What is a sales funnel and how does it work

 By Oran Yehiel
Build a sales funnel and increase your average customer value Sales funnels are a highly effective way to outspend your competitors while increasing average customer value.

sales funnel as a ladder of trust

In this article we will discuss what sales funnel mean and how it can contribute to your business growth.

At a party a few months ago, I met an entrepreneur who told me that no matter how much she tried to convince people to buy her subscription company’s beauty products, there were very few takers.

“I use some of these products and they’re amazing,” she informed me in an exasperated tone. She proceeded to share her website URL and requested that I help her gain brand exposure.

Incidentally, not soon afterward, I was at a networking event and began a conversation with a guy who ran a business selling organic male grooming products. “A free sample for you, my friend,” he said, whipping out a box from his tote bag. “Let me know if you liked it.”

I used the free sample of post-shave moisturizer the next morning and found that it left my skin fresh (no surprise!) and soothed my skin (surprise – my face tends to feel a bit prickly after I use an after-shave balm). That month, I subscribed to the company’s monthly plan and now use their razors and beard trimmers too.

If you were wondering, I called up the entrepreneur who was having a hard time making sales, and suggested that she give samples away for free – nothing too expensive, maybe a lip balm or the smallest bottle of hydrating lotion.

“Do I really need to?” she inquired, and that’s when I told her what I’m about to discuss here for you. These are the two strategies that bring sales your way – they’re essential to help you build early momentum, so do have a read as it is based on the concept of sales funnel and how to use it to your advantage

Step 1: Build Trust First, Sell Later (the basis of all sales funnels)

As an entrepreneur, your business survives on sales and profits. And you’re unlikely to make both if you’re asking for a sale the first time you meet a new prospect. It’s a bit like asking a woman to marry you on your first date.

If you first give value and built a rapport, then a sale will happen naturally.

It’s not rocket science. Prospects don’t like being rushed into making a purchase. They’re not familiar with you, not sure what value you offer, and can’t trust you immediately.

A huge advantage of offering value first is that your leads warm to the idea of sharing their email or phone number in exchange for the value you bring them. This initial trust helps you acquire leads and build your lead list.

There are a few ways you can give value: a product sample, a free guide or ebook, or a training video. It’s an easy way to begin a relationship and create a bond.

Step 2: The Secret of Acquiring Quality Leads

To acquire leads, you will need to spend some money on advertising. There is no wrong in doing it organically, but it will consume a lot of your time and will be a tedious mission. Also, you will grow very slowly.

Most entrepreneurs use their hard-earned money to advertise their hero product, which is a (very common) mistake for two reasons:

  1. The CPA will be very high. For example, if you’re selling a SaaS subscription, it can easily cost you $120 to capture a lead who uses your free trial offer, and in most cases, it won’t cover the cost of the ad.
  2. If you remember from step #1, it is a mistake to try selling your product before building any trust with your prospects.

The best way to tackle this problem is by creating a sales funnel.

Build a sales funnel and increase your average customer value

Sales funnels are a highly effective way to outspend your competitors while increasing average customer value.

Dan Kennedy, a leading internet marketer, once said that only those who can spend the most to buy a client will eventually win.

This is the psychology behind building a sales funnel.

A sales funnel is a journey of trust-building through the multiple products and services you sell. You can offer a product/service at different stages of the funnel, based on the level of trust you have built with prospects.

You can also visualize a sales funnel as a ladder of trust. The idea is to move prospects up this ladder of trust and make your brand their first option when they’re in need of a product or service in your category.

So, you first offer a free report in your paid ads. The cost to acquire a lead will be minimal as your target market will want your report. Even if you’re not sure that the report will provide value to everyone, you can still assume that many will take you up on your offer.

Once on your list, you can offer leads something better – an advanced report containing more information or something of bigger value to them, this time for a small amount, say between $7 and $37. Obviously, not every person on your list will try your next product, but some will and this is crucial for you to understand.

You can then move those who paid for your advanced product to the next phase of your sales funnel. This will be a product of even bigger value for them, perhaps your software that solves a problem they have. Say, you charge them between $197 and $5K for this product.

This way, at every stage of your sales funnel, your leads will get to know you better and form a bond with you.

Before you had a sales funnel, you could barely cover your ad costs. Now, as people are moving up the ladder of trust and buying your products, you can spend on ads and be profitable at the same time.

With a sales funnel, your average customer value is higher than simply trying to sell one product. As the cash flows in, you will be able to more easily spend money on ads to acquire customers.

Ready to take your business to the next level?

Successful entrepreneurs don’t hope for sales after marketing the hell out of their product. They build trust and move people through a sales funnel of increasing order value. Leverage the smart route to revenue creation – there will be no looking back!

For help building the right sales funnel for your startup - click here to schedule your free consulting call.


About the author 

Oran Yehiel

Entrepreneur, a strategic consultant, and part-time CFO for early-stage and growth companies (CPA, MBA). Extensive experience with tech and SaaS startups, helping them with revenue models, funnel building, and financial planning & analysis. His clients raised well over $150M in aggregated funding, and he was part of 4 Exit events and IPO. Formerly ICQ CFO (acquired for $187M by Mail.ru) and ex-Deloitte.

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