For the longest time, I believed that the sales funnel and the sales pipeline were two words for the same thing. It was a visualization tool to sort contacts through the different stages of a deal. From lead to prospect to client. About a month into my time at Finaeo, however, my understanding of pipeline versus funnel radically changed. I was chatting with Aly, our CEO, and we were talking about the sales pipeline in the application. Offhand, I called it a sales funnel. Aly stopped me and asked if I knew what the difference between the two were. There’s a difference? I asked him. I had been using the terms interchangeably all my life. Definitely, he told me. There’s a very big difference.
For some context, Aly spent the first eight years of his career at a large financial institution. He started as a teller, became a financial advisor three weeks before the 2008 crash, and was managing over 100 people by the time he left the bank eight years later. During his time there, he trained well over 200 other financial advisors. And one of the key lessons he always taught them was that their sales funnel was not the same as their sales pipeline. Aly drilled this over and over into his young advisors’ heads. He wanted to make sure that when they were discussing the funnel, they didn’t mean the pipeline, and vice versa. After all:
One of the things I discovered early on was that when advisors differentiated internally between their funnel and pipeline, they begin acting differently. It drove different behaviors towards their clients and their books in general, and these behaviors helped them generate winning processes.
To Aly, if you didn’t differentiate between the funnel and the pipeline, you would often fail to think about your daily goals and actions with the appropriate lens. Conversely, when you did start to differentiate between the two, you realized how to spend your time and energy to generate great results. As such, this blog will discuss the three major differences between your sales pipeline and your sales funnel and why you should care! The blog will also try to give you some ideas of where you can optimize your processes to become an incredible financial advisor.
Your sales pipeline is about deals, your sales funnel is about clients
Fundamentally, the biggest difference between a pipeline and a funnel is the units of value you are dealing with. A sales pipeline is about managing deals. In it, you track your dealflow, your revenue target, your active deals, your win rates, etc. These deals have real dollar values. That is, at the end of the day, week, month, and year, you can easily calculate how much the pipeline has contributed to your bottom line. It is a snapshot in time of the range of revenue you will be able to generate for your business. That is, it tells you your likelihood of generating a range of dollars based on how successfuly you close these deals. When I confused the funnel with the pipeline, it was the pipeline I had in mind. Dollars and deals!
Your sales funnel, meanwhile, is about managing relationships. A single client in your funnel may have multiple open deals or none at all at any given moment. Here, you are worried about how a client perceives you, how likely they are to be upsold, and whether they would be willing to refer you more business. In the tech world, we call this the “net promoter score” (NPS). Definitionally, the net promoter score:
Measures the willingness of customers to recommend a company’s products or services to others. It is used as a proxy for gauging the customer’s overall satisfaction with a company’s product or service and the customer’s loyalty to the brand.
The net promoter score asks only one question – would you recommend this service to other people? It then splits customers into three buckets – promoters, passives, and detractors. Without getting technical, promoters are people who state they are very or extremely likely to recommend your services to others. Passives may recommend you to others, but probably won’t on their own accord. Detractors will not recommend you when asked and may actively speak against you. Another way to think about it is in terms of growth. Promoters are likely to be good candidates for upselling, cross-selling, and referrals – they love you. Passives will stick to your services, but are liable to leave you for a competitor who excites them more. Detractors are unhappy with you. Not only will they potentially leave you, they will poison the well and tell people how awful the service you provided was. This is doubly dangerous when your business is focused on a tight knit community or specific industry sector. Yikes!
So, how do you take a client and turn her into a promoter? An evangelist who will tell all of her friends how incredible you are? Well, the answer is deceptively simple – strong client service. We discussed some tenants of client service at lengths in previous posts here and here. In short, good client service is about being responsive, keeping to your follow-up promises, and maintaining consistent touch-points. However, the key to understanding the sales funnel is that you must continue doing this even after the deal is closed. Why? According to one of the most successful advisors I know, “you should only ask for a referral after you’ve added value to your client. This only happens after you’ve already been working with them for a while and have helped them make sense of a confusing situation or built out a successful roadmap with them.”
Your sales pipeline is about revenue today, your sales funnel is about revenue tomorrow
As I mentioned above, the sales pipeline is a snapshot of your revenue today. That is, you can look at it on any given day and see the number of deals, and their dollar value, at the various stages of completion. If you’re more sophisticated, you can also assign probabilities to any given deal for completion and compute an expected value for the entire pipeline. Doing this, you can, at a glance, understand what your pipeline is worth.
