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Sales Pipeline vs Sales Funnel: What are the differences?

· Sales and Marketing

Mike often hears about the sales pipeline and sales funnel from his colleagues. But what exactly do they mean, and how do they differ from each other?

Sales Pipeline

A sales pipeline provides a visual overview of sales possibilities at various stages in the sales process. The sales pipeline even shows the salespeople how many offers and how much they are worth. This also helps them know what offers they need to concentrate on, where they need to invest time and effort, and how much they are expected to make in the months ahead.
 

Typically, there are four main activities in a sales pipeline – qualifying leads, scheduling meetings, proposing solutions (product or service) and closing deals.

Image from freshworks .

As shown in the figure below, a complete sales pipeline consists of six stages.

The pipeline is an example of a B2B (business to business) sales process where each stage might look like:

1. Lead Generation – Businesses use different ways to generate leads for their sales, including paid and unpaid campaigns, to let their potential customers know they exist. Usually, they build an ideal consumer profile with some specific requirements and seek to reach out to targets who suit this profile across different campaigns.

2. Lead Qualification – When salespeople get a lead, they need to identify the lead’s potential of buying from the company before getting to the next step. If the lead is interested in their product or service, it is considered as a qualified lead.

3. Initiate Contact – This is one of the most important stages where the salespeople have to try to reach out to the leads to understand their problems and business requirements. If they are interested, the salespeople can suggest suitable solutions; otherwise, they can try to convince the leads to trigger their interests.

4. Schedule Meeting – If the lead is convinced of their services, it is important to follow-up immediately by scheduling a meeting after the initial conversation. It would be best to talk to the decision-maker to take one step closer to the deal closing.

5. Negotiation – Once the leads have expressed their interests in buying their products or services, they are now at the negotiating stage. To make a profitable sale, they negotiate on the price, services, conditions, and most importantly, submit their proposal.

6. Closing the Deal – Here comes the final stage of the selling process, where they report their deal outcome. If the contract with the prospect is finalized, they mark the deal as won or lost. There are times when the prospects are not ready to buy yet. Then, they may be labelled as 'nurture' to check back or follow-up later.

How does the sales pipeline benefit ABC company?

1. Provide insight into deals – ABC company is able to indicate which deals are more likely to be closed based on the highly required insights into financial metrics provided by the sales pipeline.

2. Measure sales team performance – ABC company gets to see the productivity of different salespeople in their sales team and track how close they are to achieving sales goals.

3. Predict revenue – Sales leaders will be able to estimate the month-on-month revenue as the sales pipeline acts as an indicator of the volume of purchases that are expected to be processed.

Building and Managing a Sales Pipeline

Now that Mike understands some of the important elements and benefits of a sales pipeline, he starts planning for ABC company’s sales pipeline.

A. How does ABC company build their sales pipeline?

(i) Identify list of prospective buyers and stages – Mike needs to combine all his potential buyers into the sales funnel as the first move, and position them in various offer stages, depending on where they are on their purchasing journey.

If he has sent a promotional mailer to the prospect, then the offer in his pipeline will be in the stage of 'initiate contact.' When a prospect has asked for a preview of his offering (product or service), then the offer will be in the stage of the 'schedule meeting' or ‘schedule demo’.

On the other hand, if a prospect has shown interest to buy, responded to Mike’s emails, met him and negotiated the terms of the proposal agreement, then the prospect in the pipeline will be in the 'closing the deal' stage. It helps Mike segment the opportunities through each stage by identifying the stages in which the deals are in.

(ii) Assign sales activities for each stage – Sales activities are frequently distributed scattering and may take place at different stages of the pipeline. Some companies are pushing for more sales activities to maintain a fast-moving pipeline while some are sticking to those few practices that have performed well in the past. Usually, sales activities differ from deal to deal. So, it is important to assign them systematically at the beginning of every deal to bring clarity to salespeople like Mike. For instance, if the first stage in Mike’s sales pipeline is initiating contact, what are the related sales activities that he should do?

