"We need to decrease revenue" said no one ever. Aspirational growth goals are great, but specific ones are even better. How do you specifiy and measure "growth"? The marketing funnel to the rescue.
A funnel is a visualisation of a customer's journey from finding out about the product for the first time to ideally becoming an advocate for the brand. Customers don't always follow predetermined, concrete steps on their path to purchase, but the funnel is still a useful framework to understand the most common steps they take.
A good funnel makes your marketing strategy tangible. It converts your strategy from a wishlist into a todo list.
Defining the steps
The simplest way to think about the funnel steps is the classic AIDA model: attention, interest, desire and action. Another acronym soup popular among startups is the AARRR Framework. The best funnel, however, is the one you define yourself for your business.
Imagine that you've decided to buy a new bicycle. What happens between that initial spark and enjoying your new ride? At first, you might have been inspired by an instagram post, gotten tired of lockdowns, dreamt of getting fitter, or likely a combination of all. Then you visit a few bicycle shops, learn about new brands in the market, and even watch a few YouTube reviews. You make a shortlist of brands you like, visit their websites to figure out which models you want and how to get your hands on one. Finally, you place an order, make your payment and collect your bicycle. After a while, you might even consider yourself a bit of a cycling expert and start sharing your new-found wisdom with friends.
Now flip your perspective to that of the bicycle brand and you can start to see what the purchase funnel looks like for your business: becoming aware of the brand, actively considering it, choosing to buy it, making the purchase and becoming a loyal customer.
Another way to think of funnels is as state change in software development: what changes a customer's mental and behavioural state? Each of these is a funnel step.
Getting the numbers
Now that you know what your steps are, it's time to measure them. Start at the top: how many potential customers are there in your target audience? How many of them are familiar with your brand? How many are actively considering it? How many have indicated an interest in making a purchase? How many have completed a purchase online or offline? Get the data for each step.
Then, elaborate on what each step means and how to measure that. For example, awareness could be measured by a survey: how many people mention your brand when asked about bicycle brands they remember? Consideration might mean having visited your website at least 3 times in the past 30 days. Decide what makes sense for your business.
Finally, calculate the conversion rates for each step compared to the previous one. You might end up with a funnel similar to this:The bad news is that your market share is 1%. The good news is that you have tremendous upside!
Analysing the funnel
How do you decide where to improve? Here are three considerations for analysing and your funnel and figuring out your next steps:
- Starting at the bottom and working your way up: investing in advertising with a website that doesn't convert would be a waste of time energy. Make sure the steps closer to the actual purchase are performing well before fixing those higher up the funnel.
- Going for the easier option: increasing awareness is great but takes a long time and requires a lot of effort. What are the steps you can address quickly that will help bring in revenue in the short term that will help you invest in the long term?
- Prioritising high impact: Sure, quick and easy sounds great, until you figure out that they they don't move the needle much. Where is the one are where you can have the biggest impact?
The challenge is finding the sweet spot between the quickest, easiest and biggest options.
Setting realistic goals
Less is more when it comes to marketing goals. Think about maximum three areas you need to focus on. People are learning about your products but end up not buying? You need to improve preference. Existing customers are very happy but they are very few? You need to focus on awareness.
Armed with the numbers from your funnel, set a realistic target and a time-frame for improvement. Increase preference from 34% to 39% in 3 months? Probably achieveable. Increase awareness from 8% to 24% in 6 months? Good luck with that.
Finally, calculate the incremental revenue and profitability of achieving your goals. This will give you a clear idea of how much you can effort to spend for each goal.
In the end, you will end up with a handful, clearly defined marketing goals for a specific target audience that's based on customer research. Congratulations, you now know start building your brand and growing your business.
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