What Is a Sales Funnel and How Do You Build One?

A sales funnel is the journey your customers take before they buy from you. Here’s what you need to know.

Written by Michael Maximoff
Published on Jun. 28, 2023
What Is a Sales Funnel and How Do You Build One?
Image: Shutterstock / Built In
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With 72,560 tech startups in the U.S. alone, it’s tough to catch the eye of a potential client. Between tight competition with other competitors and pitching to prospects who haven’t heard about your product or services before, it can be difficult to capture the buyer’s attention and get them to choose you.

Sales Funnel Definition

A sales funnel is the journey your potential customers take before they buy from you. It’s composed of five stages that customers go through, including: Awareness, interest, consideration, decision and purchase.

The secret to success comes down to an effective sales funnel. Today, I’ll share practical insights on how to guide your leads from discovering your company to signing a contract with you.


Sales Funnel Terms to Know

Let’s start with the basics and cover the key definitions you’ll come across further on:

  • Marketing Qualified Lead (MQL): This is a person who shows interest in your solutions, meets the specific criteria of the marketing team and can be defined as a potential customer.
  • Sales Qualified Lead (SQL): This is a lead who has been reviewed and qualified by salespeople and is identified as a person who is likely to buy your products or services.
  • Opportunity: Opportunities are qualified prospects with the highest potential to turn into a deal. In other words, it’s an opportunity for you to make a sale.
  • Closed-Won: An opportunity that became a deal. For example, a prospect who signed a contract and purchased from you.

More on Sales18 Tech Sales Terms Every Entry Level Rep Should Know


What Are the Main Stages of the Sales Funnel?

The first two stages of a sales funnel lie in the responsibility area of the marketing team, while the latter three are all about sales. To help you understand those steps or stages, let’s imagine you’re throwing a huge charity event and want to invite as many people as possible.


1. Awareness: It Starts With Leads

At this stage, you start spreading the word about your charity event among your friends, family, colleagues and acquaintances. Informing a wide group of people about your event corresponds to raising awareness about your company, products and services in your target audience. These are your leads. This is the top of the funnel (TOFU).


2. Interest: Marketing Qualified Leads Are Here

As the event day approaches, some people you’ve invited may ask about the time and location. In a business context, this is where marketers qualify people who engage with your content against a number of criteria before passing them to the sales team. These criteria may include your lead’s job title, industry they come from, company size and location and any other data that indicates your lead aligns with your ideal customer profile and can need your services.


3. Consideration: Time for Sales Qualified Leads

Yet, even those who asked for more details may consider other events, parties, or concerts taking place at the same time as yours. Just like potential clients can review and compare offerings from your competitors, as well. At this point, the sales team qualifies leads and moves those who have the highest potential to buy, to the next stage.


4. Decision: Opportunity to Close a Deal

So, the people you invited reviewed their options and a part of them decided to attend your charity event. For sales, the most fascinating part starts here: First call or meeting with the prospect in person, product demo, negotiating contract and other legal nuances. It’s important to monitor these steps to identify bottlenecks that hold back your leads from proceeding to the deal.


5. Purchase: Closed-Won Deal

Finally, on the day of your charity event, a small handful of the initially invited group actually show up to it. Same story with the sales: Only a few leads come to the last step of signing the agreement and bringing you revenue.

Let’s see how many people are likely to make it to the bottom of the sales funnel (BOFU).


Sales Funnel Conversion Benchmarks

Conversions in the sales funnel depend on multiple factors, like the channel you’ve used to engage with your audience, the industry your lead comes from, the size of the company they work in, and others.

Your website visitors make up the initial stage of the sales funnel. Among the numerous individuals who visit your website, only a small portion will ultimately become leads. As you progress further down the funnel, the likelihood of filtering out less committed buyers increases, allowing you to convert those who align with your product.

Let’s take a SaaS company as an example to see how conversion benchmarks vary, based on the industries they are targeting:

table of sales funnel conversion rates by industry
Table of sales funnel conversion rates by industry. | Image: Belkins

Based on the example above, if you’ve got 100,000 people from the finance industry who have viewed your website, only 1,700 of them will become leads. From that, 646 of them will be identified as MQLs, around 271 will turn into SQLs, 130 will turn into an opportunity and a mere 50 will be likely to purchase. So, roughly your conversion rate from the top of the funnel to the bottom of the funnel is 0.05 percent. 

More on SalesHow to Sell in a Challenging Economic Environment


How to Build an Effective Sales Funnel

Now that you have an idea of what the sales funnel looks like and optimal conversion rates, it’s time to see how to engage with your leads at each stage. Check out how to create an optimal sales funnel that brings regular revenue.


1. Leads 

Generating relevant leads requires a combination of both inbound and outbound prospecting efforts, such as: Social media, advertising, PR activities, webinars, SEO blog posts, cold emails, and so on. As you engage with these leads, try to get their personal details, at least their work email, via lead forms, subscription forms, calendar invites, etc. Here are some ideas for top of the funnel content pieces a CRM provider can use to get the attention of different businesses:

  1. Healthcare organization: How to deliver better patient care?
  2. Financial institution: Webinar: Latest regulatory requirements overview.
  3. Marketing agency: 2023 B2B cold email benchmarks.


2. MQLs

Offer more specific middle-of-the-funnel (MOFU) content to those, who already demonstrated their interest in your products or services and provided their contacts in the previous stage. Send them personalized newsletters, webinar invitations, case studies, videos, blog posts, etc. For example:

  1. Healthcare organization: CRM in healthcare: Improve doctor-patient communication.
  2. Financial institution: From spreadsheets to CRM: How {{CompanyName}} insurance company doubled their ROI by automating processes.
  3. Marketing agency: 400 percent ROMI: How {{YourSolution}} helped {{CompanyName}} get the most out of their efforts.


3. SQLs

Continue nurturing them via emails and invite them to a call or demo. You can share sales decks, presentations, and other relevant BOFU content at this stage to help your leads decide between several solutions. For instance:

  1. Healthcare organization: Checklist to help you choose the right CRM provider.
  2. Financial institution: Salesforce, Pipedrive, and {{YourSolution}} compared.
  3. Marketing agency: Scorecard for CRM provider evaluation.


4. Opportunities 

Evaluate the potential of the prospect to buy, using BANT (or any other sales qualification framework). Depending on the score they get, plan the next steps: Work with objections, follow up with additional sales materials, schedule calls to discuss details, collaborate with the legal department to prepare an agreement, etc.


5. Closed Won 

When the contract is signed, hand off the client to the account manager, along with the communication history and any specific preferences on the client’s side. Also, you can check up with them over time to make sure they are satisfied with your services and ask for a review.

One final tip, setting goals for each funnel stage is a good idea. This helps you monitor your results, analyze them and adjust your strategy accordingly.

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