Whoever deals with sales or marketing is familiar with the concept of sales funnel. It is a visual representation of the four phases that characterize sales negotiation:
- Potential clients – The first phase of the sales negotiation includes a mapping activity of the reference market during which we identify a first cluster of potential clients.
- Contacted potential clients – the second step of the negotiation is focused on the identification of potential clients that are interesting for our business. Starting from the previously classified wide set of potential clients, we select the most interesting ones and we carry out a first contact action.
- Interested contacts – The third phase of the negotiation is characterized by activities aimed at the identification of qualified contacts that have shown interest in the offered products or services. We therefore select those contacts that show a need, for example the resolution of a problem or the improvement of specific KPIs.
- Opportunities – The fourth step of the sales negotiation concerns contacts that have become real commercial opportunities. They are indeed contacts in an advanced commercial stage to whom we have sent an offer or with whom we have had a meeting.
- Clients – the fifth and last phase of the negotiation coincides with customer acquisition.
KPIs for sales funnel analysis
The sales funnel we have just described visually corresponds to an upside-down funnel. Thanks to this representation it is possible to immediately identify the most efficient steps and also the most critical ones: from the first contact with a very large number of potential customers until the closing of the deal with the most qualified opportunities.
When we say steps we mean the change of status of the contacts from a phase of the negotiation to the following one.
- Potential Customer Rate: this KPI represents the capability of mapping the reference market and of selecting the most significant contacts. This figure allows us to understand the market potential and the resulting companies that we have to contact. These companies could be the totality or, more conceivably, only a part of the starting number.
- Conversion Rate: this index identifies the passage from contacted potential clients to interested contacts. Coversion Rate is therefore the percentage of the contacted companies that have given a positive feedback or that have shown interest on the total number of the contacted companies.
- Opportunity Rate: this KPI represents the transition from interested contacts to opportunities, so those contacts to whom we have sent an offer / a quote or with whom we have had a meeting.
- Close Rate: Close Rate identifies the negotiations closing rate and it is therefore the passage from opportunities to clients.
Furthermore, to carry out a complete analysis of the sales funnel, it is advisable to take into account also time factor.
- Negotiation closing time: time frame between the first contact with a potential customer and its acquisition.
Sales funnel as adaptive element
We have just described the standard structure of the sales funnel: the starting model to create a specific and custom funnel for every company. Sales funnel can indeed be constructed, analyzed and elaborated in different ways depending on the characteristics of each company. Here in Vehnta we construct it in this way and then we defined it as adaptive element: as a tool that we can recreate adapting it to the features and to the objectives of every customer in order to optimize sales performances.
With the aim of better explaining the potential that the construction, the analysis and the elaboration of the sales funnel offer, below an example of the optimization of a sales funnel.
As you can see from the funnel the company of this case study has been extremely efficient at mapping and contacting potential customers for its product or service: on a basis of 1000 potential clients it has indeed contacted 80% of them. The first step, which starts from the total number of the potential customers until the selection of a more restricted number of contacted potential customers, is therefore efficient.
The passage from contacted potential customers to interested customer seems instead a critical aspect: the percentage is 10%.
The transition from interested clients to opportunities is instead positive: it seems that the sales managers of the company, once they have engaged a potential customer, are able to start a negotiation that could bear fruit.
Lastly, closing rate of 5% is a less positive figure, certainly the most delicate topic that requires greater attention.
Starting from this funnel it is already possible to highlight the most critical steps: in this case they are Conversion Rate and Close Rate. Specifically working on these KPIs helps to optimize the funnel and achieve a result like the following one:
After having analyzed the data of the funnel it is indeed possible to start with the elaboration phase and to change the shape of the funnel and the related conversion rates from a status to the other one, while at the same time achieving a reduction of the negotiation closing time.
By specifically focusing on the less efficient steps and analyzing the related data it is indeed possible to implement actions to improve general sales performances and to precisely optimize each passage. In order to obtain an optimization like the one we have shown in this case study here in Vehnta we operate by analyzing strategic objectives and by integrating digital tools able to optimize the whole process of generation of opportunities, by widening the scope and reducing the time for customer acquisition.
Considering that an optimal standardized funnel does not exist, because each company differs from the others and moves in different markets, but instead there are ways to improve the performance of each step, just like in all analyses it is therefore necessary to start from a snapshot of the current situation in order to undertake optimization actions and thus creating a higher commercial value.
Choosing an approach like the one we suggest states the will of improving the present situation. As shown in this post, starting from the snapshot of the factual reality it is indeed possible to define actions aimed at improving the business process and at taking into account the peculiarities of the business and of the market.
Increase of ROI
Let’s now try to move from percentages to absolute numbers. Assuming that the average amount of the price of the offers is €100.000, the starting sales funnel included two closed negotiations for a total of €200.000, whereas the new funnel includes 12 positively closed negotiations and therefore, still considering the average value, a new total of sales of €1.200.000.
Furthermore, as previously mentioned, the improvement of sales performance and the use of digital tool has also determined a reduction of negotiation closing time: this outcome allows us to positively close a greater number of negotiations in a more limited period of time and contributes to increase of ROI.
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