The sales funnel

In order to focus your activities on the specific actions needed to increase lead generation and improve closing, you should track your potential customers at several stages. Though some companies use 10 to 12 categories for this process, we’ll illustrate the concept here with three, which is enough for many firms.

As a first step, let’s look first at the overall picture for generating sales in a firm. This is depicted in the following Sales Funnel diagram:

The diagram shows that you are going to manage a process to attain a specified level of revenue for the coming time period, say, next year. This is represented by the cup, which holds the desired quantity of revenue.

In our diagram, the cup already contains some “contracted” revenue. This applies to companies that obtain work to be delivered and invoiced at some time in the future. For example, you might sign a contract (make a sale) to build a $30-million structure in three years, and you will receive $10 million in revenue each year, as progress is made. Such companies can get a “head start” on meeting their revenue targets for the coming year.

Note that for some businesses, such as this building contractor, the distinction between sales and revenues is important. The company might make a big sale today that covers multiple years of work, but it is only able to recognize the revenue in increments, as the work is completed. Other businesses, such as retailers, lack this distinction. They make sales and collect the money at the same time, and they do not have any contracted revenue for the coming year.

Regardless of whether your organization has contracted revenues or not, your job is to keep the funnel full of leads, and to close enough of them, with the right customers, to meet your revenue target. The sales funnel represents all the potential customers for your firm, from the earliest contacts to those that are about to purchase from you. You will monitor and manage the interactions with these potential customers to ensure that you choose the right customers in order to meet your targets. Here are the three major categories of potential customers in the funnel: