Sales includes a lot of different terminologies and terms that can tend to be confusing for sales beginners to understand. If you are a newbie on a team, you probably find yourself silent and nodding along when you hear a new term, or trying to fake it till you make it. Hence, if you’ve been using the words “sales cycle”, “sales pipeline” and “sales funnel” interchangeably, you’ve been doing it wrong! And as you do come across these terms pretty often at work, let’s set you straight.
As we said, ‘sales cycle’, ‘sales pipeline’, and ‘sales funnels’ are not the same thing. In fact, a lot of people – not just beginners in sales – tend to confuse the terms ‘pipeline’ and ‘funnel’. However, all these 3 terms mean something different!
Let’s talk about each.
1. Sales Cycle
Every product has a typical buying pattern or buying behavior attached to it. This usually influences the sales cycle.
For example, consider the purchase of a home.
The process begins with the want/need to buy a home, and then researching the process and available options online. Next, you will talk to potential sellers/developers, make physical site visits and plan finances. Eventually, you will make the actual purchase and documentation.
This is a lengthy process, taking months and sometimes years from the realization of the need to the actual purchase.
This influences what the sales cycle will look like. In this case, creating awareness about the product, keeping the customer engaged and good customer service will help.
However, longest part of most sales cycles is the engagement phase. This phase is even longer for products that have a longer buying cycle.
Why is it called a cycle, you ask?
Because every time the customer makes the purchase, he goes through the same process again. In the case of this real estate example, he/she will go through the same sales cycle stages every time they buy a home.
Stages of a sales cycle:
1. Lead Prospecting
This is the very start of the sales cycle, where you’re looking for leads that meet your target audience criteria and are likely to turn into buyers.
2. Lead Qualification
This stage is all about qualifying a lead as a serious potential buyer of your product/service, based on your company’s pre-determined criteria.
3. Customer Engagement
This stage is all about capturing the interest of leads, keeping them engaged and interested in your product, and inching them toward buying it, so they will be leaning toward your product when it’s time to make a decision.
4. The Sale
This stage involves pricing negotiation, having papers drawn up, etc. – the actual act of the sale.
For a lot of products, retaining a customer and getting more business from a customer is more important than the first sale. This stage is where your customer success team comes in.
It’s important to note that the sales cycle will have more or less the same stages for every company in the market selling the same type of product/service as you.
2. Sales Pipeline
A sales pipeline is determined by a company’s internal processes, but it is based loosely on the buying cycle.
Think of it this way: It’s difficult to track a lead from the stages in the sales cycle because it creates subjectivity. You can’t send in a report to your sales manager saying “186 leads are in the prospecting stage”.
So, companies create a pipeline of stages that a customer moves through on the way to making a purchase.
For example, for one of our clients, we created a pipeline that began with the stage “Incoming”, to apply to all the leads that just have come in (inbound) into the system. The report, in this case, would show 186 leads in the incoming stage.
The idea is that you plan your sales pipeline stages as per your company processes. If you don’t conduct outbound sales calls to get leads, an “incoming” stage is the first stage you’ll need for leads that have just gotten generated on one of your marketing platforms.
Here’s an example of sales pipeline stages to give you a better idea-
- Incoming: For leads that have registered to know more about/try/buy your product
- Qualified: For leads that have gone through the lead qualification process and come out as potential buyers, so marked by the lead qualification team
- Unqualified: For leads that have gone through the lead qualification process and have not come out as potential buyers, so marked by the lead qualification team
- Prospect: For leads that have had two or more conversations with your sales team and are interested
- Hot: For leads on the verge of conversion
- Lost: For leads that get lost due to any reason – disinterest, choosing to buy with a competitor, just decide not to buy, etc.
- Converted: For leads that have converted into a sale
The idea of having a sales pipeline is to bring structure and convenience to your sales process.
The different stages of the pipeline are even configured into the CRM you use. This makes it easy for sales team members to update the stage for each lead as he/she goes through their buying cycle.
There’s no right or wrong way to decide the stages of your sales pipeline. Although, we recommend being concise enough to have stages to cover every eventuality. However, do not overcomplicate things with too many stages.
3. Sales Funnel
This one is the most nuanced of all, so brace yourself.
A ‘sales funnel’ is based on the concept that you’ll always get in a lot of leads. These will peter out with each stage of the funnel until only a fraction turns into actual sales.
Whether you know what a sales funnel is or not, you’ll know that this phenomenon is true. Due to consumer behavior and market competition not everyone who shows interest in your product will actually become a customer.
However, here’s where it gets a little confusing. The stages in the sales funnel will (in all probability) be the same as your sales pipeline. What differentiates it from the sales pipeline, however, is what it represents.
A sales pipeline represents the movement of leads from one stage to another, closer to the final sale. When you’re looking at your pipeline, you’re simply looking at how many leads you have on the way to a sale.
A sales funnel represents how many and how fast the leads are moving between stages, towards the final sale. When you’re looking at the health of your sales funnel, you’ll be looking at the conversion rate from one stage to the next. This way, you can determine what’s going right and what’s going wrong at each stage.
What does a Sales Funnel Represent?
A sales funnel isn’t something you usually build into a sales CRM system. It’s simply a manner of looking at things – your leads, your sales process, and your sales data. It’s less tangible than a sales pipeline.
In fact, many studies have recently come out against the use of the sales funnel, citing that it’s an old-fashioned way to look at sales. They have instead suggested looking at it more like a cycle to better reflect the churn, upselling, and retention of customers that have become commonplace today.
However, while we don’t know for how many more decades we’ll be looking at sales funnels, you’ll still need to understand it for your work in a sales team today.
Besides, if a manager interchangeably uses sales funnel and sales pipeline, we wouldn’t recommend correcting him. Perhaps, just understand the context in which they’re using the term.
Differentiating Between a Sales Cycle, Sales Pipeline & Sales Funnel
If a comparison of sales funnel vs pipeline was done, the main difference lies in the insights that they each convey. Sales funnel represents the movement of leads through the sales process, however sales pipeline represents the buyer’s journey.
We hope that gives you a clear idea of what ‘sales cycle’, ‘sales pipeline’, and ‘sales funnel’ mean, and how they’re different from each other! These are all terms you’re likely to come across quite often in your day-to-day work around the office.
However, they’re also the kind of terms that feel so basic that you don’t want to ask anyone to explain the difference between them! So, we’re happy to be your go-to resource for any questions you may have.
If there’s anything else you’d like clarified, feel free to reach out in the comments below!