What is a sales funnel? And how to know you’re in one

Financial Planning for Doctors

“But, daddy, all of the other kids have Tae-Kwon-Do gear.”  I didn’t know it yet, but I was about to be trapped in the middle of a sales funnel.  I didn’t hear the F-5 tornado sized vortex that was heading for my wallet.  Wide in its berth, the destruction was potentially massive.  What is a sales funnel, anyway?

Why should you know and care about it in your march towards financial independence?

Let’s dig in and find out.

Financial Independence = Frugality

As a reminder, chasing after FIRE requires two main ingredients.  Frugality (limiting lifestyle inflation) and a high wealth accumulation rate.

The frugality provides the opportunity to use money in wealth building maneuvers.  If you avoid spending money, then you can decide to use it towards destroying debt or retirement investments… that is a recipe for early financial independence.

The reason I am reminding you of this is that you must be like a guard in the night.  Constant and vigilant.  You must keep your eyes wide open while you walk the jail block.  You must look out for anything that would work to take your prize: financial independence.

A sales funnel is just such a thing.  It works to encourage you to part ways with your hard earned money that should be going elsewhere in a sneaky (and very intelligent) way.

The Side-Kicking Sales Funnel

There is an infinite number of activities kids can be involved in outside of school.  So, we have tried really hard to expose them to a lot of stuff.  We only have one rule: the kids have to finish what they start.

The problem is that this rule bit us hard on Tae Kwon Do.  Why?  Because they had a really well designed sales funnel.   It taught our son how to “round-house kick” us right where it hurts, our wallets.

I’ll explain how it works below, but once we got sucked in it was hard for us to tell our son we needed to quit going to Tae-Kwon-Do, because we were doing exactly what we told our son not to do.  Quit.

Rules are meant to be broken, though, am i right?

What is a sales funnel?

For those not familiar with a sales funnel, it is basically a starting point where a person first becomes a customer.

After a business proves the value of their products, they then provide more and more opportunities for you to become a loyal customer with future purchases.

The first pitch of a product brings you into the funnel.  That is the make or break point where you decide if it is worth purchasing. They make it look attractive and necessary.

After the first purchase, you are much more likely to become a repeat customer.

The First Product

The first product is what gets you sucked into the vortex of the sales funnel. For this reason, many businesses place a ton of focus on that very first product.

For the non-entrepreneur, you might think that the first product should be simple yet effective.  It might seam that a low cost product would be best.  That way the customer doesn’t mind parting with their money.  The assumption is that once the customer finds value in the low-end products, they’ll be more likely to buy the fancier stuff.

It just doesn’t work this way, though.  If the first product was cheap and you didn’t like it, you would have no problem saying you wasted twenty bucks.  There is no emotional pull with a less expensive first purchase.

How do I know this?  Because my son’s Tae-Kwon-Do taught me that good sales funnels don’t start with a cheap purchase. In fact, it worked exactly the opposite way.  We had to purchase $300 worth of karate gear (sparring gear, a breaking board, the attire, etc).

After that initial “buy-in” it became very hard to not have to purchase the nickle and dime options that were “required” after that point.  An example of this included the new “summer” attire that was required because it was hotter outside – despite the indoor air-conditioning that made this all pointless.

As they say in poker, because of our large up-front purchase, we were already pot-committed at that point.  Spending a little more money so that we didn’t have to quit and abdandon our large up front cost just made sense.

It also made them a lot more money from their customers.

Other Examples of Sales Funnels

I can think of a couple of examples of other sales funnels that work like the high-end Tae-Kwon-Do sales funnel I experienced.  In fact, these are much worse, because they are much more expensive.

One example of this kind of funnel is a country club or membership in any organization that has a high up-front initiation fee.  Once it’s paid, you can’t get the money back. If you put a lot of money in up front, you are unlikely to stop paying the continual membership fees that are much lower in cost.

A second example would be a brand new car (or house).  As soon as you drive that car off the lot, it depreciates.  Two months later when you have buyers regret, you will have a hard time convincing yourself that the right thing to do is to sell that brand new car at a loss. Even if will save you money in the end through unpaid interest.

You probably recognize the feelings associated with the purchases mentioned above.  What you are actually feeling in those situations is the centrifugal force of a sales funnel sucking you further into financial ruin.

Take Home

When you are required to make a hefty up-front payment in your first involvement in something, it should give you pause.

Don’t get sucked into the funnel that aims to destroy your bank account.  Be that vigilant guard, and snuff this stuff out before it happens.

Otherwise, you’ll also have to explain to your kid why you are a quitter.

Have you ever been sucked into a sales funnel?  Tell us about it in the comments below.  


10 thoughts on “What is a sales funnel? And how to know you’re in one”

  1. Great post, and I hear the term quite often when listening to entrepreneur-type podcasts. A the risk of starting a flame-war in your comments section, I would add that digital “ecosystems” like Apple are very similar. Once you buy that first over-priced Apple item, you’re in their ‘ecosystem’, then they have you in their funnel and you’re more likely to buy their other overpriced items.

    shots…. fired!!! 😉

  2. This essentially is the premise of sunk cost fallacy. Once you commit to a significant outlay of cash, you feel like you have to stick through it because you don’t want to lose that initial investment.

    Hopefully Tae Kwan Do helps your child develop much more from the cost such as discipline, respect, and the ability to defend oneself.

  3. Ahhh funnels. Sales funnel, revenue funnel, click funnel. Buzzwords in the world of marketing, sales, business, and entrepreneurship.

    I think everyone has been sucked into some form of funnel at some point in their life. I’m sorta in the Apple and Tesla funnel. But I would like to think that I have gained considerable value for money. 🙂

  4. There will be another child sports or music funnel in the future. Hint from another parent, Next Door, eBay and Craig’s list have barely used of whatever he “has to have” for the sport until he can decide if it is something to pursue. If you don’t see it for sale, post an “I want to buy this.” Don’t spend real cash until they have stuck with it for at least 2 years. Someone else’s parent just wants that stuff out of the garage and the price is pretty sweet.
    On that note, how about a used bass, amp, and microphone (with stand) or some gently used soccer or lacrosse equipment? At least I held firm on the drum set.

    • Haha spot on.

      There are definitely more funnels in our future! I just want them to be intentional the next time.

      My wife and I played soccer in college. Definitely don’t have anything soccer related that is “gently” used. More like “strongly abused.”

      Good advice on finding these things in places where the price is not cost prohibitive.

  5. The worst sales funnel of all has to be dance. Not only do you get sucked into the system of buying the classes and costumes, the parents also get all their time sucked out of their lives with constant competitions that last all weekend and are often out of town. In the end they use sophisticated psychological warfare connecting self-esteem to performance which then keeps the studio’s coffers full.

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