Understanding the differences between a sales pipeline and a sales funnel is key if you work or are involved in the sales and marketing world.
At face value, it can be easy to think of the two concepts as the same, but there are subtle differences between the two.
In this article, we’ll look at what a sales pipeline and a sales funnel is and explain the differences and similarities between the two concepts.
What is a Sales Pipeline?
A sales pipeline can be defined as a set of stages a lead or prospect moves through as they progress from a prospect/lead to a paying customer.
A sales pipeline is brand focussed, in the sense that it looks internally at the stages a prospect moves through on their journey to becoming a customer from a sales and marketing teams viewpoint.
The exact structure of a sales pipeline will differ from company to company based on which industry the company is in and the business model they operate. Some organizations use a five-step pipeline, while others can use as many as eight stages. However, the common stages of most sales pipelines look something like this:
1. Lead Generation
The first stage of any sales pipeline involves a business finding prospects who have a need for the products or solutions they’re selling. Each company will usually have multiple methods of attracting prospects and conducting lead generation.
Many businesses will have sales or development teams that get their leads through SMS marketing, phone, email marketing and social media prospecting. Alongside sales and business development teams, most businesses will have marketing teams that also work to bring in prospects.
The qualification stage usually occurs when a prospect is talking directly to a sales representative at a company. This interaction may occur online, in-person or over the phone.
The sales representative asks the prospect questions to determine if the prospect has the need for the product or service the business is selling and whether they have the authority or are likely to buy in the near future to help determine whether the prospect is ‘qualified’.
Common questions a sales representative will ask a prospect during the qualification process include:
What business problem are you looking to solve with this offering?
What’s prompting you to take action on this problem now?
Have you tried to solve this problem in the past? If yes, what solutions did you use, and why didn’t those solutions work out?
Do you have a budget available to solve this problem?
These questions are asked to determine if the prospect is a good fit for the product or service they are interested in buying and whether they have the budget for the solution available.
After a sales representative has gauged whether or not a prospect is a good fit for the product or service they're selling, they will usually then set up a meeting or a demonstration to show the product or solution in more detail and further discuss the prospects' needs.
If the product or service is a good fit for the prospect, the sales representative will then put a proposal together.
After a meeting or demo, the sales representative will send a proposal to the prospect with a detailed quote that outlines the cost of the product or service, the length of the contract, the terms of the agreement and the level of service included.
5. Closed Won/lost
If the prospect chooses to accept the proposal, the financial negotiations will take place. If the prospect and the sales representative come to an agreement and the contract is signed, the prospect becomes a paying customer.
On the other hand, if the prospect decides that the proposal isn’t right for them, then the sales opportunity is lost.
The extra, final step applicable after the deal is closed is the ‘retain’ or retention stage. While this stage is often left off of sales pipelines, customer loyalty and retention should be considered as a vital part of the sales process.
Typically responsibility for customer retention will shift away from the sales team and towards the customer service/client services teams.
What is a Sales Funnel?
A sales funnel is a marketing term that describes each step someone has to take in order to become a customer. Instead of being brand-focused, the representation of a sales funnel is customer-focused in the way that it looks at the various stages a consumer goes through in their journey to making a purchase from their perspective.
In order to get an accurate representation of what a sales funnel looks like, it’s essential to take a closer look at the different phases of a sales funnel.
Top of the Sales Funnel the Awareness Phase
The first stage of a sales funnel is the awareness stage. This stage represents the moment where a prospect becomes aware of the product or service you’re selling.
The prospect is likely going through a specific problem and may well be researching and learning more about that particular problem when they come across your business.
They might hear about you via word of mouth, from advertising, social media, your website, a review website and many other sources. For example, a prospect may be browsing Facebook, see your ad and click through to it.
They may exit the ad but remember your brand name and later search for your company in a search engine and visit your website.
Every brand aims to move every prospect who enters the awareness stage of a sales funnel down into the interest stage and further down their sales funnel.
Middle of the Sales Funnel the Interest Phase
As we mentioned in the example above, a prospect can move from the awareness phase to the interest phase as soon as they learn about your brand. Upon discovering your business, a prospect may then research your brand further if they’re looking to learn more.
