Continuing along the theme of things not considered when starting a business or even when running a business we come to the Sales Funnel. Most every good sales person can tell you how this works. Some know it so well that they have a hard time explaining it without skipping important steps. Steps like second and third calls, or prospects that backup the funnel.

As I work on business plans, some of the questions I ask about the Sales Funnel
Do you know the steps in your typical sales process?
Do you know the conversion rate for each step?
Do they know how many hours of a salesperson's time will be required, per step?
Do they see how the sales funnel has to be factored in to get a better idea of how cash will flow in the business?

Most of the people I talk to think they know but in reality, they do not know any of this for certain. That so many companies launch anyway is a testament to not letting important information get in the way of determination. However, eventually this issue will be confronted or it will present problems that seem to have no cause.

Here is an example of one that I have used in the past and that I used in my book. I did not include every step, and I may have more steps than others. Each step has a conversion rate. The conversion rate is the percentage of people from that level that move to the next level. Granted some make take longer than others and many, most, will not move at all.

One thing I think is often left out of the discussion is the time it takes to convert from one step to the next. The time element is important for planning. If you are dealing with government at any level then figure a month per step, unless there is a disaster, then plan on two months.

I created a simple spreadsheet model to illustrate the concept. You can grab the file here.

The spreadsheet does not include repeat customers, and prospects that return to the mix somewhere in the middle. It is rather, a means to illustrate that things take time and cost money before you make money. In this example, I used a very high conversion rate and a time for moving from one step to the next of 1 week. (continued...)

Again, this is a very simple illustration but I think it conveys the concept well enough. There are many great places on the Internet to find additional examples (Mind Tools) and other pre-programmed spreadsheets. You can also find some great discussions on selling and contact management at Salesforce.com In the end, the more you know, the greater your advantage will be over your competition.

This table does not include the Sales Target the company is reaching for, but the spreadsheet model does. It also calculates the number of contacts needed to reach the target and how many contacts have to be made each week to reach the goal. With this information, a company can calculate the number of employees it should need to achieve profitability. The under-estimation of employees is the error that occurs most frequently after the over-estimation of sales rates and just above the under-estimation of funds needed.

What have you learned about Sales Funnels that you feel was not obvious at the outset?