Sunday, June 24, 2007

Modern Sales Theory Explained: The Funnel Theory

Author: Peter A Donovan of Applause Software.

The Funnel Theory:

First: The Funnel:

The Funnel is a way of describing your prospect base that is used by ACT and GOLDMINE as their basic premise. The problem with both of these 2 most popular packages in my opinion is that they include so many extra functions in order to sell their product that the basic intent of their system gets lost by users with little or no training and even by veteran users.

Imagine a funnel, like a megaphone with a large open side on one end and a small open side on the other.

Many businesses find themselves in business for 30 years and the sales department has information on about only 20% of the potential market due to turnover, record keeping on paper (unusable in many cases because of being outdated), and general policy of not understanding the funnel theory.

The premise:
The large side represents how many potential accounts you know about in order to be able to contact them and sell your services to.
The small side represents prospects who are ready to make a yes/no decision on a quote or proposal or bid you make and a percentage of these will fall through the small end and become sales.

4 Goals:

1. Increase the funnel by marketing, cold calling, meetings, conventions, inbound phone calls, etc. Premise: The more in the funnel, the more fall thru as sales.
2. Increase the number of prospects at the small rim of the funnel, thereby (making the assumption that your closing ratio stays the same) you get more sales.
3. Skew the funnel with leads that are more likely to be sold. This is done by accessing your funnel lead base and marketing (cold call/direct mail, etc) to a proven segment of the market with a higher closing ratio, or customers where you have an add-on product for what they use.
4. By whatever means including skewing the funnel and teaching modern sales tactics to the field reps, you increase your closing ratio.

6 Assumptions:

1. The more leads in the funnel brings more opportunity to sell your product. If you don't have a way of regularly contacting the entire funnel this assumption is meaningless. Therefore you must generate advertising directed individually at each funnel listing via phone and mail and email.
2. The more information you gather about each funnel lead brings you closer to a sale. You can't sell an account unless you know the name of the decision maker or beginning contact person. You can't determine the value of the account to you without knowing what size the account is, what potential they have to be a client, or information that would make them non-desirable as a customer. If you don't have this information, and a way of using it to select segments of your prospects for contact it's useless.
3. The more frequency of calls to your best market segment leads to higher sales volume. You must have information to fuel this market segment and identify it.
4. Price is meaningless in many cases. You must present yourself to situations where you are the only bidder or have identified the needs of the customer properly and prove both in speaking to the prospect and backup in print that their needs will be best addressed by your company. If you don't save this information for future use [assuming no sale] you put yourself back in time having to do this all over again and lose the ability to skew the funnel based on the information you gather.
5. You must have a way of reporting the funnel. You must have a list of prospects considering a quote ready to make a decision. You must have a list of each field rep's active accounts that they are pursuing. You must have a way (mail merge, email blast) of regularly putting your name in front of the target market based on the info collected.
6. From #5 you must have a way of determining if the inner funnel leads are sold or lost or postponed. This gives you a closing ratio which is the heart of the funnel. To explain, you must log a history that a quote was given, and have a history of which of these resulted in sales (otherwise you can't compute a closing ratio) after the fact. Monitoring activity of leads (the number active), the prospects on the inner edge with quotes, and keeping track of field rep closing ratios over time gives you a pulse.

2 Rules.
1. If a field rep produces many sales you can't touch them and they can do anything they want until the sales stop flowing. To keep this salesrep on top of the heap you must provide them with incoming leads of a high quality which they will only pursue a percentage of due to their status.
2. Longevity and Burnout. The longer you keep the top salesreps as employees, the closing ratio will increase and sales will increase, and it will become easier to project budget and rely on your projections. The supply of quality leads to these reps is the key to keeping them longer.

Your goals as business director is to make everyone understand the funnel theory as explained above and make the:
FUNNEL, the HEART, and the KEY in your sights and produce the needed reports, mailings, etc. to make it happen. You must skew the funnel to do this and keep your eyes on the pulse.

Peter A Donovan

Applause Software
Wakefield, MA USA
(781) 968-5240