Sales Funnel: The Ultimate Guide to Creating Customers

sales funnelThe concept of “creating customers” may at first seem to be an odd one. Don’t you find customers, not make them? Well, yes and no. While it is extremely hard to turn someone into a customer if they have no interest in your product/service or don’t have the money to make the purchase, with a proper sales funnel, can can create fans out of people who never even knew you existed (or at least never realized how much they needed whatever you’re selling). A sales funnel can also turn an “on the fence” customer into a raving fan who refers even more people to you!

But what in the world is a sales funnel in the first place? And does it really matter, especially if you’ve been getting by so far without it?

This article is your ultimate guide to why you need a sales funnel, how to set one up, and how to constantly improve your funnel to make more money, no matter what your industry.

Hungry for even more sales tips? Check out this course from Udemy: Sales Prospecting for Beginners

What is a Sales Funnel?

Let’s start by going over the basics of what a sales funnel is before we start talking about why to use them and how to improve yours. First, a little terminology. There are basically three types of people you’ll interact with during the sales process:

  1. Leads
  2. Prospects
  3. Customers

A lead is someone who becomes aware of your company or someone who you decide to pursue for a sale, even if they don’t know about your company yet.. Typically, this includes everyone in one big group, but you could also break this down further to only look at qualified leads, which are leads that meet certain qualifications to becoming customers. For example, if you’re selling pet products, a qualified lead is someone who has a pet, versus someone who simply likes the cute animal pictures on your blog, but will never buy anything from you.

Prospect is a term that’s used differently based on the company. In many cases, it is used interchangeably with qualified lead, but usually, a prospect is someone who has had some kind of contact with your company and they are still interested. All prospects are leads, but not all leads are prospects.

We all know what customers are! These are people who have made a purchase. You can further separate out people who have made just one purchase and people who have made several purchases, or repeat customers.

All of these people fit into your sales funnel!

To image a sales funnel, think of an inverted pyramid, or the shape of a kitchen funnel (hence the name). Here’s an example of a very simply sales funnel:

simple sales funnelAs you can see, at the very top of the funnel, you have leads. This is where you cast a wide net, trying to find as many leads as possible to bring into the sales funnel.

A small percentage of those leads will be prospects, people who are actually interested in your product or service and who are qualified to buy. It’s a numbers game; the more good leads you bring into the sales funnel, the more prospects you’ll have. And this is important because the more prospects you have, the more customers you have!

This is the last piece of our simple sales funnel: the customer. A small percentage of people who are interested will actually make a purchase and become a customer. You can (and should) know what percentage of people move down the sales funnel.

So, when working on your sales funnel, you want to have two goals:

  1. Find more good leads, to funnel a larger number of people into the process
  2. Increase the percentage of people who move one level to the next down the pipeline

Both are important if your goal is to sell more–and who wouldn’t love that!

Now, this is a very simplified version of the sales funnel. Let’s next take a look at the general sales process and how this fits into the sales funnel.

The Sales Process

The specifics of your sales process depend on what you’re selling, but here’s what customers go through in most sales:

  • Awareness

The first step of any sales funnel is to make a potential customer aware that you exist. You can go about doing this in several ways, such as social media marketing, email marketing, cold calling, attending events, advertising, and word of mouth. How you make people aware of your company really depends on the product or service you’re selling. For example, if you design apps, mobile marketing will probably be extremely effective, but if you sell lawn mowers, this may not be the best option; traditional radio advertising may work better.

  • Education

Next, you need to educate your prospects. In other words, you need to teach people why they need your product/service and how it works. In this stage, you can start promoting sales, but getting too aggressive can be a bit of a turn off. Instead, think about how to become a friend to a potential customers. For example, if you’re a car salesman speaking to someone looking at vehicles on your lot, you might have a common connection in the fact that you both have kids, so you can direct the prospect to vehicles that have a high safety rating or are great for growing families, as you’re talking about your own experiences dealing with a snarky teen or potty-training a toddler.

  • Evaluation

Prospects next need time to figure out if making a purchase is the best option. At this point, it often makes sense to back off a bit. In our car salesman example, an important part of the evaluation process is the test drive. Depending on your industry, you may want to give someone a free sample or demo. If you aren’t selling in-person, videos can be extremely effective here. Often, during the evaluation process, prospects need to talk to others about the potential purchase, so this is where building up a loyal fan base comes in handy.

  • Engagement

You’ve given the prospect all of the information they need to make a decision by this point; they simply need to make it. Lots of people get stuck in this part of the sales funnel, so it is your job to nudge them closer and closer to making a sale without being too pushy. A great option would be to throw in a bonus for free to to offer a limited-time discount.

  • Commitment

Congrats! Someone has committed to buying your product! Some people combine this with the next step, “purchase,” but depending on your industry, this could be a different step entirely. Sometime people make a verbal commitment to buy, but then walk away and never come back to make a purchase. Once someone leaves, there’s a very good change that they’ll never be back. So, if someone says they intend to buy, it is your job to get that money right away. Don’t let them go talk to a spouse. Don’t let them come back next week. Do what you can to make the sale now.

  • Purchase

You can start to celebrate now. You’ve made a sale!

  • Loyal Fan/Repeat Customer

While your sales funnel “ends” when someone makes a purchase, there’s another level outside of the sales funnel. Actually, there are two levels, working simultaneously: loyal fan and repeat customer. First, someone can become a loyal fan. They may or may not make a purchase again (for example, someone who purchases a home from your may not make a purchase again for a long time), but they tell others about your company and encourage them to make a purchase. This is extremely important to finding more leads for the “awareness” part of your sales funnel. Word of mouth is powerful.

The repeat customer is even better, since they are actually making another purchase. They may need no help from you to make this purchase, or they make be shuffled back into the sales process again, where you need to educate, allow for evaluation, engage, and push a commitment. Once again, this depends on the specifics of your industry. We’ll go over more information about repeat customers before the end of this article.

Finding More Leads

At the start of this article, I talked about making customers, not finding them, but you can only make customers out of leads. Because your sales funnel only works if you put people in the top, let’s look at some tips to help you find more leads. Not everything will work for every business. Choose the methods that work best for you in terms of your available resources and what works for your audience.

Social Networks

Social networks are an awesome place to connect with your fans, but don’t overlook opportunities to find new leads. I recommend using Facebook and Twitter for sure, but it always makes sense to use Google+, Pinterest, LinkedIn, and other networks based on your industry. Here are a few ways you can use social networks to find new leads:

  • Look for Twitter parties and chats where you can participate. Do not just attend and drop a bunch of links to your website. Actively participate in the conversation.
  • Use Twitter’s search function to find people asking questions in your industry that you can answer.
  • Advertise on Facebook, specifying that you want your ad to be shown to people who have liked other, similar pages.
  • Comment as your page on other Facebook pages. Remember to add value, not just drop links.
  • Use hashtags on Google+ to find relevant conversations, and participate.
  • Comment on pins. Many people repin others’ pins, but commenting isn’t as common and can help you stand out.
  • Join groups on LinkedIn and participate in the community. Again, focus on adding value, not sharing your own links.
  • Look for smaller social networks that make sense for your industry. Join and participate.
  • Make sure that your website link is displayed clearly in your profiles, no matter what social network you’re using.

Although I mentioned several times in this list the importance of participating in discussion rather than just dropping your links, that doesn’t mean you should never promote yourself. I like to use the 80/20 rule in this case. At least 80% of the time, you should be using social networks to share other people’s links and participate in conversation. You can share your own stuff about 20% of the time.

Spread out promote of your own links over the course of the day, rather than lumping it all together. Remember, your customers might be in different time zones or active at different times based on their work and family obligations. Share the same link at different times and track your engagement to see if links shared get the most clicks in the morning, afternoon, or evening. Likewise, test whether you get better engagement on weekdays or weekends. There are lots of experts happy to share their opinions on what works better, but until you actually test, you can’t know. Every audience is different.

There’s a great overview of using social networks in this course from Udemy: Introduction to Social Media Marketing


Blogging is my personal favorite form of content marketing, which is amazing for lead generation. Your blog can share company news and information about your products, but think of it also as a lead generator through search engine optimization (SEO).

If you don’t know much about SEO, there’s a great course about SEO available here, but basically, this is the practice of making sure your blog posts or other website pages show up in search results when someone types in a certain phrase. You can use Google’s Keyword Planner to find keywords in your industry that have a high volume of searches and a low level of competition, though keep in mind that “competition” in Keyword Planner only tracks competition for paid ads, so it might not be the best indication at competition for general search engine results. Moz is a great tool to check out if you’re interested in doing more keyword research on competition.

Blogging is also great for social shares. When people like what you wrote, they’ll share it with their friends on social networks, which means you’re reaching a wider audience.

If you’re using your blog for lead gen, here are a few things to keep in mind:

  • Have a way to collect information, such as encouraging people to sign up for your email list. Otherwise, people could read your posts and never come back, meaning that you can’t contact them to move them down the sales funnel.
  • Avoid banner ads. Yes, it can be really tempting to make money that way, but often the banner ads displayed through Adwords and other programs will be direct competitors. Is five cents (or whatever you get for that click) worth losing a sale?
  • Make sure you consider intent when writing posts. In other words, write posts for people who intend to buy whatever you’re selling. If you’re a hair salon, you might get a ton of social shares if you write about DIY hair color on your blog, but if they’re interested in DIY color, they probably aren’t interested in coming into your salon and paying for service.

Want to learn even more about blogging? Check out this course.

Offer a High-Value Item for Free…Almost

One of the absolute best ways to generate leads is to give away something awesome for free. Well, almost free! Instead of paying, ask the person to provide their email address or other contact information.

A great example is an offer from John Lee Dumas of Entrepreneur on Fire. When you go to his website, home to a podcast where he chats with successful entrepreneurs, he offers instant access to list of Internet resources recommended by some of his guests. It’s completely free- you just have to provide an email address to get it.

Lead gen with a free item is easiest when you have a blog and can either put a sign up form on your sidebar or in a popup. However, you can also create a stand-alone landing page for your freebie or you can partner with others to offer specials to their lists in return for email addresses.

Cold Calling and Mailers

So far, we’ve been talking about digital marketing options, finding leads through the Internet. However, older, offline methods do work too in many cases, depending on what you’re selling. If your target market doesn’t use the Internet readily, you may be better off focusing on one of these methods instead of online marketing.

First, try some cold calling. We’ve all gotten those dreaded calls from telemarketers, and while the number of hang-ups sales reps get is enough to make some people quit, this does still work. If it didn’t, people wouldn’t be doing it. The key to success with cold calling is to make sure you have a list of qualified leads. If you’re selling a product for men, for example, make sure your list is primarily male.

Mailers are similar to cold calling in that your “spraying and praying.” While some digital marketers roll their eyes at the idea of a paper mailing campaign, I can’t tell you the number of times we’ve tried a new takeout place because their left a menu in our door or sent a coupon in the mail. In some industries, they work!

Lead Gen at Events

Events are an awesome way to increase brand awareness and collect some new names to funnel into your sales process. There are two main types of events to consider:

  1. Tradeshows
  2. Other events with sponsorship options

Tradeshows are often most valuable, because you’re reaching people who are there specific to meet you. I recommend check out this article from Inc on great event marketing ideas. No matter how you set up your booth, I recommend running a giveaway to help you collect business cards. Your event staff can only talk to so many people at once. When the tradeshow floor gets really busy, having a box or bowl for people to drop their cards to win a prize is a great option, because in a busy environment, most people won’t wait.

If the event organizers offer a way to collect information, such as access to opted-in list or a QR scanner to scan badges as you talk to people.

Other events could also be beneficial for lead gen. For example, you could sponsor a conference, and part of the deal is that you get to advertise to their audience (and collect leads). Even if you’re not generating information about your leads (i.e. collecting information), sponsoring events is still great for brand awareness.

This is not in the least a comprehensive list of how to generate leads for your sales funnel. This is a really great course on building an email list of customers that you might want to check out for more lead gen tips.

Turning Leads into Customers

The real challenge is not in finding new leads, but in moving these leads down the sales funnel and closer to making a purchase. This is why hiring a really great sales team and training them well matters!

Moving people down the sales funnel is called lead nurturing. We have a more in-dept article about lead nurturing available here, but some of the main ways to turn leads into customers include:

  • Make your leads feel special. No one likes to feel like a number.
  • Find a connection with the person, such as liking the same sports team.
  • Respond to questions quickly. When someone asks for more information, they want it now so they can make a decision, not three months (or even three days) later.
  • Communicate often. Don’t get annoying, but make sure you stay top of mind.
  • Incentivize. What bonuses or special deals can you offer if they make a purchase right now?
  • Be extremely helpful. Become an expert in your industry, so you’re seen as an authority. That way, your recommendations mean more.
  • Do research so you’re making the right recommendations to each person. What can your lead afford? What are their biggest pain points?

As much as possible, segment. If you take nothing else away from this guide to sales funnels, remember this: Segmenting your list allows you to reach people in more relevant ways, leading to more sales. In fact, let’s spend a little more time taking about exactly what segmenting is and why it matters!

Segmenting Your Leads

Once you’ve collected leads, it’s time to segment, which essentially means that your splitting the list of names into smaller lists. The first an most obvious split to make is into prospects (people who might buy) and non-prospects (people who won’t buy). After that, though, you might still have a huge list of leads that never make their way down your sales funnel. Why? You aren’t segmenting!

Let’s say, for example, that you’re a pizza shop. Your simple sales funnel might look like this:

pizza sales funnelNow, optimally, you’ll want to add more steps to your sales funnel (more on that later), but let’s say this is your bare-bones funnel. To generate leads and collect customer information, you offer a loyalty program, where people earn points for buying pizzas that they can cash in for discounts on future orders. Then, you email them a special coupon, and a percentage of your leads will open that email. A percentage of those opens will actually buy a pizza.

But what if you instead, segmented your list of leads.

Let’s say that instead of just sending one email to your entire list, you instead separate them into lists based on the type of pizza they buy most often: Plain Cheese, Pepperoni, Everything, Specialty, or something else. Everyone in the “something else” pile can get the generic discount, but send people on the other lists special emails. For example, if you send a coupon for a one-topping pizza to the people who prefer plain cheese or everything pizzas, you won’t make a huge impact. That isn’t what they normally order. But send it to the pepperoni lovers and watch the orders roll in! Customize the discount you’re offering to make it relevant to what people order.

You can also segment in other ways. For example, maybe you segment into order size: people who order more than $50, people who order $30 – $50, and people who order less than $50. If you offer a coupon for 10% off an order of $50 or more, the people who order that much anyway just get some free money, and the people who typically order less than $30 probably won’t take advantage. But the people who order between $30 and $50…for them, this is a goldilocks coupon (i.e. it is just right). It encourages them to spend just a little bit more on their next order.

Think about the ways that you can segment your list. Does it make sense to approach males and females differently? What about people with children versus people without? Is location a factor? The more personalized your communications, the more likely you are to move people closer to making that sale.

For more on customer segmentation, check out this course.

Adding More Levels to Your Funnel

As noted, the pizza shop funnel example above is really simple; there aren’t many steps. Sometimes this is okay (for example, in our pizza funnel, adding more steps may or may not hinder down the sales process). However, for better results, it is often beneficial to add more levels to your sales funnel. This is especially true if you’re selling high-ticket items.

Let’s say, for example, that you’re trying to sell someone a coaching program that costs $1000. A lead comes to your blog, likes a post, and signs up for your mailing list. If your first email is a sales pitch for your coaching program, how many people will buy it? A small percentage, to be sure, especially if your blog posts are directly related to coaching program. However, by adding a few more steps, you can more easily encourage a sale. Your sales funnel might instead look like this:

small step sales funnelIn this scenario, you’re asking people to take little steps, instead of going right from “mailing list sign up” to “spend $1000”. Downloading a free ebook isn’t a big step. Once you’ve done that, sure, why not share? Hey, if the info was valuable in the free book, the info in a $19 book is probably great! Oh, there’s a $197 program? Yes, I would love to join, because I already got more than that much value from your lower-cost items. Spend $1000? Sure!

You’ll still lose people every level along the way, but it’s much easier to move people further down the funnel when you are taking baby steps that don’t seem so scary.

And, when you combine this with list segmenting, you’ve got quite the sales tool on your hands. Yes, it can be complicated to organize and track, but if you do, you can increase your sales drastically.

It all goes back to lead nurturing. Moving people down each level requires the same process: education, evaluation, engagement, commitment, purchase (or “action” – sometimes they aren’t actually making a purchase, but rather taking an action like sending out a tweet). In some cases, that process happens within a single email. Other times, it takes days, weeks, or even months. To make matters even more complicated, every customer is different. While some people might make the decision to buy your $19 within a few hours of downloading and sharing your ebook, other customers might be in “deciding” mode for 6 months.

It pays to know when you’ve lost someone completely. Track your action rates over time. Eventually, the percentage of people who take action will be nearly zero. For example, of the people who buy your $19 product, you might find out:

  • 5% purchase the $197 product within one week
  • An additional $10 purchase within one month
  • An additional 2% purchase within three months
  • After that, the remaining 83% are very, very unlikely to buy.

