Sales funnel


In business, a sales funnel tracks progress of leads to customers. Here are key metrics for this process:

Lead Acquisition Cost (LAC) is cost of getting leads.

Conversion rate is percentage of leads who become customers.

Sales cycle is length of time for converting leads to customers.

Recurring revenues are payments that continue regularly, unlike one-off sales. For example, your monthly cell phone bill.

Customer Lifetime Value (CLV) is total revenue a customer is predicted to spend.

Churn is percentage of customers lost over time.

Customer Acquisition Cost (CAC) is total cost of getting a new customer. It includes LAC and sales and marketing salaries.

The ratio of CLV:CAC indicates customer profitability.

These metrics can help you understand any business. For example, a Software as a Service (SaaS) company with recurring revenues, low CAC, high CLV, and low churn is probably printing money.

Beyond business, sales funnel principles can improve your life:

  • Friends

  • Dating

  • Career

  • Building your own business

For example, you could get better friends by:

  • Asking for referrals to lower LAC

  • Improving yourself to increase conversion rate

  • Shortening the sales cycle by spending more time with potential friends

  • Reducing churn by always being a good friend

The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10%, then you’ve got a terrible business.

-Warren Buffett


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