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SALES FUNNEL EXERCISE

In the previous video, you explored the sales stage of the marketing and sales cycle, and
reviewed how your market can be divided into the following three groups:

1. Leads: Those who may be interested in buying your product or service.

2. Prospects: Those who are likely to buy your product or service.
3. Customers: Those who do buy your product or service.

These groups can be visualized in a Sales Funnel.

Figure 1: The three groups within your market, visualized in a Sales Funnel.
The Sales Funnel exercise will enable you to identify the number of leads required to generate a
specific target revenue for your business. Before you complete this exercise, you will need to
gather the following information:

1. The customer behaviors that indicate the change from lead to prospect, and prospect to
customer, in your business.
2. Numbers of leads, prospects, and customers for your business.
3. The average revenue per customer or sale for your business.

If you have not yet identified the customer behaviors which indicate conversion between leads,
prospects, and customers for your business, you may wish to complete the Customer Buying
Process in Fundamentals of Customers and Competition. You may also find it helpful to
rewatch the introductory video on the sales process in this lesson.

If you do not have numerical data available at present, you can use approximate figures.
However, the more accurate the data, the more useful this exercise will be to help you evaluate
your sales process and support growth.
Calculating the Sales Funnel
To work out the Sales Funnel for your business, use the following steps which are illustrated in
the diagram below:

Part 1: Calculate the current conversion rate

1. Identify your leads. Select a time period over which to calculate your Sales Funnel
figures. Calculate the number of leads that you encountered in this time period, which
may be a day, week, or year. For example, a large fashion retail store may decide to use
the number of leads they encounter in a day, whilst a smaller business could choose a
timeframe that is more appropriate for their context.

2. Identify how many leads become prospects. Using the customer behavior data that
you have collected, identify how many of these leads performed the appropriate
conversion behavior and became prospects. For example, 20 out of 100 leads picked
up items of clothing to try on in the fashion retail store.

3. Identify how many of those prospects became customers. For example, 8 of the 20
identified leads completed a clothing purchase.

4. Calculate the conversion percentage between each stage of your Sales Funnel. In
the example provided, 20% of leads became prospects, and 40% of those prospects
became customers.

5. Calculate the approximate revenue that the identified number of leads generated
for your business and, therefore, the average sale value per customer.
 Figure 2: Calculating the Sales Funnel of a fashion retail business.

Assuming that your time period is representative of your overall business sales activities, this
will establish the specific shape of your Sales Funnel. Remember, your Sales Funnel will be
unique to your business. Your conversion rate at the different stages may be higher or lower
than the example above. Consider the two alternative Sales Funnels below:

Figure 3: Calculating the Sales Funnels for different businesses.

Part 2: Calculate the future conversion target

Once you have completed this exercise for yourself, you will have a basic understanding of the
shape of the Sales Funnel for your own business. This means that you can also use the Sales
Funnel in reverse to calculate how many leads will be required at the top of the funnel in order
to achieve your desired revenue target.

Using your Sales Funnel to identify the approximate number of leads required to
generate a specific target revenue

Divide the target revenue you require for your planned growth by your average sale value to
identify the number of customers required. You will then be able to use the conversion
percentages for your business to work out the approximate number of prospects and then leads
required.

For example, if the business described above wanted to achieve a target revenue of $200, it
would require 50 prospects and approximately 250 leads.

Figure 4: Calculating the approximate number of leads required for a target revenue.
Your Sales Funnel

GROWTH GOAL: Add your business’s growth goal here.

Delete the prompts in the Sales Funnel exercise below and add the information relevant to your business. Remember, if you do not have the
numerical data available at present you can use approximate figures, and return to the activity at a later stage.

Part 1: Calculate the current conversion rate

CURRENT
Add the number of leads you have
identified here. LEADS: Add the behavior which indicates a lead here.

X%
Add the number of leads
that become prospects PROSPECTS: Add the behavior which indicates a change
here. from lead to prospect here.

Y%
Add the number
of prospects that CUSTOMERS: Add the behavior which indicates a change
become from prospect to customer here.
customers here.

Revenue generated $000 AVERAGE SALE: $ Add your average sale value here.
 Part 2: Calculate the future conversion target

TARGET
Add the required number of leads here.
LEADS: Add the behavior which indicates a lead here.

Add the required number

of prospects here. PROSPECTS: Add the behavior which indicates a change
from lead to prospect here.
X%

Add the required

number of CUSTOMERS: Add the behavior which indicates a change
customers here.
from prospect to customer here.
Y% AVERAGE SALE: $ Add your average sale value here.

Target revenue $ 000