take a vacation next month, you have about a month’s worth of time to adjust your marketing and manage the expectations of the people who are a month away in your sales funnel.
I would also suggest that if you are growing your business, you don’t make too many changes in your sales funnel at once. Make changes and then watch the result. A seemingly small change can have huge repercussions. A change in the marketing message at an early step in your sales funnel could have cascading impacts all the way down your sales funnel. So make changes to grow your business but make changes carefully to help maintain the equilibrium.
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.