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.
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:
- 1000 people enter the top of your sales funnel
- 100 people move on to the next step
- 10 people move on to the next step
- 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:
- 1000 people/$25 = $0.025. Each person entering your sales funnel is worth two and a half cents
- 100 people/$25 = $0.25. Each person in this step of your sales funnel is worth a shiny quarter
- 10 people/$25 = $2.50. Each person in this step of your sales funnel is worth two dollars and fifty cents.
- 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.