This could involve looking at your website, reading your blog or reading reviews about your business. With this level of awareness, a prospect will likely be looking at other solutions, including your competitors, before deciding on which solution is best for the problem they’re looking to solve.
In this phase, a prospect is typically diving deeper into the specifics of the problem they’re looking to solve and beginning to weigh up their options.
Bottom of the Sales Funnel the Decision Phase
Now that a prospect has conducted thorough research into the potential solutions that can solve their problem, they’ll likely start to dig deeper into the options they’re considering.
This may involve looking at pricing packages and taking a deeper dive into company testimonials and case studies as they begin to whey up the decision they’ll make.
Some of the questions a prospect may be asking in the decision phase include:
Which solution offers the best features for the problem I’m looking to solve?
Which solution best fits my budget?
Which solution has the best ratings and reviews?
Which solution offers the best value?
The Final Decision
The bottom of the funnel or the final stage of the sales funnel is when a prospect has made a decision and decides to take action. The prospect has evaluated their problem in detail, looked at the available solutions and is ready to select the product or service that best suits their needs.
This is the time when you find out whether you've been successful in winning a prospect's business.
What Are the Differences Between a Sales Pipeline and a Sales Funnel?
The stages in a sales pipeline are very similar to those in a sales pipeline, but they are represented differently. Sales pipelines are beneficial to sales teams as they communicate the value of a deal, the quantity or size of the potential deal and the various stages of an open deal at a given time.
Sales funnels, on the other hand, are useful for giving an indication of how prospects are finding a business and whether enough prospects are moving down the funnel.
Another difference is one we touched on earlier in the article; a sales pipeline is focussed on the activity of a business and its efforts to find prospects and discover whether they are the right fit for their product or service.
While a sales funnel focuses more on the prospect and the journey, they take discovering a business and gradually moving closer to purchase as their interest and need to solve a problem grows.
In other words, a sales pipeline focuses on the process that a sales team uses in turning a prospect into a customer; a sales funnel represents the buyer's journey from the customer's perspective.
A business can use a sales pipeline to measure how effective its sales process is working. For example, a sales team should be tracking how many qualified prospects they are bringing in, how many meetings or demos they are having, how many proposals they're sending out and how many deals they are closing.
Whereas a business's marketing team may rely on a sales funnel to give them deep insights into how prospects are finding their business and what marketing channel.
For example, if a law firm's marketing team brings in one hundred leads per month and their sales funnel reporting informs them that the majority of those leads are finding the business through Google, then the marketing team will know that SEO is their strongest marketing channel to bring in new clients for their firm.
Their sales funnel reporting should also give marketing and sales teams an indication of how a channel is converting. If a channel is not getting them the conversions they are aiming for, they could consider putting in more effort into that channel.
For example, if SEO is not bringing in the returns they are looking for, the company could ask their team to invest some time focusing on getting a few SEO certifications.
If they are not bringing in enough sales on Amazon, they could focus on spending time learning more about Amazon retargeting or making sure their Amazon ads are set up properly.
For example, if an insurance company is running an advertising campaign on Facebook to get their target audience to download an ebook that talks about the different types of insurance they should look into, and they get one hundred clicks on their ad and ten downloads, they’ll know that their advertising campaign had a conversion rate of 10%.
Wrapping It Up
Most businesses will use a form of sales pipeline and sales funnel even if they’re not entirely conscious of the two concepts.
Sales teams can use sales pipelines to monitor how their deals are progressing and how each sales representative is performing.
Sales funnels give sales and marketing teams key insights into how prospects are finding their business. How many of those prospects are converting and can uncover any areas of their sales and marketing strategy that need to be improved in order to increase the number of prospects finding their business and the number of prospects becoming customers.
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Freya is the founder of the personal finance blog CollectingCents that teaches readers how to grow their passive income, save money, improve their credit score, and manage debt. She has been featured in publications like Business Insider, Fox Business, the Huffington Post, and GoBankingRates.