As a sales advisor to many companies and organizations across sizes and industries nothing provides more initial clarity than the shared understanding of knowing who the people are you are serving and in what relation you are with them at a certain moment in time.

The latter is about categorizing your potential customer according to their different stages in your customer acquisition process.The customer acquisition process and the process of distinguishing between contacts, leads, prospects, and customers is typically referred to as sales pipeline management.

Since this pipeline is commonly visualized as a funnel it is also called a sales funnel and sales funnel management, because at each stage, some potential buyers drop off, leaving a smaller group moving on to the next stage.

I know the jargon and terminologies Sales and Marketing uses can sometimes be overwhelming, so we prepared a detective-themed exploration of this part of the sales process, along with their definitions and their evolving importance throughout the sales journey.

TL:DR; Executive Summary

Making distinctions between contacts, leads, prospects, and customers is crucial in sales and marketing strategies.

Recognizing the distinctions between these categories and other stages within the buyer's journey enables sales and marketing teams to be more strategic, empathetic, and effective in their roles.

This nuanced understanding provides a structured approach to interacting with individuals at various levels of interest and engagement. This customer-centric communication is critical for building strong relationships and driving success.

The Thing About Contacts, Leads, Prospects, Customers, and Advocates

Contacts, Leads, Prospects, Customers, and Advocates—can be considered archetypes of a certain stage within the sales and marketing framework.

These archetypes represent different stages or roles that individuals or organizations assume as they move through the sales funnel or along the customer journey.

Understanding these roles is crucial for you to tailor your strategies and communications effectively at each stage.

These roles represent typical examples of categories into which individuals or organizations fall during the buying process.

Each archetype exhibits distinct characteristics, behaviors, and needs, which can guide how a company interacts with them.

• Contacts represent the broadest category of potential interest.
• Leads have shown some interest or engagement.
• Prospects are leads that have been qualified as having a higher potential to buy.
• Customers have made a purchase.
• Advocates are customers who actively promote the product or service.

These archetypes help businesses segment their audience and personalize outreach and engagement strategies to better meet the needs and interests of each group.

Definitions and Distinctions

Let’s illustrate the distinctions between "Contacts," "Leads," "Prospects," and "Customers” by using the analogy of a criminal case and one of the most renowned detective to ever "walk" the pages of literature—Sherlock Holmes.

As salespeople we are the Sherlock Holmes’s of our organizations curiously running after and tirelessly pursuing every lead we get to crack the most challenging cases daily.

Through this detective-work prism, the sales process transforms into an investigative journey of identifying and converting potential customers. Each phase, from identifying contacts to winning customers, involves gathering information about leads, making assessments about our prospects, and gradually narrowing down the focus until the "case" is solved, which mirrors the meticulous process of gathering clues, evaluating evidence, and progressively honing in on the solution—culminating in the triumphant resolution of securing a sale.

Contacts

Anyone within your target market or network who could potentially engage with your product or service is called a Contact. They represent the broad audience you initially reach out to.

Let's start with Contacts.

Picture a vast, bustling city full of individuals, each going about their day. In our detective analogy, these individuals represent Contacts - essentially anyone within the realm of your investigation (or in sales, your market) who could potentially provide you with information.

They are like the people Sherlock Holmes might question during an investigation: witnesses, locals, or anyone who might have a piece of the puzzle, no matter how small.

In sales, a contact is someone who fits into your target market or someone within your network. They are the starting point of any sales process, the broad audience you initially reach out to.

Definition Contacts

This is the broadest category and refers to anyone you have contact information for but haven't necessarily qualified as being interested in your product or service. This can include people you meet at networking events, friends, family, or anyone who has given you their contact information but hasn't shown direct interest in your offerings. Contacts or Inquiries are the starting point in your sales process, essential for building a base from which to identify more qualified leads.

Leads

Individuals who have shown some level of interest in your product or service, such as by signing up for a newsletter or downloading a whitepaper are called Leads.

Moving onto Leads.

Think of leads as potential clues.

Sherlock Holmes doesn't know yet if a clue will lead directly to solving the case, but it's promising enough to warrant further investigation.

In sales, a lead is a contact who has shown some level of interest in your product or service. This could be someone who's interacted with your company by signing up for a newsletter, downloading a whitepaper, or attending a webinar. They have taken a step that indicates they might be open to learning more, much like a clue that suggests a new path in an investigation.

Definition Leads

Leads are individuals or organizations that have shown some level of interest in your product or service. This interest could be demonstrated by actions like subscribing to your newsletter, downloading a whitepaper, or attending a webinar. At this stage, there hasn't been a direct interaction to discuss their specific needs or interest in making a purchase.

A human in the leads phase indicates initial interest and the potential for further engagement, serving as a filter from the wider pool of contacts.

Prospects

Leads who have been qualified based on their fit with your target demographic, authority to buy, and interest level. They are considered likely to become customers.

Next, we have Prospects.

In our detective story, a prospect is akin to a suspect who, after initial clues and some investigation, seems to have a connection to the case. Sherlock Holmes would now focus more closely on this individual, gathering more evidence, interviewing them, and determining their involvement.

In sales, a prospect is a lead who has been qualified; this means they have been assessed and deemed likely to become a customer. They fit your target demographic, have the authority and means to buy, and have shown a clear interest in what you're offering.

Prospects are the leads you prioritize and invest more time and resources into, believing they have a higher chance of converting into customers.

Definition Prospects

Prospects are qualified leads. This means they have been assessed by your sales team and are considered to have a genuine potential for becoming a customer based on specific criteria, such as their need for your product/service, budget, and buying authority. Prospects are at a stage where direct sales conversations can occur to convert them into customers.

This is the stage/phase where salespeople should put the focus of their targeted sales efforts, as they have a higher chance of conversion into customers.

Customers

Individuals or entities that have made the decision to purchase your product or service.

Finally, Customers.

In our analogy, solving the case equates to converting a prospect into a customer. Sherlock Holmes has gathered enough evidence, confirmed the suspect's involvement, and solved the mystery.

In sales, a customer is someone who has made the purchase decision and has bought your product or service. They are the culmination of the sales process, the goal towards which all your investigative (or sales) efforts were directed.

Converting prospects into customers is like solving a case, requiring gathering all the right information, making the correct deductions, and presenting a compelling argument (or sales pitch).

Definition Customers

These are individuals or organizations that have made a purchase. The distinction between a customer and the previous categories is clear-cut—they have exchanged money for your product or service.

The culmination of the sales process; the primary goal is to maintain and grow this group through satisfaction and retention.