SaaS Sales 101: Understanding Your Sales Funnel and How To Tune It

After spending years as a technical consultant helping Fortune 500 companies design, build, and run high-performing and scale-able systems, I found that tuning a sales funnel is very similar to tuning an IT system. It all starts with visualizing the funnel starting from the top; where customers/requests are coming in and working your way downstream all the way to the bottom (System of records aka DBs in technology and Sales in business).

In my previous job, I helped take SaaS products from 0 to $1M in less than 3 quarters, and then many millions afterward using the same techniques I successfully used doing performance tuning for IT systems.

Welcome to lesson number 1, and the most important one; what is a sales funnel and how to tune it.

What is a sales funnel?

A Sales funnel is a representation of the customer journey from discovering your service to making a purchase. This journey can be visualized in the form of a funnel divided into Top of the funnel (TOFL), Middle of funnel (MOFL), and Bottom of funnel(BOFL).

Each stage has its metrics that you need to track and understand for you to get a true understanding of the overall performance of your sales funnel and business.

You will often hear terms like Sales Engine or Growth Hacking. Both those terms refer to a set of coordinated activities that produce a steady and sustainable stream of customers going through the sales funnel each and every month.

An effective Sales Engine or Growth Hacking strategy starts with end-to-end visibility of the customer journey through the sales funnel and looks into how to tune each stage of the funnel, a process known as Streamlining the funnel, in order to produce the best outcome for the business using the existing resources as efficiently as possible.

What does the Top of the Funnel (TOFL) present?

This is the customer acquisition part of the journey. In a brick-and-mortar store, this is the equivalent of getting customers through the door. In a digital channel, this is the customer learning about and signing up, to use the service. The objective of this stage is to maximize the number of qualified customers acquired while minimizing the cost of their acquisition (CAC: Cost of Customer Acquisition ).

What drives my Top of the Funnel (TOFL) performance?

Customers in this stage are driven by the promise of the service offered. Factors like message effectiveness, channel, reach, cost, and barrier to entry (e.g. how easy is it to onboard a customer) are used to express the effectiveness of the TOFL stage. This stage is usually driven by marketing; organic and paid.

Your Top of the Funnel performance answers a couple of important questions; Are there enough customers who have the problem my product ‘claims’ to fix? Is the pain addressed by my product big enough for them to seek a solution and try my product?

What does the Middle of the Funnel (MOFL) present?

This is the nurturing part of the journey. Customers in this stage are driven by the realization of the promise e.g. actual product or service offered by the business. KPIs (Key Performance Indicators) like the number of returning customers, amount of time spent on site, usage, NPS (Net Promoter Score), etc. are used to express the effectiveness of the MOFL stage and the ‘stickiness’ the product has with its customers.

What drives my Middle of the Funnel (MOFL) performance?

Customer engagement has both a quantitative and qualitative aspect to it. While quantitative aspects are easier to measure e.g. KPIs mentioned in the previous section, qualitative aspects are a little trickier to assess.

Services like Hotjar and Crazy Egg allow you to record customer sessions and play them back to understand how the customers are using your product and if your user design is as intuitive as you want it to be.

Allowing your users to communicate feedback directly is also a great way to understand how your users find your product and might provide valuable insight to your product team in terms of making changes to existing features or adding new ones. Intercom, and Facebook Client Chat, among others in this category, can help you open a direct communication channel with your users. Hotjar also allows for pulls and collecting feedback.

Once you understand how your customers use the product, you can design effective onboarding sequences that help the customers use your product more efficiently or, in some extreme cases, reconsider your UX and product design altogether.

Customer engagement answers an important question; do customers think my product answers their pain (and fulfills its promise)?

What does the Bottom of the Funnel (BOFL) present?

This is the checkout part of the journey. Customers in this stage are driven by the value of the product/service to their business and decide if it matches or exceeds its ask price. Factors like bottom line/revenue/sales decide the effectiveness of the BOFL stage.

In a future blog post, we will discuss pricing and pricing strategies as a way to tune your bottom of the funnel. For now, it is sufficient to say, if your pricing is below the perceived value your customers have of your product (also known as ROI: Return on Investment), you make a sale but you also leave money on the table. If your pricing exceeds the perceived value customers have, then your sales suffer. A good pricing strategy is based on an intimate understanding of your customer's problems, the value behind addressing them, and having a price plan that is just right for them.

The real challenge

The challenge a lot of the businesses in the market face is that it takes metrics that span beyond one stage of the funnel to evaluate its effectiveness. For example, in order to properly evaluate a marketing campaign, relying only on TOFL metrics like the number of page views or registrations results in superficial knowledge and vanity metrics at best. In order to truly evaluate the effectiveness of marketing campaigns, BOFL metrics need to be considered e.g. bottom line or revenue achieved that is coming from customers acquired through the campaign or the more common Customer Lifetime Value (CLTV) / Cost of their acquisition(CAC) formula.

Platforms like Funnelll (Yes, I am just a tad biased) help you integrate the right tools to measure and tune each part of the sales funnel to your SaaS product in order to achieve a streamlined sales funnel.

About Author: Sherif Ali is the founder of Funnelll; a platform that helps you run your own high-performing marketing campaigns like a pro. No coding, complex integrations, or data science needed.