What is a sales funnel?

What is a sales funnel?

The sales funnel is a key concept in Direct Response Marketing. When starting a new business, start by drawing a sales funnel. If you can draw and build a detailed sales funnel, your business will grow exponentially.

In this article, you can first understand what a sales funnel is and why you need it. After that, you can learn how to create a sales funnel that maximizes profits.

Sales Funnel

The sales funnel is a mechanism that turns potential customers into customers. The sales funnel is an analogy of that funnel to the sales process. In other words, it means a concept that represents the process in which customers are screened and the number gradually decreases as they attract large prospects and repeat sales.

For example, if you look at the figure above, there is a free offer first. The free offer attracted 2,000 prospects. We will sell the front end (the first product to sell) to these 2,000 prospects. Then 200 people bought the front end and became customers.

Then sell backend 1 to 200 customers. Then 40 people bought backend 1. In addition, backend 2 was sold and 8 people bought it, and finally, backend 3 was sold and 2 people bought it.

The number of prospects, which was initially 2000, has been reduced to two who eventually purchased Backend 3. In this way, the sales funnel depicts the process of sieving customers by selling the front end and back end.

The reason why we need to build a sales funnel is to make our customers fans . The more customers go under the sales funnel, the more loyal they are to the product or company. In other words, become a fan.

At Apple, every time a new product such as the latest version of the iPhone is released, there are people who are on the shelves from the day before. They are called Apple followers and buy Apple products unconditionally. Business is stable with fans like them.

How Sales Funnel Increase Profit

The lower the sales funnel, the smaller the number of customers, but the lower the sales funnel, the greater the profit .

Free offers don’t make a profit because they give you products for free to attract prospects. The front end sells at a low price, so sales are small. Besides, the front end is a product that attracts customers, so you don’t have to make a profit.

Big profits finally start to come out from backend 1. And at the bottom, Backend 3, you sell the most priced and valuable products. Therefore, the back end 3 is the most profitable.

By the way, human service is best for the bottom backend. Coaching and consulting. It takes time and effort, but it can be charged with high rewards and can provide great value to customers.

Customers at the bottom like this are your fans . Because you have purchased all your products by the time you reach this point. Therefore, they are very loyal to you and your products.

Coaching and consulting have the advantage of being quick to produce results because they are highly committed people. So, in the end, it’s only this fan base that you put your time and effort into. If you can build a business where you can only interact with your fan base, you can maximize your profits with minimal effort.

For example, suppose you sell English teaching materials online. And let’s say the final backend is an individual lesson. Some of the customers taking this individual lesson should be very successful.

In this case, you can now start an English business with him or her. For example, if this customer has a TOEIC score in the 900s, he will be taught how to improve his TOEIC score.

Therefore, your customer creates TOEIC teaching materials, and you provide know-how for starting an English business, such as how to make teaching materials and marketing. In this way, it is possible for two people to start a new business.

In this way, in the sales funnel, you can build a mechanism so that the lower you go, the greater the profit.

Build a sales funnel to automate sales

Once you have a sales funnel built, you can automate your sales. Direct response marketing and marketing automation go hand in hand.

The way to automate it is to use email. Email is a mechanism to sequentially deliver multiple e-mails prepared in advance according to the schedule, starting from the e-mail newsletter registration date and the first purchase date.

For example, you can compose the following step mail.

  • Step Email 1: Send an email to sell the front end to prospects collected with a free offer
  • Step Email 2: Send an email to the frontend buyer to sell Backend 1
  • Step Email 3: Send an email to the buyer of Backend 1 to sell Backend 2
  • Step Mail 4: Send backend 2 buyers an email to sell backend 3

Of course, not only emails but also sales pages for each product are required, but by preparing all emails and sales pages in advance, it is possible to automate a series of sales flows.

To do that, you have to create a step mail along the sales funnel. Nowadays, you can easily compose an Email by using an e-mail marketing tool.

It may be difficult at first, but if you create a mechanism to automate everything from attracting customers to sales, your only job is to interact with your fan base.

If that happens, your working hours will decrease sharply, and you will have more free time.

It’s also a good idea to start a new business. This is the biggest advantage of drawing and automating the sales funnel.

Sales funnel improves LTV (lifetime value of customers)

Lowering CPO and raising LTV is the essence of Direct Response Marketing.
Let’s change our perspective a bit and consider two indicators that show the essence of direct response marketing.

The two indicators are CPO and LTV .

CPO is a cost per order, which is the cost to acquire one new customer. In other words, it is the number obtained by dividing sales promotion expenses such as advertising expenses by the number of acquired customers. The lower the CPO, the greater the profit.

Therefore, it is important to devise how many new customers can be acquired even with the same advertising expenses. For that purpose, we have to take measures to increase the CVR (conversion rate), that is, the closing rate, and to attract prospective customers for free.

Another indicator is LTV. LTV stands for lifetime value, which is called customer lifetime value. This is the average gross profit that a customer can bring in a lifetime. Of course, the higher the LTV, the greater the profit. Therefore, we prepare multiple backends to raise LTV, and sell high-priced products and products with continuous billing.

The reason why these two indicators are important is that if LTV is larger than CPO, the business will be successful.

Therefore, in direct response marketing, we think about how to lower CPO and raise LTV.

And building a sales funnel contributes to raising LTV. Ultimately, direct response marketing can be said to be taking measures to lower CPO and raise LTV along the sales funnel.

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