The Extremes of the Sales Funnel

Opening disclaimer: To prove the validity of this post not everyone should read it until the end.

Why? Read until the end if you like, but then I risk you prove it wrong, just by reading it?!

This post will indicate some dangers to avoid when optimizing sales processes.

If you are professionally involved in sales process, you must have already stumbled upon the concept of a sales funnel. Either you were asked to design or manage a sales process or you were reminded by a boss about your priorities and responsibilities using a diagram of a sales funnel.

In short we can say that a sales funnel is a model of a sales process which defines sequential steps that are required to extract revenue from a given market potential. The model strives to be optimal in the sense of revenue versus sales costs index. In other words, the model shows how much effort should be invested at a given stage of a sales process to maximize the overall revenue gain.

An example of a sales funnel.

Image courtesy of www.getentrepreneurial.com

A typical sales funnel has a shape of a cone. An example is illustrated in the image on the right. It is wider at the top and gets narrower as we move down. The top of the funnel is abstract and strategic, the bottom is objective and tactical; the top deals with (almost) infinite number of instances, the bottom deals with relatively small number of instances; the top is handled by marketing departments, the bottom is handled by sales departments.

The cone shape of a sales funnel tells us that in order to be optimal we should address a wide audience at the top, but spend relatively little per each instance. On the other hand, we should carefully select a smaller subset of instances at the top and spend progressively more per instance as we move down the funnel.

There are numerous indicators which describe the properties of a sales funnel. I would like to point out one such indicator to show how misleading sometimes a very straightforward goal to optimize a sales process is.

Let us take a look at the conversion rate indicator. This indicator tells us what percentage of instaces is moved to the next stage in the sales funnel.

Suppose we have a company with an infinite market, meaning there are more potential sales opportunities than we can theoretically close. In other words, the potential exceeds the capacity of the company.

Consider now this case, "The company claims they have a 100% conversion rate. Is this optimal for the company?"

What does this mean? A 100% conversion rate means that every instance entering the sales funnel is also exiting it at the very bottom when the sales successfully closes the case. This also means a sales funnel is no longer cone shaped, but cylinder shaped structure. This company has a sales cylinder.

Is this good or bad?

It depends upon which cylinder it is. Consider the two diagrams below.

Type A and Type B cylinder shaped sales funnels.

The company may think they have a type A cylinder, but I claim they have a type B cylinder, since type A is theoretically impossible. Remember, there are more sales potentials than the company can service.

This means this company is exposed to huge risk. This does not mean they can close every deal that they pick; this means they have to close every deal to survive. They are suffering from low market awareness, which is why they have to take any deal that comes along. There is no room for optimization. Every deal has to be closed.

If they had a cone shaped sales model, they would have the luxury to pick opportunities and optimize. Sure, their conversion rate would be less than 100%, but that is good. That would give them the leverage to optimize.

A cylinder shape would only be acceptable in cases where the market potential is small. Meaning the company has the capacity to theoretically service all the customers in the market. But then again, that case is not very interesting by its definition.

Therefore, when optimizing a sales process, analyze all stages. Remember, your prospects have to come from somewhere, and some of your leads have to be positively closed to have a successful sales process.

Do not overoptimize! Some instances will fall out of the process and that is good!

Closing disclaimer: I hope not every one of you is reading this, as this would prove the post is meaningless.

What's Happening? Who cares!

Until recently Twitter prompted us with a question "What are You Doing?", which is personal and so common that it automatically challenges a reader into reaction. This question has been replaced now with a more distant phrase "What's Happening?", which is less personal. It also does not draw as much attention as the first question did.

Why?

Because it is not about me - the average user and because I do not care what is happening, unless it is happening to me.

It is true on the other hand that Twitter has grown a lot since its beginning. It has been used for many different purposes from personal status updates to all kinds of marketing and social networking. Looking from this perspective, the old question looks a bit narrow, but I think the authors could have come up with a better question.

Let me give some suggestions what would work better and still be aligned with today's multipurpose social hub that Twitter certainly is.

What is Happening to You?
What do You Have to Say?
What would You Like to Share?

These questions are focused on the user. They show interest in the user's opinion and they want to hear his/her particular statement. Questions like these are much more likely to generate (enthusiastic) response than the new official question.

What do You think about this article?

How I Fought 12 Buyer Personas and Survived

Bottom Up Approach to Market Segmentation Using Buyer Personas

My latest post on buyer personas caused quite a strong response from you - the readers. I guess this is a hot topic and a lot of you are involved daily in tasks which require some kind of market understanding. Buyer personas help us understand how our market is segmented and what kind of distinctive problems do buyers from different segments have.

If you want to have a good understanding of the market, the number of personas has to be just right. Have too much personas and you will not see a thing (a pattern) about the market. Have too little personas and your communication will be too general and nobody will listen to it.

When first managing a project involving buyer personas I had two questions in my mind: How do I know which is the right number of personas for my market? Is there a methodology which would lead me to a good number of personas?

I discovered that in my case buyer persona identification is a two dimensional problem. The first dimension is represented by the industries that we want to address and the second dimension is represented by the business roles that buyers have inside industries.

In my case there were four industries and three business roles. Three business roles are quite common, if you are working in B2B market. Usually you need to convey value to three distinctive roles in an organization: commercial buyer, technical buyer and user.

I did a simple sketch, showing my personas in a grid.



A quick look at the grid and a simple math told me I am facing a huge task, if I would really need to create and maintain 12 buyer personas.

With confidence that there must be something along the way to help me overcome this number, I started with buyer persona profiling project.

Luckily, I found out through the process that there are some persona profiles which should be merged, because they represented buyers with equal problems and they also spoke practically the same language. It turned out that technical buyers from all four industries could be effectively represented with a single buyer persona and also that end users from the first three industries had a single persona. I updated my grid immediately like this.



In this stage I had 7 buyer personas. Therefore, I managed to cut initial number almost in half without losing the specificity given our market structure.

During this process, it was also decided that we were going to address industry D through industry C, which removed additional two buyer personas, so I was left with a manageable size of 5 buyer personas.

In conclusion let me answer my initial two questions in short. Start a buyer persona identification process so that each industry and each business role from that industry is represented with an unique buyer persona. Look for similar profiles and merge them. Stop when you cannot find any more profiles to merge without introducing impurity in descriptions of their problems or solutions to their problems.

This method worked well for me, I hope you will find it useful too.