On the other hand, it is much more difficult to calculate the value of your sales funnel. That’s because the funnel is about your revenue tomorrow – after today’s first deal closes and the relationship with the client begins. After all, a client in the funnel can buy other products from you down the line, move more of her worth over to you, or refer friends and family to your services. The same client, mishandled or mismanaged, can also end up being worth nothing at all. Worse, if you really drop the ball, that client could be a net negative when they tell people that may have otherwise worked with you just how poorly they felt they were treated.
The metric that matters here is called the client’s lifetime value (LTV). This is the question of what a client is worth to you through the lifetime of that client. How much future revenue will this person generate through cross-selling or upselling? How many referrals will they make for you? This is a hard number to calculate, but an exercise well worth doing. Why? Because understanding a client’s LTV will let you understand how to set tasks and prioritize. Should I spend more time chasing a new deal in my pipeline, or should I spend the time re-engaging with my existing clientele instead? Intuition will give you a hunch, but actually figuring out the number will allow you to answer it and focus your time appropriately. An easy way to calculate this is to look at clients you’ve had for the longest time and see what they are worth to you on average if you retain them for three years, five years, ten years, or longer.
You can outsource aspects of the sales pipeline, but not of the sales funnel
One really interesting insight that financial advisors come across when they separate the sales pipeline from the sales funnel is that the pipeline can be optimized through outside help. For example, once the deal is agreed to, many top advisors will let administrative staff take over the follow-up. This may include gathering the necessary paperwork or helping implement various policies. However, the sales funnel cannot be outsourced. As mentioned above, it is based around relationships. As an advisor, building relationships is the key to growing your book, so you certainly don’t want to outsource that. Now, I don’t mean that you can’t get help with smaller administrative tasks surrounding the relationship. For example, a high net worth firm we chatted with had administrative assistants who would keep track of birthdays and send out birthday cards to their clients. But the key was that the advisor who maintained the relationship was the one to write out the message inside the card. Whenever it comes time to dealing with the client in a value-added way, whether that’s answering questions or building a relationship over beers, it cannot be outsourced to others.
This lens, then, allows you to better optimize your flow. Take some time to think about which aspects of your job add to the relationship and, therefore, must be held onto by you. Does implementation need to be done by you? Does the final meeting to gather the documents? This will be partially based on your own beliefs and partially based on the client. Some clients may be happy to hand-off paperwork and implementation to their staff and expect you to do the same. Others may want you to handhold them through the entire process. By taking a step back and considering which actions are high value for the funnel and which are not, you can start thinking about where you can save time by handing off low value tasks to other people in your organization.
Thinking about your funnel will drive book growing activities
One of the biggest values of differentiating between your funnel and your pipeline is that it allows you to think strategically about growing your business. The pipeline is about working in the business, the funnel is about working on the business. While the majority of advisors understand the short-term pipeline, very few understand the longer-term sales funnel. But this funnel is critically important to the health of your business.
By understanding your funnel, you can accomplish a few key things. First, when you understand the true lifetime value of a client, you can start making smart decisions between different actions. Should you spend more time hunting for new clients or farm the existing ones? What can you do to increase your client LTV? How many dollars is a successfully managed client worth versus one who slips through the cracks? Second, differentiating between the funnel and the pipeline allows you to focus your daily tasks. How many of your tasks are currently being focused on long-term business value versus short-term revenue? What is the right mixture for you? Moreover, which tasks should you double down on and which tasks should you look for a way to outsource? Spending some time analyzing your funnel is worth its weight in gold!
Ultimately, so many financial advisors, lost in the hustle and bustle of their busy days, forget to take a step back and focus on high-value activities that will pay dividends in the future. The most successful advisors, however, can view their books both from 30,000 feet above ground and at five feet, eyeball-to-eyeball.
Calculate your client LTV! This is a great infographic to walk you through how. To make it simpler, just focus on a sample set of 30 clients you sold a first product to five years ago, and follow their lifecycle. Now, consider this number. It tells you what a single new client is worth to you! What would happen if you increased client LTV by 10%? Would that be worth more than adding one new client? Another 10? And could you achieve this upsell increase in less time than adding the number of new clients that would help you break even? This is the sort of analysis you can start doing when you actually understand what a client’s LTV is worth! So, give it a shot – we promise it’s much easier than it looks. Let us know how it goes (or contact us if you want some more guidance on how to calculate this number)!
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