In the minds of many, the marketing and sales funnel as a process is linked to businesses in later stages of their evolution, when they are selling their product or service for a profit. However, sales and marketing as a process is very important also in the early stages of the product development and starting up process.
6.4.2023
Heikki Immonen, Karelia University of Applied Sciences
When the business is on a sure footing, the marketing and sales funnel becomes all about efficiently bringing new customers in. At this stage, the funnel has evolved to reflect the product-market fit of the business. When everything is just starting, the funnel is all about exploration. Instead of new customers, it is bringing you information that helps you improve your product-market fit.
Let’s look at the three distinctive stages of a marketing and sales funnel in more detail.
1st version of the Funnel: Listen that you know what your customer needs
When there is big uncertainty regarding your product-market fit, you should have a funnel that matches this situation. Big uncertainty about product-market fit means that you are not sure what the features of your product will be, what customer need you are targeting at, who and where these customers are, and what is the unique benefit your product is offering against the competition.
- When you have more questions than answers (which is good!), use your proto-marketing and sales funnel as a tool of discovery.
In the first evolution of the funnel process, you are trying to book meetings with people who might be representatives of your potential future customers. You are also trying to get people interested in offering you a chance to observe situations, where the product you want to develop might be used.
Channels and interest-sparking messages in the 1st version of the Funnel
How do you spark interest and get a meeting booked, when you don’t know yet what the product will be or what your unique benefit really is?
Well, it very much comes down to who you are and what your resources are. If you have relevant experience and resources, then a person that has an unsatisfied need might be open to see whether you could have something to offer or not.
No mass-marketing methods are used in this stage, but instead, you might? want to use the most ancient smart channels:
- A startup team of photonics PhD students specializing in camera systems ask for their professor to make introductions to a potential client in camera manufacturing industry. (Here the channel is the professor, and the interest-sparking message is the combined expertise of the team)
- A chef looking to launch their own restaurant sends a WhatsApp message to a few selected friends and invites them to a menu-testing dinner (Here the channel is personal connections the chef has, and the interest-sparking message is simply the opportunity to enjoy a great dinner and give feedback)
- A team of an app developer and an elementary school teacher call the app developer’s relative who works as a teacher in primary care in a local kindergarten and ask if they can come and observe the daily routines of that unit (Here the channel is the direct phone call to a relative, and the interest-sparking message is the curious combination of app development and pedagogical expertise)
Handling objections and closing the sale in the 1st version of the Funnel
Traditionally, the second stage of any marketing and sales funnel is to handle any objections an interested potential customer might have in order to make a sale. BUT, when you are in the very early stages of the startup process:
- your job is to find out what objections and doubts a potential customer might have, and ask even a bigger question of what the customer needs.
In the early stages of starting up, you are actually not trying to maximize the number of orders, but the amount of information and knowledge you can acquire about the target market. Getting a potential customer to agree on testing your future prototype or pre-order a future pilot product is good enough an accomplishment.
- Entrepreneur, scientist, and investor Dr. Jyrki Saarinen has put it nicely when saying that a startup salesperson should have a very large ear, in order to hear what the customer wants to buy.
Examples of “sales” and “closing the deal” actions in the 1st Funnel are:
- Giving a short warm-up presentation in the beginning of a meeting with a potential industry client and then moving smoothly towards open questions directed to the industry people. The meeting could end up in the agreement to start planning a pilot project.
- Answering and reacting to friends’ questions and comments after the initial dinner invitation. Part of it is agreeing on a specific time (and place) for the dinner.
- In a phone call with the relative who works in a kindergarten, the team gets initial feedback of their idea. They also learn about some of the limitations and needed permissions they need to have to come and observe the daily life of a kindergarten. The deal is not closed yet in this call. What follows is another meeting with the head of the kindergarten, who gives their approval.
2nd version of the Funnel: Explorative marketing campaigns
When your business idea has taken some important steps towards becoming a real business, your marketing and sales funnel needs to evolve as well.
You are likely to have a demo or a working prototype already and you are ready to move on to working with the first paying customers i.e., pilot customers. It is not really a big public launch in the sense that you are very much still learning about your product-market fit.
- A big investment in a specific marketing campaign at this stage might be foolish because of the many things you still don’t know.
One of the things you would like to learn more about are the specific customer segment(s) you are targeting and what’s the best way of reaching them. That is why you can do test-runs with your marketing and sales funnel, targeting many different customer segments with many different messages.
Channels and interest-sparking messages in the 2nd version of the Funnel
With the rise of digital marketing, explorative marketing is easier than ever. Though, older word-of-mouth methods and non-digital social networks work as well. The main point is that you want to keep your options open and have a diverse set of possible customer segments as open possibilities as long as possible.
- You can ask different people (or AI) to recommend other possible segments, so that the process would not be hampered by the limitation of your own mind.
