Sales Funnel Optimization & Analytics: A Case for Measurement

Ken CookData-Driven, Small Business

Lead Funnels 101, Blog Post - Arrow

Introduction

Every business has a sales funnel. A sales funnel is a model that represents the potential customers journey to a sale via significant stages. Some sales funnels are more defined by potential customer action than others, some are more complex than others, but every business has a sales funnel. The purpose of this post is not to give an overview of sales funnels, as entire books could be and have been written on the subject, rather the goal is to consider why it might be a big advantage for you to begin to measure and examine where you can optimize your own sales funnel.

The Case for Sales Funnel Optimization

One of the aspects of a business that we often talk with people about is the volume of contacts that it takes to grow your business. Let’s say that you run a consulting agency and you want to grow by 10 clients a month. What would it take to do that? This is where we look at the lead funnel. We want to not look at how we walk people through that funnel for our purposes, rather, let’s look at the (fictional) numbers that it takes to get a new client. Imagine that your company averages the following.
50% of your overall number of contacts become leads. 50% of leads become qualified leads, of which 40% are sent proposals and 50% of those sign the proposal and become clients. How many contacts do you need to make to gain one client?

The math is relatively simple:

 

Contacts 20 –> Leads 10 –> Qualified Leads 5 –> Test Drive 2 –> Deal 1

There are a few options once you have this type of information. Essentially, you can either a) increase your volume of contacts ( ie, if you want to grow by 10 clients a month you would need 200 contacts ) or b) you can optimize the internal processes and percentages.

If you could, for example, qualify your leads better and change the 40% figure of Qualified Leads to Sent Proposals to 60%. This 20% change would mean that our numbers now look like this:

 

Contacts 132 –> Leads 66 –> Qualified Leads 33 –> Test Drive 20 –> Deal 10

 

This is a 1/3 reduction in the number of contacts required to get the same total of sales made.

The Ultimate Goal of Funnel Optimization

Just to show the full potential of this optimization process, let’s say that we are able to increase all of our key performance indicators (KPIs) by 20% instead of just the one. Here’s what our funnel would look like:

Contacts 50 –> Leads 35 –> Qualified Leads 25 –> Test Drive 15 –> Deal 10

The 20% increase in each of these metrics results is a 75% reduction in the overall number of contacts required per sale made.  This is the real power of optimization within your sales funnels.

Whom of us wouldn’t want to see this kind of results in our own businesses? It starts with gathering data, and like a power saw, let the tool do the work for you.

This is Data Driven Marketing, this is the analytics side of sales funnels. Perhaps today is the day to start the process of measuring your sales funnel.

*Note: We Rounded Out of Ease so as you examine the numbers in this example understand that they are for demonstration purposes. True analysis would have a strategy attached to the rounding of numbers and is never this neat.