Sales funnel: what it is and how to create yours

Why sales funnels are important

An effective sales funnel allows companies to visualize each step that prospects take on the path to conversion. Each step is a micro-conversion that can be optimized to increase conversions in the end; if one of these steps shows a higher-than-expected drop-off rate, it can be analyzed to see what’s wrong and test out possible improvements.

Funnel tools like Google Analytics or our very own Hotjar Funnels help you visualize the flow of customers across your website and spot pages with high drop-off rates, displaying how many visitors exit the funnel at each step.

How does a sales funnel work?

In a traditional sales funnel, the awareness stage is at the top: it’s the point of entry, the widest part, the first stage of the funnel. Anyone can start from there as a result of your lead generation efforts. 

Once prospects enter the funnel, there are steps they can take to continue down towards the bottom, but they can also exit at any point. A successful sales funnel is one that keeps drop-offs at a minimum.

Each step new leads take in  the buying process is another stage of the funnel, leading them closer and closer to the narrowest point—the decision-making point—which you want to be a purchase decision.

Seeing the funnel from a customer's perspective

If you look at it from the customer’s perspective—from the moment of awareness up until the moment of buying decision—they’re not traveling through a sales funnel, and they’re not on a customer journey: they’re simply shopping.

Rather than thinking about each stage in the sales funnel, prospective customers are experiencing each stage. When you learn how a sales funnel works from the customer’s perspective, you can better understand drop-off points, and make improvements to each stage in the sales funnel to increase conversion rates.

Your job is to make each stage of the sales funnel as simple and painless as possible (maybe even enjoyable!) for your prospects, to motivate them to keep moving through the funnel to the point of decision.

The 6 sales funnel stages

The stages of a sales funnel are traditionally split into three parts:

• Top of the funnel: ‘awareness’ indicates the stage when the prospective customer has discovered your business and is aware of your product in general terms

• Middle of the funnel: ‘consideration’ indicates the stage when the prospective customer has shown interest in your product by browsing your site and doing product research and comparisons

• Bottom of the funnel: ‘decision’ indicates the stage when the prospective customer reaches the point of conversion and decides to either exit the funnel or purchase your product

The magic happens when we break these three parts down into different stages, so we can identify potential drop-off points.

Stage 1: visit

At this stage, prospective customers are arriving on your landing page, and navigating to different pages of your website as a result of your marketing campaigns (SEO, organic or paid social media, cold or warm email campaigns, etc.). 

They’re at the widest point of the funnel: if they were in a brick and mortar shop and a salesperson approached them at this point, the customer would say, “I’m just looking.”

Stage 2: lead

When the customer sees something they like, they take a step downwards in the funnel, and they become a ‘lead'.

The ‘lead stage’ is also referred to as the ‘interest stage’, because at this point, leads have a clear interest in your product, and they may start doing product research and comparisons. This point of the funnel is still pretty wide—the customer has a problem and is aware of your proposed solution, but it’s still unclear whether or not your product will meet their needs.

Stage 3: marketing-qualified lead (MQL)

At this stage, your leads are going to realize one of two things: either your product has the potential to work for them, or it absolutely does not.

If you’ve done your homework—which includes running market research—your unique selling proposition (USP) is clear and you’ve tailored your sales funnel to attract ‘marketing-qualified leads’ (MQLs) based on user personas that you built from demographic and psychographic data (more on that later). Leads that are exiting the funnel at this point are most likely not your ideal customers or target audience.

Stage 4: sales-qualified lead (SQL)

When prospective customers take the step from MQLs to SQLs (‘sales-qualified leads’), this means they're nearing the end of the ‘consideration’ stage, and are now close to entering the ‘decision’ stage of the sales funnel and the sales pipeline.

SQLs have researched and compared products, and have determined that yes, your product does fit the bill, and is a viable solution to their problem. The leads that are exiting the funnel at this point are a missed opportunity—they found another solution.

The next step is really important in preventing SQLs from exiting the funnel:

Stage 5: opportunity

This is where your offer and call to action (CTA) take the stage.

When an SQL has made it to this point in the funnel, they are only one step away from converting (so close!). Your USP and CTA could make or break the opportunity stage of the sales funnel. Either your product is the one solution, or it is not. Your job is to put the customer at ease: be ready to answer their questions and provide social proof.

Sometimes, even a good sales page isn't enough, though. If you employ sales reps (or are one yourself), this is the point where you might consider nudging those high-quality leads in the right direction before they drop off the buyer’s journey.

Stage 6: customer

They made it! This point of the funnel is the final stage—where conversion happens—and prospects can now step out of the funnel as your newest official customers.