He should be creating and sending out emails and tracking the email metrics at the same time. He also needs to create promotional content and include them in the emails to share the promotion and deals. Another important selling practice will be to communicate with the prospect over the phone. These are some of the sales activities he needs to assign to different teams to handle.

(iii) Define sales cycle length – ABC company’s sales pipeline depends heavily on Mike and other salespeople’s sales cycles, and how fast or slowly they close deals. The duration of a sales cycle can depend on a variety of factors such as:

  • Complexity of product or service – The more complex a product or service is, the longer time it takes to complete the sales process. It is largely due to the number of salespeople and teams involved in the process of convincing the prospects to buy.
  • Customization of product or service – It takes a longer time to materialize a product or service if it requires certain customization due to frequent changes in customer requirements. So, Mike has to spend more time to meet his clients’ needs and deliver the product or service.
  • Source of leads – Compared to inbound leads, outbound leads require a longer sales process because it involves some of the real-life meetings.

(iv) Decide the ideal pipeline size – ABC company needs to think: “How many deals are my sales people going after?”This is a crucial point to meeting the year-long sales goals and revenue targets. They need to act backwards depending on how many deals they intend to close for the year in order to meet their financial targets. It's not enough to go for the goal only, as many offers fade over time and do not convert to a sale. After all, an approximate 24% of the expected deals are going to halt.

For example, for every 50 deals ABC company’s salespeople pursue in a month, a significant number may wither and die over time. So, they should keep an eye out for more offers instead of only 50 to achieve their sales targets. For a lot of chances to make it to the end of the pipeline, they need to proceed with a lot of deals. For example, Mike and his sales team need to have at least 500 prospects to target in order for a sales team to close up 250 opportunities.

  • Deciding on the pipeline size: Focus on the sales target – Make sure to have more potential customers than one’s target.

(v) Remove stagnant deals from the pipeline – Timing is the key. The sales closing rate gradually decreases as time passes. To avoid getting dead deals that exceed the entire sales cycle duration, Mike has to constantly keep track of his deals statuses.

Let’s say he has a stagnant deal that has exceeded the sales cycle for a long time, he must prioritize and pay attention to it. By doing this, he gets to clean up the pipeline by removing dead deals that are unlikely to convert.

Therefore, it is important to have an automated system or software that helps to manage stagnant deals and sales activities to unclog the pipeline.

  • Unclogging the pipeline: Keep track of the pipeline status – Restore the stagnant deals and remove it from the pipeline if it doesn’t convert for a long time.

(vi) Define sales pipeline metrics – As an ideal visual tool to help the sales manager track and monitor the salespeople, the sales pipeline is continually evolving to help track the pipeline’s health on a regular basis.

Mike can determine the number of deals he needs to bring in when he has identified his sales target for a period of time. The sales pipeline metrics can help to achieve sales goals and gain desired annual profit.

B. How does ABC company manage their sales pipeline?

(i) Conduct sales pipeline review meetings – By conducting regular sales pipeline review meetings, ABC company gets to understand the deals statuses, team efficiency and the additional deals needed to meet sales targets.

The sales manager will be able to estimate their monthly, quarterly and yearly sales while measuring the prospecting depth of each account.

It is a great practice to assess your sales pipeline every month and meet your salespeople on a weekly basis to discuss real opportunities to move through the pipeline and where your process is stagnating.

  • Running regular sales pipeline review meetings: Regular updates – Able to be visible on the sales pipeline performance and numbers with clear expectations and deliverables.

(ii) Use an automated system or software to track the sales and avoid manual tasks – With an automated system, ABC company can ease their jobs while staying on top of all the deals in their sales pipeline.

For example, CRM is the most common system used by many companies. Salespeople like Mike can manage their tasks easily with a sales CRM. They can send out reminder emails, arrange calls and schedule meetings automatically with the help of the system.

An efficient free CRM tool allows them to take action directly from the view of the sales pipeline and to manage their dealings. Most CRMs offer visibility into the deal to see how well a deal is going, value of contract and the sales activities against each deal. It also displays colour coded icons in the pipeline for deal tasks, giving the salespeople a clear understanding of what tasks are complete, pending, or overdue.

