Let’s assume your sales team is working on two opportunities.
The first started at stage 1, like any other opportunity. The prospect downloaded a hot new eBook. Your sales rep reached out and uncovered a pain that your product addresses. The prospect is impressed by your content and product, the conversation was somewhat productive and you scheduled a follow-up conversation for after the prospect talks to her VP. Time to move her to stage 2.
Unfortunately, at the next call, the prospect admits that the VP is not too keen to spend more money this quarter, and the prospect herself – while interested – doesn’t have any authority to make purchase decisions. This opportunity has now moved to Closed-Lost.
The second opportunity was created when the prospect sends your company an email saying they heard about you through a friend, checked out your website and believe that your product solves their pain. He is the VP of Sales, has an immediate timeline to buy and is the final authority on all buying decisions that his team makes. He is ready to get down to brass tacks and sit through a demo and start negotiating on price. This prospect is already so qualified to buy that you move him straight to Stage 3. Spoiler: this opportunity ends up being Closed-Won. Congratulations!
What does all this mean for your sales funnel analysis?
Sales Funnel Conversion Rates
The goal of the sales funnel is to give your sales management team predictability. Sales managers want to know, based on historical data and benchmarks, how likely it is that an opportunity will make it at least as far as Stage 3. If an opportunity is in Stage 3, how likely is it to be Closed-Won? What about Stage 4 and beyond?
Let’s go back to the example above. The first opportunity started in Stage 1, made it to Stage 2 and then was Closed-Lost. The second opportunity started in Stage 3 and converted beyond that all the way to a deal.
If we were to model out both opportunities on your sales funnel report and focused on only the stages that each specifically touched – i.e. Stages 1 and 2 for the first opportunity, Stages 3, 4 and 5 for the second – it would look like you had a 100% win rate. Well, that’s not accurate – after all, you created two opportunities and you won one, thereby giving you a 50% win rate.
For your sales funnel analysis, you have to assume that even though the second opportunity started in Stage 3, it also hit stage 1 and 2, and successfully converted from there. You now get a more accurate picture: 100% of your opportunities make it to Stage 2, but only half of them convert from there, all the way through to Closed-Won.
Of course, this is a simple example – in reality, your team is working on many more opportunities, all with their own sales funnel conversion rates. The point is that in order to extract the true value of a sales funnel report – predictability – you have to make sure that every opportunity “starts” at Stage 1, even if in reality it started at a later stage. You can’t take shortcuts here.
Why you want Sales Funnel Predictability
It all boils down to sales forecasting and planning. Sales managers don’t like to be caught off-guard; if they’re going to miss their number, they want to know well in advance so they can pull additional levers as necessary. On the flip side, they also like to know when their sales forecast is looking positive, so that they can plan the appropriate allocation of resources.
This is why it is so critical to get the data right. They need to know the exact historical benchmarks for conversion rates at each sales funnel stage. If an opportunity makes it to Stage 2, what are the chances it will keep going? Are you certain that a Stage 4 opportunity will, more often than not, Closed-Won?
By implementing stringent standards and processes for opportunity data entry at each stage – like in the aforementioned example – you will have cleaner data to work with. This will allow you to paint a clearer picture of the journey your opportunities take down your sales funnel, and give you the predictability you need.