Your job doesn’t end here, though. Your new customer has chosen your product over a lot of other available options. Earn their trust and commitment by engaging with them at this point: for example, send them a follow-up email including resources and articles that they may find useful, or share a post-purchase survey so they can tell you what worked (and didn’t) throughout the process, so you can improve it for future customers.

This final step presents an opportunity for you to motivate the customer to come back and browse more products—to become an advocate for your brand and enter the sales cycle rather than funnel.

Sales funnel examples

You can use a sales funnel to visualize each step a prospective customer takes and discover drop-off or exit points in the journey. When you investigate drop-off points, you can then learn how to improve the user’s experience and ensure you’re reaching your ideal customer.

In this example, we’re tracking the steps prospective customers take to get from pages of an ecommerce store which contain the word ‘cart’ in the URL, to the success pages, which marks the point of conversion. This means that in this example, we’re focusing on the middle to bottom of the funnel only:

The bar representing the top of the funnel is fully filled (100%), because that’s our base sample (all users who viewed the ‘cart’ page). These users are already sales-qualified leads (SQL)—their presence on a ‘cart’ page shows that they’re ready to enter the ‘decision’ stage, after identifying the particular product they’re looking for. 

At the second stage, we’re measuring how many of these users went ahead and clicked on the ‘Confirm order’ CTA button. Funnels shows that 70.3% made it to this ‘opportunity stage’. But that’s not enough.

The last step of the funnel tracks how many actually proceeded to checkout. It turns out, only 60.6% of the initial sample reached this stage of the sales funnel. This means we’re losing almost 10% of users between the last two stages!

The good news? Now that we know what is happening, we can search for the reasons why. And Funnels can help with this too. 

To understand why users aren’t converting, click on the button next to ‘X visitors dropped off’ to watch session recordings of people who left at this specific stage of the funnel.

Recordings can highlight a pain point in the sales process that we have failed to address, which we can now add to our roadmap.

Tailor your sales or marketing funnel to your ideal customers in 3 steps

One mistake beginners make is to try to convert everyone who enters their funnel. 

Not only is this unrealistic—it’s also inefficient. A better way to increase conversions is to start at the bottom stages of your funnel (at or near the conversion stage) and work backward to improve the user experience for your ideal customers.

1. build user personas

Your ideal customers are the ones who would benefit most from what you have to offer; when you build your funnel around their needs, you can quickly boost conversions.

To find your ideal customers, start by building a user persona, a semi-fictional character based on demographic and psychographic data of the people who buy your products, which answers these three questions:

1. Who are your customers?

2. What is their main goal?

3. What is preventing them from getting what they want?

One way to get started is by adding on-page surveys to your website to ask your customers for feedback. Consider polling customers once they’ve converted, paying special attention to those who barely did: this will help you uncover objections that are keeping similar prospects from converting and get them to the next stage in the funnel.

Another way to collect this data is through customer interviews: speak with paying customers and ask them to tell you about the very first time they began searching for a solution to a problem your company was built to solve. Customer interviews won’t give you volumes of data like surveys do, but they’ll help you understand and empathize with your ideal customers. Plus, they’ll often draw your attention to things that had not crossed your radar—from unique product use cases to struggles you never imagined.

2. spot the problem pages

Set up a funnel tool to start collecting traffic data. Here are some funnel examples to get you started:

• Ecommerce sites: product pages > cart > checkout > thank you page

• Blog: homepage > article pages > subscribe page > success page

• SaaS: trial signup page > clicking on sign up button > signup event occurred

• Lead generation: landing page with form > clicking on ‘submit form’ button > thank you page

As you collect the data, you'll be able to perform funnel analysis and identify the high-traffic, high-exit pages where visitors are leaving your website. 

3. understand the issues that need fixing

After you've identified your problematic pages, it's time to dig deeper. Using a combination of behavior insight and user feedback tools lets you discover how your customers actually behave and what they think of their experience:  

Heatmaps show you where most of your users click, scroll, and hover their mouse pointers. By placing heatmaps on your most problematic pages, you’ll get a good sense of how people interact (or fail to) with them.

On-page surveys help you gather customer feedback so you can ask people straightforward questions about any issues they're encountering. Some helpful open-ended questions include:

1. What’s missing from this page?

2. What’s stopping you from continuing?

3. What were you looking for?

4. How can we help?

Session recordings, also known as session replays, give you the opportunity to watch recordings of individual (anonymized) sessions. You can watch session recordings in the context of the feedback you receive—if customer feedback shows that people aren’t converting because the product page confuses them, you can watch several recordings of people interacting with the page and determine what the problem(s) might be.