This will be extremely helpful to reduce the manual tasks and increase the efficiency of each salesperson in closing sales and meeting sales targets.

  • Avoiding manual tasks: With an automated system like CRM, ABC company can set up a customized workflow to increase efficiency.

(iii) Encourage team collaboration – Sales pipelines allow many teams to do their jobs well together, providing the most value to the company. A sales team cannot perform 100% unless they are all in-sync of the whole team’s work. So, this is important as it can affect the deals in the sales pipeline.

For ABC company that has a CRM software, they can ensure a clear visibility into the sales pipeline in departments like sales, marketing, finance and manufacturing.

(iv) Create a sales pipeline report – There’s no way to improve sales performance if ABC company doesn’t regularly measure sales metrics, and take corrective measures as the sales pipeline will get stagnant.

As an example, when a deal is sitting for weeks at the same point of the pipeline, Mike has to make sure that he has all the tools to push it down the pipeline. He can crunch data faster and make better decisions by automatically generating sales pipeline reports using a CRM that provides custom templates. He can also use it to predict the cash flow and schedule his sales accordingly.

(v) Customize multiple sales pipelines – Companies who are having several sales teams, selling different products or services, or targeting different markets, then they will need to extend their sales processes. Customizing and creating multiple sales pipelines can help to capture the process of every deal. Rather than extending one distribution cycle for all product or market styles, it is better to separate pipelines that are generated with specific deal stages.

This also brings transparency to all employees as they know what to do to meet their individual target. With a sales pipeline management system, they can customize the pipeline stages based on their business needs and internal structure in multiple sales pipelines.

Sales Funnel

A sales funnel demonstrates the phases that a prospect goes through before becoming an actual customer. The funnel looks like an inverted pyramid with all potential customers at the first stage. When Mike starts to initiate contact with the leads, only the qualified ones move to the next stage. So, those who stay at the bottom of the funnel remain as the most committed customers.

Basically, the sales funnel is a journey from the buyer’s point-of-view that they go through before the actual purchase. It consists of three main stages:

  • Top-of-the funnel: Awareness – Buyer is aware of their problem and they start to search for solutions to handle the problem. 
  • Middle-of-the funnel: Consideration – Buyer makes evaluation on different products to address challenges, and engages with sellers.  
  • Bottom-of-the funnel: Decision – Buyer makes decisions on the solutions offered by sellers based on their needs.

Sales Funnel Stages

1. Top of the Sales Funnel: Awareness

In the first stage, ABC company’s potential clients face a challenge and they start to do research and learn more about the problem. They hope to find a perfect solution to handle their problem.

They find ABC company through online ads, blog posts and social media and leave their contacts to be reached out by Mike through an email or a call.

In this stage, Mike tries to understand their problem and introduces ABC company’s product and service instead of pushing for a sale. He also shows them some visual aids such as infographics and videos to enhance their understanding.

Once the first conversation is initiated, the customer becomes a qualified lead in their automated system. Then, they will move to the second stage to discover more about ABC company. Mike will follow-up closely with them to schedule the second meeting or call.

2. Middle of the Sales Funnel: Consideration

When the leads have understood their problems, they will look for solutions actively to help their business achieve sales targets. In this case, Mike will try to arrange more briefing calls, sales meetings, or tutorials to recognize their problems and demonstrate to them how his approach will help to address their specific problems. In this stage, it is very important to impress them to increase the sales conversion rate.

After understanding their problems, it’s time to qualify the leads. There are many sales qualification techniques but the most common that is used by most businesses is called BANT – Budget, Authority, Need, Timeline. Only those who meet these criteria will move down from the funnel.

3. Bottom of the Sales Funnel: Decision

Once the lead has made a decision to purchase ABC company’s solution at this stage, Mike should come forward with proposals, contract terms and other agreements to win this deal successfully. At this point, the result of the opportunity will turn either way — win or loss — depending on the interests of the prospects.

