What Is the Difference Between a Sales Pipeline and a Sales Funnel?
The sales funnel and sales pipeline are two of the most commonly used words in the sales world, often interchangeably. You might have wondered what makes the other two different, or if they’re any different at all.
So, how is a sales pipeline different from a sales funnel? Two words: performance and activity. While similar in structure and concept, the pipeline is focused on seller activity, whereas the funnel is focused more on stage-by-stage performance.
Read on to learn more about their differences, as well as some ways to integrate either (or both) into your sales process.
What Is a Sales Funnel In Business?
The sales funnel represents a lead’s journey from top to bottom. It’s a representation of the customer journey from the buyer’s perspective.
As the name suggests, the funnel anticipates leads thinning out as they progress from awareness to conversion. As such, it’s a great way to measure performance from start to finish and understand how effective each stage is at converting to the other.
The sales funnel can be used to understand metrics such as:
If you see that 70% of the leads start dropping out after a sales team has reached out to them, it’s clear that your sales force isn’t using the right tools and techniques to get them to progress. Moreover, there’s something about this stage that puts them off so much majority of them decide to opt out. Knowing the stage-by-stage conversion helps you understand which parts of the funnel are “leaking” the most leads.
Customer acquisition cost
Social media ads and content development are two major efforts of your marketing team. By tracking the cost of acquiring one customer, you can develop ways to lower your marketing spend.
To get the cost, gather the total cost your team uses on marketing activities and divide it by your average value deal. If you spend $3,000 a month on Facebook ads and content creation tools and earn $750 on average for a deal, your customer acquisition cost is $4 per customer.
How much of the leads that enter through the funnel actually convert to paying customers? Knowing the numbers to this will help you understand the overall productivity of your funnel, and will help you understand if you need to start targeting better leads or adding more freebies during engagement opportunities.
The sales funnel is usually represented by these stages, although the number of stages (and its types) can easily vary based on your organization’s needs:
Your goal at this stage of the funnel is to attract leads. It can be potential customers who are unaware of an ongoing problem. On the other hand, you could also attract possible leads that are actively looking for solutions.
Awareness happens by using lead magnets like newsletter sign ups, giving away free articles or eBooks, or giving them free access to webinars, videos, and other lead-enrichment content. You could also attract them through ads and other paid channels.
This is the part where people start getting curious about the brand. At this point, companies pique interest by educating leads about the service. It can be in the form of case studies, automated emails and newsletters, as well as relevant article links. The goal of this stage is to help potential customers understand what their problem is, and how you might be able to solve them.
At this point, leads will typically be ready for the first point of contact. Schedule a sales call to let leads know you understand what their problems are. This is also an opportunity for your sales team to sell how your business can solve their problems.
As your leads make a decision, it’s important to keep them engaged with high-quality resources. Aim to build a deeper relationship with your customers by offering tips and tricks, a demo, or just about anything to secure their business.
After successfully converting your lead to a paying customer, it’s imperative to keep them engaged and satisfied throughout the customer journey.
What Is a Sales Pipeline?
The pipeline also represents a customer’s movement from prospecting to winning a deal, but visualized from the point of view of the sales person. Unlike the funnel, the pipeline is more focused on the step-by-step (as opposed to stage-by-stage) progression of prospects from one end to the other.
In practical terms, it’s a great guide for sales reps and gives them a clear sales process. It also helps the team understand how many prospects are in a specific step, which gives insight as to what the sales team is doing presently.
As opposed to tracking what percentage of potential customers go from point A to point B, the pipeline answers questions like:
- How many leads were studied and qualified as profitable leads?
- How many leads have received proposals but haven’t replied yet?
- How many leads are in the negotiation phase?
- How many leads that have reached out to the business have received a piece of marketing material VS those who haven’t?
The sales pipeline has a similar structure to the funnel and represents key stages found in the funnel. In a way, the pipeline is like a checklist that helps sales reps understand what else they need to do to secure a deal. Because customer movement isn’t tracked through stages, sales reps are expected to act on every single step to usher their prospects closer to a buy.
As with the sales funnel, the pipeline can be represented through different steps, depending on what your company needs. The usual sales pipeline follows this common structure:
Prospecting & Qualification
Sales people identify businesses that fit their criteria. Instead of letting prospects enter through passively, they handpick businesses that fit their set criteria (budget, solutions needed, current problems, etc.) They focus on companies they know they can help out, and more importantly, profit from.
At this point, your sales team will be getting in touch with the qualified leads to present the product or service. Key decision makers in the company will be identified and more details regarding compatibility and needs will be discussed at this step.
Case studies, webinars, demos, and other useful resources can also be handed out here. It’s crucial for your sales team to present their value upfront in order to increase your chances of winning the deal.
After understanding your prospects’ specific needs, send in a proposal that addresses their concerns and budget. This should involve project inclusions, deadlines, expectations, and any other ongoing contracts during the project.
