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What is a sales funnel, and how to create it?


What is a sales funnel, and how to create it?

 

What is a sales funnel? Also referred to as a marketing or conversion funnel, is a long-term marketing process, starting from getting to know a given brand/company/product to the sale’s final stage. The name is closely related to the construction of the funnel, at each stage narrowing the group of potential customers so that there are only willing and ready-to-buy recipients at very end. Funnels are a form of customer relationship building used online and in traditional and B2B sales. The primary value of the funnel is the freedom to determine the length of its sales cycle, focusing on the achievement of previously set business objectives and the continuous control of implemented actions. Therefore, we will answer the question of how to create a sales funnel.

 

How to building a sales funnel?

The sales funnel process is identified with the AIDA model – Attention, Interest, Desire, Action.

Attention – The beginning of the sales funnel is often called TOFU (top of the funnel); its activities include advertising posts, audio podcasts, infographics tailored to consumer needs. This is the stage that focuses on gaining the attention of customers, so-called initial leads.

Interest is a crucial stage of marketing but one most often bypassed by entrepreneurs. This is the time for directing the customer to the sales page, presenting a detailed offer.

MOFU – (middle the funnel) is the middle and most important part of the process.

Desire – the moment when the customer’s interest grows with each passing moment.

Action – completes the sales funnel process; at this point, potential customers are determined to buy.

BOFU – (bottom of the funnel) the last stage of the funnel = determined customers

 

Having analyzed the construction of the sales funnel, it is worth asking when it will start to generate sure profits.

Nothing happens immediately. The profitability index determines the profitability of a business.

 

What is the profitability ratio, and what does it indicate?

The profitability index is the financial measure used to evaluate and measure a company’s ability to generate profit concerning revenue, operating costs, balance sheet assets, and equity over a specified period. It shows how effectively a company is utilizing its assets and delivering value to shareholders.

 

What are good profitability ratios?

Operating profit and net profit are the leading measures of profitability ratios. Various margins are used to measure a company’s profitability, including gross margin, operating margin, pre-tax margin, and net profit margin.

The gross margin shows how much revenue a company has after considering account its own cost of sales (COGS). The operating margin shows the percentage of sales remaining after covering COGS and operating expenses. The pre-tax margin shows the profitability of the company after non-operating expenses are considered. The net profit margin illustrates the ability to generate revenue after all costs and taxes are considered.

 

The most used profitability ratios are:

– return on sales (ROS)

– return on assets (ROA)

– return on equity (ROE)

 

ROS represents the ratio of a company’s net profit to its sales revenue. It informs about the profitability of sales and profit. The higher the return on sales, the better. An entrepreneur should focus on maintaining sales profitability at a constant level for as long as possible. An increase in its value indicates an increase in effectiveness in a company. ROA shows how assets held affect profit generation. It is the net profit ratio to total assets: the higher its value, the better the company’s financial situation. ROE expresses the ratio of net profit to equity. As in the case of ROS and ROA, the higher the ROE, the better. A high ROE very often contributes to the purchase of shares of a given company. Such companies are more predisposed to generate cash internally; in other words, they are less dependent on debt financing.

 

Summary

The use of the sales funnel contributes to supporting marketing activities. The optimum strategy created by it enables the selection of appropriate recipients interested in a potential product. It works well in small, medium, and large enterprises. A well-prepared sales funnel is the key to success in any company.

 

Find out more about marketing strategy.

Aleksandra Góra

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