What is a customer segment, you might ask? The most important factor of it is the customer need you are targeting at. Your product might be solving slightly different problems for different people. Another way to segment is the unique circumstances potential customer are in: living on a countryside or in a city center, having a lot of money or not, owning a car or not etc. These circumstances along with the targeted need define what competing products are available.
- NOTE that demographic attributes (age, gender, etc.) are rarely the best way to define a customer segment.
Thus, target different segments with messages that are tailored to that segment. Examples:
- Explorative social media ad campaigns of a new book with a total budget of 300 €. Each campaign is targeting different segments with the help of build-in targeting capabilities of the ad platform. Ads direct people to the landing page of the book.
- A maker of herbal teas reserves a stand to sell tea at different types of events in different near-by towns. For each event, the maker adjusts the look and feel of their stand. The nature of the event and its location means that the tea-maker will meet many different types of people representing many different segments.
- A beauty saloon offering facial treatments uses social media to ask about people’s concerns and questions regarding facial treatments. People who respond will receive a discount for their purchase. Targeting capabilities and a variety of messages are tested.
Handling objections and closing the sale in the 2nd version of the Funnel
The handling of objections and closing a sale at this version of the funnel already looks like a real business activity. You are paid with real money and you deliver the product or at least get a pre-order.
It’s likely that the price you ask and all the effort needed to make things work means that you’ll earn no profit, yet. However, the value you get from discussing with potential customers who are thinking of buying is high.
Examples of “closing the deal” at this 2nd version of the Funnel evolution.
- The landing page for the new book helps potential customers make a buying decision. The campaign and the website analytics are studied carefully to better understand who the customers are. Different marketing messages for different segments help make more sense about what motivates people to buy.
- In the events, where the maker of herbal teas has their products on sale, the maker talks with the people who stop at the stand. The maker seeks to learn more about these people and what they might be looking for. Buying highlighting few tea varieties, the maker scopes the preferences of the people.
- The beauty saloon entrepreneur actively answers and reacts to any questions or comments sparked by the campaign, and gives clear instructions for using the discount.
3rd version of the Funnel: Optimizing the CAC and LTV
The third stage in the Marketing and Sales Funnel evolution is all about execution and much less about exploration.
- At this version of the Funnel, the Customer Acquisition Cost (CAC) for a single customer needs to get low enough relative to this customer’s Life-Time-Value (LTV) and other costs the business has.
CAC captures all the marketing and sales costs, including paid ads, website upkeep and working hours expelled to get a single customer. For example:
- If a 500 € campaign leads to 7 new customers, the ad portion of the CAC becomes: 500 € / 7 customers = 71,43 € per customer.
LTV is the total sum a customer spends during the time they are considered a customer of the business. For example:
- A new customer becomes a regular customer of a restaurant. They visit the restaurant every month with the family, spending about 60 € each time. If they continue this for 3,5 years (42 months), the LTV becomes: 42 months * 60 €/month = 2520 €.
Channels and interest sparking messages
All learning in the past versions of the marketing and sales funnel have led to this version.
- Now the funnel should be revenue producing and profitable.
The focus should be on channels that bring new or returning customers affordably enough relative to their LTV. Thus, the emphasis is on those customer segments that are the most valuable in the long-term. Of course, if your business is short of cash, you might be forced to emphasize bigger short-term gains.
It is smart to spend a bit more time and money on marketing and sales, in order to get the first-time buyers as regulars. Follow the marketing analytics constantly to adjust your approach. Because you know so much about the customer already, you can time and target your messages perfectly.
Handling objections and closing the sale
In this version, the marketing and sales funnel is all about performance. As you have already much information and knowledge about the questions and doubts a potential customer might have, you have adjusted the website, online store, sales meetings, or any other deal closing part to reflect that understanding.
When you do this well, the potential customers hear, read, and see clearly how there is no danger for them to make a bad choice. You can provide testimonials, star-ratings, instructions, and guarantees.
When you have good analytics and data collection processes set in place, you can further continuously test what content works the best.
Summary
In summary, the marketing and sales funnel, like all other aspects of a business, evolves during the starting up process:
- In the very early versions of the funnel, the emphasis is on learning about the customer need and adjusting the product itself.
- In the second evolution of the funnel, the learning is still important, but now the focus is already on questions of detailed segmentation and specific messages.
- Finally, the funnel has evolved in to an effective customer acquisition process that guarantees the profitability of the whole business.
About this article
The writing of this article was supported by the INnoVations of REgional Sustainability: European UniversiTy Alliance project. https://www.invest-alliance.eu/ . This project is funded by the Erasmus+ Program.
The content of this article represents the views of the author only and is his sole responsibility. The European Commission and the Agency do not accept any responsibility for use that may be made of the information it contains.
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