Prospects will decide if they are keen on pursuing your product or service at this stage. Interested prospects will ask for a quotation and make their final decision afterwards.
Prices, terms, and packages – anything that has to do with value exchange is discussed here. During the negotiation phase, it’s important to continue sharing resources that are relevant to your prospects. It strengthens the relationship and helps them understand whether or not you’re the right fit for their needs.
The closing step is where all your efforts culminate. The prospect either buys your product or service, or doesn’t. Understanding what made them buy (or not buy) into your offer will help improve your sales techniques.
This step may represent the end of the customer’s buying journey, but it’s a great opportunity to strengthen your pipeline. Use this as an opportunity to study things like:
- Ratio of won/lost to competitor
- Ratio of won/lost due to pricing, offers, inclusions, and other project details
- Ratio of won/lost according to sales person
Knowing the answer to these pipeline elements should help you tighten up your overall process, and improve your sales process for future prospecting.
Sales Pipeline VS Sales Funnel: What’s the Difference?
At first glance, it may seem like the sales funnel and sales pipeline are one and the same. They both follow the same structure and are geared towards the same goal: bringing in more revenue.
However, there are slight nuances to each of them, and knowing how they differ can help you improve the way you sell.
|Tracks ongoing active leads at certain stages
|Measures the stage-by-stage conversion of leads
|Focused on the sales team’s process into converting leads
|Evaluates lead generation and marketing techniques
|Represents buyer’s journey from point of view of the sales rep
|Represents buyer’s journey from point of view of the customer
|Shows how many leads are in a specific stage (negotiation, prospecting, proposal)
|Shows leads’ journey over the course of a given time (month, year)
|Pipeline report can be used to focus resources on stages where there are more leads
|Funnel report can be used to improve individual stages and prevent lead leaks
|More value and activity-oriented
|More quota and performance-oriented
Another way to visualize the two is by going back to the “pipeline” vs “funnel” metaphors.
When you hear sales teams say their leads are stuck in the pipeline, that usually means they understand that there are necessary steps that should be taken in order to usher them possible customers closer to a decision – whether that’s sending a proposal or initiating the first contact.
On the other hand, prospects don’t get stuck in the funnel. The stages represent how successfully (or unsuccessfully) leads convert from the initial point of contact down to decision making. It measures how many leads have successfully gone through one stage to the other without dropping out, regardless of the sales person’s activity.
Pipeline Or Funnel: Which One Should You Use?
At the end of the day, we believe it’s important to integrate both practices in your sales strategy. Using both can help strengthen your sales techniques and bring in more revenue for your company. Here’s how you can use both:
1) Evaluate Lead Generation and Lead Quality
The funnel measures the efficiency of your lead generation efforts, while the pipeline measures the quality of the leads you’re getting. A team might be pulling in 300 leads a month, while another team only qualifies 50 of those as profitable leads.
Synchronizing your lead criteria and efforts will help you nail down better target leads. As a result, there will be less discrepancy between leads acquired and leads that actually go through the rest of the stages.
2) Better Cooperation Between Marketing and Sales Team
Modern consumer behavior has altered the structure of the sales funnel. Nowadays, marketers can influence the decision-making of buyers through various stages before prospective customers even get in contact with a sales representative. This is done through online ads, sign-up sheets, freebies, and other resources.
By understanding how leads are responding to various types of content, the sales team can integrate that information in their process. Instead of creating a buyer persona on the spot, sales teams can use information from the funnel to understand what content their prospective customers engage with the most.
By doing so, sales reps know the right types of content to use as customers go through the pipeline.
3) Accurate Resources Allocation
Funnel reports can be used to understand individual team member performances. It will give you a bird’s eye view on things like quota volume and conversion rate. If you notice that the average monthly volume drops because of just one team member, it’s easy to understand that the problem lies in the individual and not the process. As such you can pair up this sales rep with high performing members, or equip them with training materials.
On the other hand, the pipeline gives you an overview on current activity. If you notice more leads are stuck in the proposal stage, it could mean that your sales reps are overwhelmed with creating customized plans and require reinforcement. This could mean hiring more people or re-assigning employees to this stage.
All in all, using both pipeline and funnel reports can help save you time and money. It will give you a better idea of how your teams are functioning as a whole, and how you can boost overall performance by rearranging what’s already on your plate.
Use a CRM to Do It All
So, how do you successfully integrate the sales funnel and pipeline into your business process? Thanks to customer relationship management (CRM) software, this process doesn’t have to be that complicated.
A CRM software is an elegant solution that has built-in lead generation trackers that will automatically move whatever lead comes through to the pipeline. Alerts will be sent to team members, which helps your team stay on top of everything.
At Commence, we created a CRM platform that’s perfect for bridging the pipeline and the funnel. Try out our demo today to learn more about its benefits, and how Commence CRM can help you build a more profitable business.