Sales funnel: a definition

Why sales funnels are important

Sales funnels allow companies to visualize each step that prospects take on the path to conversion. Each step is a micro-conversion that can be optimized to increase conversions in the end; if one of these steps shows a higher-than-expected drop-off rate, it can be analyzed to see what’s wrong and test out possible improvements.

Funnel tools like Google Analytics help you visualize the flow of customers across your website and spot pages with high drop-off rates, displaying how many visitors exit the funnel at each step.

How does a sales funnel work?

In a traditional sales funnel, the moment of awareness is at the top: it’s the point of entry, the widest part: anyone can start from there. Once prospects enter the funnel, there are steps they can take to continue down towards the bottom, but they can also exit at any point.

Each step they take downwards is another stage of the funnel, leading them closer and closer to the narrowest point—the point of decision—which you’re hoping is the point of conversion.

Seeing the funnel from a customer's perspective

If you look at it from the customer’s perspective—from the moment of awareness up until the moment of buying decision—they’re not traveling through a sales funnel, and they’re not on a customer journey: they’re simply shopping.

Rather than thinking about each stage in the sales funnel, prospective customers are experiencing each stage. When you learn how a sales funnel works from the customer’s perspective, you can better understand drop-off points, and make improvements to each stage in the sales funnel to increase conversion rates.

Your job is to make each stage of the sales funnel as simple and painless as possible (maybe even enjoyable!) for your prospects, to motivate them to keep moving through the funnel to the point of decision.

The 6 sales funnel stages

The stages of a sales funnel are traditionally split into three parts:

• ‘Awareness’ indicates the stage when the prospective customer has discovered your business and is aware of your product in general terms

• ‘Consideration’ indicates the stage when the prospective customer has shown interest in your product by browsing your site and doing product research and comparisons

• ‘Decision’ indicates the stage when the prospective customer reaches the point of conversion and decides to either exit the funnel or purchase your product

The magic happens when we break these three parts down into different stages, so we can identify potential drop-off points.

Stage 1: visit

At this stage, prospective customers are arriving on your landing page, and are navigating to different pages of your website. They’re at the widest point of the funnel: if they were in a brick and mortar shop and a salesperson approached them at this point, the customer would say, “I’m just looking.”

Stage 2: lead

When the customer sees something they like, they take a step downwards in the funnel, and they become a ‘lead.’

At this point, leads have a clear interest in your product, and they may start doing product research and comparisons. This point of the funnel is still pretty wide—the customer has a problem and is aware of your proposed solution, but it’s still unclear whether or not your product will meet their needs.

Stage 3: marketing-qualified lead (MQL)

At this stage, your leads are going to realize one of two things: either your product has the potential to work for them, or it absolutely does not.

If you’ve done your homework (including running market research), your unique selling proposition (USP) is clear and you’ve tailored your sales funnel to attract ‘marketing-qualified leads’ (MQLs) based on user personas that you built from demographic and psychographic data (more on that later). Don’t fret: leads that are exiting the funnel at this point are most likely not your ideal customers.

Stage 4: sales-qualified lead (SQL)

When prospective customers take the step from MQLs to SQLs (‘sales-qualified leads’), this means that they are nearing the end of the ‘consideration’ stage, and are now close to entering the ‘decision’ stage of the sales funnel.

SQLs have researched and compared products, and have determined that yes, your product does fit the bill, and is a viable solution to their problem. The leads that are exiting the funnel at this point are a missed opportunity—they found another solution.

The next step is really important in preventing SQLs from exiting the funnel:

Stage 5: opportunity

This is where your offer and call to action (CTA) take the stage.

When an SQL has made it to this point in the funnel, they are only one step away from converting (so close!). Your USP and CTA could make or break the opportunity stage of the sales funnel. Either your product is the one solution, or it is not. Your job is to put the customer at ease: be ready to answer their questions and provide social proof.

Stage 6: customer

They made it! This point of the funnel is the final stage—where conversion happens—and prospects can now step out of the funnel as your newest official customers.

Your job doesn’t end here, though. Your customer has chosen your product over a lot of other available options. Earn their trust and commitment by engaging with them at this point: for example, end them a follow-up email including resources and articles that they may find useful, or share a post-purchase survey so they can tell you what worked (and didn’t) throughout the process, so you can improve it for future customers. This final step presents an opportunity for you to motivate the customer to come back and browse more products—to become an advocate for your brand.