Don’t spend your time and money chasing that 83%. Once they’re gone, they’re gone; start treating them like fresh leads again. Instead, look ways in which you can increase the percentage of people who buy sooner so you can keep them moving down the pipeline.

Repeat Customers

An important part of your sales process that isn’t always shown well on the sales funnel is getting customers to make more purchases in the future. Occasionally, you won’t have repeat customers, since some products are a once-and-done buying situation. However, in most cases, you want a customer to become a repeat customer. There are two types of repeat customers:

  1. Those who buy the exact same thing again
  2. Those who buy other stuff from you

For example, if you are a florist, a repeat customer might stop at your shop every few months to purchase the same thing–a flower bouquet for his wife. Or if you’re make socks, a repeat customer might purchase more socks from you when the old socks are worn out. On the other hand, if you’re an author selling a book, you probably aren’t going to get someone purchasing the exact same book from you a second time (unless it’s a gift or they lose their first copy). However, they may very well purchase your second novel as soon as you publish it.

In both cases, people become repeat customers when two things happen:

  1. They like the product or service they purchased originally.
  2. They like the company.

Both matter. There’s a very well-known coffee brand that has great company policies, friendly staff, and an overall cool attitude, but I just think the products tastes like dirt. So, I don’t purchase from them anymore. At the same time, there’s another coffee brand I’ve tried, with amazing products at a great price, but they have what I consider to be unethical practices…so I don’t purchase from them either. As a consumer, both the product/service and the company matter to me, and this is true of most people, even those who don’t realize it.

Making sure that whatever you sell is high quality…well, that has to come first. And that’s a topic for another day. Your sales funnel might as well never exist if your product or service stinks.

But making sure that someone likes your company? It’s all about plugging them back into your sales funnel!

In the example above, I showed a sales funnel that includes a “repeat customer” model, where each purchase gets increasingly larger and the ultimate goal is to sell the final, expensive product. However, this may not be the case for your business. For example, let’s say that you own a boutique. Your sales funnel wouldn’t look like this:

silly sales funnel

People don’t shop for clothing that way, making incremental purchases as they grow to like your brand more. It’s quiet possible that someone could come in today for a $500 ballgown and then the next time they visit your store, they only buy the $12 scarf.

Or, in some businesses, there’s only one thing to purchase–you just have to do so often. For example, let’s say you own a dairy farm and sell milk at the farmer’s market every week. Your regular customers buy the same two gallons of milk every week. You can’t move them farther down a sales funnel to buy something more, because that’s all you have–milk.

This is a great post on customer retention to learn more about how to turn one-time customers into repeat customers.

Hiring the Right People for an Effective Sales Funnel

If you’re a small business owner, you might be a one-man (or one-woman) show, wearing several hats, including both sales and marketing. As your business grows, though, you’ll need to hire people for your team. One of the biggest mistakes I see companies make over and over again is having their sales team and marketing team work completely independently of one another.

But sales is marketing…and marketing is sales! At least, it should be. Your sales funnel will be most effective when your marketing and sales teams work hand in hand.

When hiring in these positions, here are a few things to think about:

  • Do you get that unmistakable, slightly-slimy vibe from the person? No matter how well they perform, if you feel like their tactics might be dishonest or unfair to customers, say good-bye. Hire authentic people who can make real connections with your customer.
  • Would you trust this person to run your business if you were ill? If not, don’t hire them. Only trustworthy people who you know can follow your directions and make good decisions in your absences should be on your sales and marketing teams.
  • Does the person have experience in both sales and marketing or a willingness to learn? If someone is shut off mentally, that’s not a good sign. Sales and marketing need to work together, and in the best case scenario, your sales team will know a little about marketing and vice versa.

This is a great course on human resources if you want more advice on hiring the right people for your company.

Sales Funnel Overview

In review, here’s the who, what, when, why, how of sales funnels:

  • Who: All businesses should have a sales funnel in place to help them turn leads into customers.
  • What: A sales funnel is a plan to allow a person to become aware of your company, learn about it, and make a decision on whether or not to buy.
  • When: Start funneling people into this process from day one, so you can slowly move them toward a sale.
  • Why: Sales funnels allow you to track your ROI and work on better customer retention practices.

And lastly, the how is to review the information in this article! If you want even more education on sales, The Natural Selling System is an amazing course right here on Udemy that you won’t regret checking out.