Based on your observations of the world, would you say that a pipeline and funnel are shaped the same?
Your answer would hopefully be “no,” but in the sales world, the terms “sales pipeline” and “sales funnel” are often — and inaccurately — used interchangeably. The difference is clear—one is designed to direct sales reps through the sales process, and the other is used to guide customers towards making a purchase.
To help you better understand these terms and how you can apply them in your own company, let’s review the definition of each, along with each type’s benefits, stages, and relevant metrics.
What is a sales pipeline?
A sales pipeline is a visual tracker of where customers are in the sales process. By visualizing how close leads are to making a purchase, the pipeline helps reps determine what they need to do to achieve their quotas.
The sales pipeline is typically made up of five stages (although these can be customized in your CRM):
- Prospecting. This is the stage where you identify prospects and enter them into your pipeline. Focus on customers that match your qualification criteria.
- Qualified. Once your prospects are qualified leads, set up a meeting or demo to present your product/service to decision-makers. Hone in on the value of your product/service and how it meets the potential customer’s needs.
- Quote. Discuss terms and prices. Explain what features the potential customer is getting for the price. This stage helps you determine if the lead is willing to commit to your product/service.
- Closure. It’s time to seal the deal. Put what you’ve discussed in writing — maybe you’re offering a tailored membership or discount for this potential customer. Send the final terms or proposal.
- Won/Lost. This stage means that the potential customer either bought your product or they didn’t. If they did,make good on your promises. If they didn’t, find out why. Determine what works and what doesn’t in your sales pipeline.
Think of a sales pipeline as moving prospects right down a pipe — the ultimate goal being to get them to the end of the pipe and converted into customers.
Why do you need a sales pipeline?
With well-defined stages, the sales pipeline gives reps clear guidelines to follow so they’re not jumping straight from the “Prospecting” stage to “Closure.” Knowing what’s expected at each phase, reps can move prospects through the pipeline at a pace that’s comfortable for the prospect.
Sales reps can also improve their sales skills as they learn what sales activities (e.g. cold calling, demos, and sales emails) work best. Insights from the pipeline can be used for high-level planning each quarter. For example, sales managers can review the pipeline, see how many deals were won and lost, and set a realistic revenue goal for the new quarter.
How to manage your sales pipeline
To successfully move a prospect into the “Won” stage and add to company revenue, it’s important to organize and track every sales opportunity in the pipeline. That’s where sales pipeline management comes in.
- Create a process to complete each stage. Define the steps reps should take in every stage of the pipeline. It could be a list of questions to ask in the “Qualified” stage, or a script to follow for sales calls and demos in the “Quote” stage. A well-defined process will keep deals moving smoothly.
- Know when to move a prospect to the next stage. Each rep must understand the criteria for moving a prospect to the next phase. For example, maybe you can only send a proposal after the potential customer has given a verbal go-ahead, as well as confirmed that they have the budget for your product or service.
- Use a CRM to measure progress and collect data. Check your CRM to see where bottlenecks are occurring in the sales pipeline. A CRM gives you a visual of your sales pipeline and also helps collect and organize important customer data — data that you can use to improve the prospects’ experience at every stage of the sales pipeline.
With a clearly defined sales pipeline in place, you’re ready to track metrics that will help you measure its progress.
Track these sales pipeline metrics
Monitor the following metrics to gain insights about each stage of your sales process. You’ll find opportunities for tweaking and optimizing each phase, so your pipeline is as healthy as possible.
- Number of qualified leads. Check your pipeline to ensure that your sales team is generating enough qualified leads for the “Prospecting” stage to meet your group’s revenue goals.
- MQL to SQL conversion rate. Also part of the “Prospecting” stage, check how many Marketing Qualified Leads become Sales Qualified Leads. If there’s a big gap between the two numbers, you might need to better align with your marketing team.
- Average sales cycle. This metric is used to determine how long it takes to close a deal. If there are deals that are stagnating in your pipeline for longer than your average sales cycle, find out why and what you can improve to shorten the process.
- Win rate. Divide the number of deals won by the number of deals created to find out how many qualified leads turn into deals. You can track this metric between specified time periods such as quarters to see if you’re converting a healthy amount of prospects.
- Deal loss reasons. It’s inevitable that you won’t close every deal—but you can learn from the lost ones. Find out why you lost the deal so you can correct mistakes and close more deals in the future.
Combined with good management practices and metrics, a sales pipeline is an invaluable tool. It assists both sales teams and individual sales reps with viewing the progress of deals, so they’re able to strategize and meet their goals.
What is a sales funnel?
Whereas a sales pipeline shows the sales process from a sales rep’s perspective, a sales funnel illustrates the process from the buyer’s perspective. Set up like an upside-down pyramid, a sales funnel helps identify and break down the key steps in a buyer’s journey to better understand where customer actions are taken and opportunities lie.