Example of a conversion funnel

You can use a sales funnel to visualize each step a prospective customer takes and discover drop-off or exit points in the journey. When you investigate drop-off points, you can then learn how to improve the user’s experience and ensure you’re reaching your ideal customer.

In this example, we’re tracking the steps a prospective customer takes to get from Hotjar’s homepage to the point of signing up for an account.

You can see that the funnel’s point of entry on the left is substantially wider than the point of conversion on the right, which is completely natural: remember, the widest part of the funnel is the stage of awareness, where anyone can enter.

As prospective customers progress through the funnel—reaching the visitor, lead, MQL, and SQL stages—you can see the points of drop-off, indicating where these prospects realized that Hotjar wasn't for them.

The points of drop-off in a sales funnel tell us that either:

1. The prospects exiting the funnel did not fit our ICP (ideal customer profile), or

2. We missed an opportunity and need to reassess our marketing efforts to address a pain point in the sales process

To determine whether we missed an opportunity or not, it's our job to investigate exit points and discover more about our visitors. To learn more about how our website visitors are behaving and navigating through the sales funnel, we use tools like heatmaps, session recordings, and feedback polls (see the next section).

Tailor your funnel to your ideal customers in 3 steps

One mistake beginners make is to try to convert everyone who enters their funnel. 

Not only is this unrealistic—it’s also inefficient. A better way to increase conversions is to start at the bottom stages of your funnel (at or near the conversion stage) and work backward to improve the user experience for your ideal customers.

Step 1: build user personas

Your ideal customers are the ones who would benefit most from what you have to offer; when you build your funnel around their needs and drives, you can quickly boost conversions.

To find your ideal customers, start by building a user persona: a semi-fictional character based on demographic and psychographic data of the people who buy your products, which answers these three questions:

1. Who are your customers?

2. What is their main goal?

3. What is preventing them from getting what they want?

One way to get started is by adding on-page surveys to your website and ask your customers for feedback. Consider polling customers once they’ve converted, paying special attention to those who barely did: this will help you uncover objections that are keeping similar prospects from converting and get them to the next stage in the funnel.

Another way to collect this data is through customer interviews: speak with paying customers and ask them to tell you about the very first time they began searching for a solution to a problem your company was built to solve. Customer interviews won’t give you volumes of data like polling does, but they’ll help you understand and empathize with your ideal customers. Plus, they’ll often draw your attention to things that had not crossed your radar—from unique product use cases to struggles you never imagined.

Step 2: spot the problem pages

Set up a funnel tool to start collecting traffic data. A typical e-commerce funnel might look like this:

homepage > category page > product page > cart > checkout > thank you page

As you collect the data, you'll be able to identify the high-traffic, high-exit pages where visitors are leaving your website. 

Step 3: understand the issues that need fixing

After you've identified your problematic pages, it's time to dig deeper. Using a combination of behavior insight and user feedback tools lets you discover how your customers actually behave and what they think of their experience:  

• Heatmaps show you where most of your users click, scroll, and hover their mouse pointers. By placing heatmaps on your most problematic pages, you’ll get a good sense of how people interact (or fail to) with them. 

• On-page surveys help you gather customer feedback so you can ask people straightforward questions about any issues they're encountering. Some helpful open-ended questions include:

1. What’s missing from this page?

2. What’s stopping you from continuing?

3. What were you looking for?

4. How can we help?

• Session recordingscustomer feedback give you the opportunity to watch recordings of individual (anonymized) sessions. You can watch session recordings in the context of the feedback you receive—if customer feedback shows that people aren’t converting because the product page confuses them, you can watch several recordings of people interacting with the page and determine what the problem(s) might be.

Growth loops and flywheels: thinking beyond the funnel model

As useful as the funnel model might be, it's also a somewhat limited way of looking at things because the analysis stops at the point of conversion. But satisfied customers give you repeat business and sometimes even referral business, creating a growth loop where success compounds upon success, continually increasing profit. 

If you're looking for an alternative definition, you may want to investigate Reforge's Growth Loops or HubSpot's flywheel—both of which encourage different teams within a business to think about how customer acquisition, retention, and revenue are always interconnected.