The sales conversion rate is unpredictable – If the sales is closed, Mike will move the deal to the winning stage in the pipeline and start working on the new customer. Otherwise, the deal will go to the losing stage and it requires constant follow-up from Mike to ensure that there is a chance to win back the deal in the future.

Building and Managing a Sales Funnel

A. How does ABC company build their sales funnel?

(i) Organize leads entering the funnel – When salespeople organize data systematically, it helps to speed up the sales process. The first step toward the sales process is to capture leads. Some sales funnel software can capture leads that visit a company’s website, submit a form, email the company and so on. This is also easier for salespeople to start dealing with leads, rather than wasting time on data input. Also, it helps to classify leads based on predefined qualifications, and distribute them to the right sales representatives.

Let’s say ABC company is using a CRM software, it marks every new lead entering the system as “new”. At this point, every lead is on top of the funnel. When Mike connects with the leads, they are pushed to the next funnel stage afterwards. With a software, the number and status of leads at every stage will be assessed to plan future sales strategies more effectively.

(ii) Qualify leads in the funnel – How to identify qualified leads? This is probably the most challenging part for all salespeople, including Mike. Fortunately, sales funnel software is very smart today. Based on the property, interest and behavior of the lead, they will qualify the leads for Mike. The software saves his time and energy from scrambling through the funnel by building an accurate lead scoring system to classify hot, warm and cold leads.

By simply adding or subtracting points for the lead property, he can configure the lead scoring rules to suit his ideal buyer persona. For example , if ABC company only serves local customers, then the minimum requirement must be within their service area for a lead to become their customer. In this case, the higher the lead score, the hotter the lead is.

(iii) Engage leads through the funnel – Since leads can be organized and scored, Mike can now reach out to the priority leads through email or phone. Almost all sales funnels consist of a conversation tracking feature that allows salespeople to trace back their previous email or phone conversations, helping them to plan their next step of sales action systematically. However, this can only be done when Mike contacts his leads using the tools powered by the software. Otherwise, it will be difficult to track.

(iv) Automatically move leads down the funnel – A good practice is to be consistent in updating the lead stage when handling the sales funnel within a funnel software. When the funnel develops, Mike needs to be able to measure the amount of leads in each stage to ensure that the funnel is always loaded with leads.

Also, it is important to know the status of every lead in each stage to decide what to do next. Once they have been contacted, Mike will move them to the next stage in the funnel. It is also crucial to follow-up closely and provide necessary assistance to the leads, and update the lead’s stage in the sales funnel software. With the software, it will automatically move the qualified leads down the funnel.

(v) Create opportunities for the pipeline – It’s time to measure the value of each lead after Mike has met and talked to them. Now, he has to determine whether the leads are willing to purchase or not and this is where the software helps to track each opportunity with full transparency.

(vi) Nurture leads in the funnel – A visualized sales pipeline with a stage-by-stage overview of all the deals provides a visibility to how leads move down to a sales funnel. It also provides a brief estimation of sales targets to the salespeople and encourages them to close more deals in the funnel.

B. How does ABC company manage their sales funnel?

(i) Make use of automated software – To manage a sales funnel effectively, ABC company makes use of an automated sales funnel software. The software helps to qualify leads, track their activity at every stage of the buyer journey, and follow-up automatically when the salespeople update the lead statuses on the software.

What are the differences?

ABC company and Mike have demonstrated the way sales pipeline and sales funnel work in detail. So, what are the main differences between the two sales processes?

Summary:

Knowing the differences between a sales pipeline and sales funnel helps to improve the way ABC company sells. When the sales team says that their leads are stuck in the pipeline, it usually means that they actually understand the full steps needed to push the leads closer to a decision.

While in a sales funnel, leads never get stuck. The funnel stages reflect how successfully or unsuccessfully leads convert to decision-making from the initial point of contact. It also monitors how many leads have moved successfully from one stage to another without dropping out, regardless of the salesperson’s behavior and attitude.

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