The classic five-stage B2B sales funnel model is essentially the same as the sales pipeline framework, but presented from the customer’s perspective. These stages include:
- Awareness. Attract customer attention right out of the gate, even before they realize they need your product or service. This can be accomplished at the top of the funnel with awareness-building tactics, such as through helpful lead magnets like free subscriptions or videos. Marketing also helps to build awareness with paid ads, blog content, and more.
- Interest. You’ve attracted qualified leads. Now it’s time to nurture these prospects by educating them about your product or service. Email drip sequences, case studies, and testimonials are all effective in building leads’ trust and appreciation of your brand.
- Evaluation. You now have your foot in the door — the lead is willing to talk with you over a sales call! This is your opportunity to prove to leads that you understand their unique pain points. Take any research you have on the potential customer (look in your CRM) and speak to how your product or service can solve their problem.
- Engagement. Don’t ignore the lead even when you’re convinced that they will purchase. Continue to engage and support them. Help your leads down the last few yards of the sales funnel by implementing the ASK process: Align priorities, secure commitment, keep the relationship alive.
- Purchase. Continue to build the relationship after the close. Check in with your existing customers with surveys and email follow-ups from your sales team. Discover what they love about your product or service and ask them to refer your brand with peers and via social media.
There will be more prospects at the top of the funnel. As prospects are qualified and moved through the funnel, many will drop off. However, as you implement strategies that meet the target audience’s needs, some will stay until the very bottom of the funnel—purchasing.
Why do you need a sales funnel?
As a sales rep, it’s nearly impossible to convert leads unless you think from their perspective. The better you understand where they’re at, the better you’ll be able to push them towards purchasing your product. A sales funnel helps you accomplish this. The framework keeps you focused on buyers’ needs throughout the sales process, so you’re able to funnel leads into customers.
How to manage your sales funnel
To move prospects into the “Purchase” stage, you need to be able to understand what potential customers actually want and need. This is why it’s important to manage your sales funnel — so you can view which sales strategies customers respond to and improve these strategies.
- Identify the weak areas of your funnel. Check conversion rates between each stage of the sales funnel. Are leads taking a long time to move between stages? Find out the source of the problem so you’re able to quickly rethink your strategy and convert more prospects.
- Align with marketing on qualifying and nurturing leads. Not every lead is created equal. Meet regularly with marketing to see who they’re targeting and what resources (e.g., blog posts, eBooks, and guides) are being marketed to potential customers. It takes time to create these resources, so you want to make sure they’re targeting your most valuable customers.
- Take advantage of your CRM. Along every stage of the sales funnel, you can easily track the engagement of prospects with your CRM. View sales conversations, emails, questions, etc., as well as the stage that each lead is currently in. Are they getting closer to the “Purchasing” stage? Why or why not? You can also use your CRM to automate time-consuming tasks such as manually inputting customer information.
As you manage your sales funnel, answer the questions: What are potential customers asking for? What content are they engaging with? How quickly are they being moved through the funnel? Are there opportunities to engage more with potential customers?
Track these sales funnel metrics
You might have the most creative sales strategies in the world, but they are useless if you don’t know if they’re actually driving results. Sales funnel metrics give concrete numbers for you to refer to and see if your strategies are effective throughout the funnel. There will be some overlap with sales pipeline metrics, but here are three metrics specific to the sales funnel.
- Leads Entered. If you’re not getting enough leads, you won’t have a healthy sales funnel. Leads Entered can come from a variety of channels including Facebook ads, lead magnets, and email sign-ups. Add up the entire amount of leads to determine if your top-of-the-funnel (awareness) strategies are working.
- Conversion Rate. There are two types of conversion rates: overall and in-process conversion rates. If you have an overall conversion rate of 43%, that’s the number of people in your sales funnel who made a purchase. In-process conversion rates are the percentage of people converting between stages. Check these rates to see if you need to improve any strategies in your sales funnel and increase conversions.
- Customer Acquisition Cost. By tracking the cost of acquiring new customers in your funnel, you’ll be able to find opportunities to lower the amount. To find this metric, look at the cost of your sales team and marketing activities (Google Ads, content creation, Facebook ads, etc.) and divide by the deal value of one customer. $50,000 in costs divided by $5,000 deal value = $10 customer acquisition cost.
Improve your sales process with a sales pipeline and funnel
When sales teams follow both a sales pipeline and a sales funnel, their view of the customer is complete. With the sales pipeline, they’re able to track how close prospects are to converting to plan how to meet their quotas. With the funnel, they can view the sales process from the buyer’s perspective to appeal to prospects and move them towards purchasing.