Sales funnels are critical tools for analyzing a business. Funnel analysis yields important data sets in funnel reporting. This data can be used to produce insightful information about the operations of a business. This information can be used to directly influence the profitability and, ultimately, the success and longevity of the business. Sales funnel reporting can be analyzed in-depth here. However, below is an overview of what sales funnels are and what kind of data they may reveal about a business.
Sales Funnel Overview
The sales funnel describes a complete journey that the customers experience when they purchase a good or a service offered by an organization. It is intuitive to think of it as a series of states and stages that can be described both from a customer’s or a business’ perspective. Initially, a customer is unaware of a brand or a solution to a perceived or unrecognized issue. Unrecognized, because at times, consumers are unaware that they have a problem or are lacking an innovation. A good example is an undeveloped market in the early stages of smartphones. A consumer in such a market may be unaware that a new generation of mobile communication has been developed.
The stages in the funnel are not rigid and may vary with different business models however, there are broad recognizable stages in each business.
- Stage 1 – Awareness / Discovery: It is up to the business to bring that information to the consumer.
- Stage 2 – Lead / Prospect: This is followed by initial consumer interest in the goods or services offered by the business. In general, the customer learns more about the brand through research and consultation while the business learns more about the customer’s needs where applicable.
- Stage 3 – Purchase / Delivery: There then comes the purchase decision phase which generally includes the signing of contracts and delivery.
- Stage 4 – Evaluation / Product or Service Support: This is the stage whereby the customers evaluate the product or service and the support provided by the business.
- Stage 5 – Retention: A successful business thrives to retain the right customers. Acquiring a new customer – through advertising and onboarding – can cost up to five times more than retaining an existing one and increasing retention rates could result in a 25% to 95% increase in profits.
*For simplicity, this article may refer to stage numbers rather than stage names for some sections.
Not all consumers who are exposed to a business and its brand will be interested in or, let alone, purchase their goods or products. In the same manner, not all customers, once a purchase has been completed, will be a repeat customer. In such a case, each stage of the sales funnels typically has fewer and fewer potential customers moving to each stage. Sales funnel reports, as such, are data and information generated from each of these stages and they may reveal vital indicators about a business that could be used to make strategic decisions that significantly impact business performance.
Types of Sales Funnel Reports
All sales funnel reporting deals with the number of potential customers and how they change with each step of the business. The math behind the numbers is not at all complicated. The sheer volume of data processed, and the fact that the sales funnel is often in constant flux means that simply pulling periodic reports results in basic outcomes that may lack vital nuances and insights which have a profound impact on the business. Before expanding on those concepts, it is vital to understand the basic metrics which can be sourced from funnel reports.
Next Step Conversion
Next step conversion is the simplest ratio to calculate in theory. It is simply a ratio of the number of entries into a subsequent stage in the sales funnel compared to the total that existed in the reference stage. If only a half of the 1,000 individuals targeted by an online advertising campaign click a banner ad and end up on the business’ home page, then the conversion from the discovery stage to the lead stage is 50%. If only a tenth (50 leads of a total 500) go on to make a purchase with the business, then the next step at that stage is simply 10%. The simplicity of this calculation may be deceiving because beneath these conversions lies a wealth of information which will be explored in the next section.
Cumulative Conversion Reports
Cumulative conversion reports compare the numbers at each stage in the sales funnel to the numbers which were present at the first stage – in the discovery stage. Sticking with the previous example, conversion at the lead stage remains 50%. However, at the purchasing stage, it falls to 50 (purchases)/1000 (total target market) = 5%. These numbers, out of context, are meaningless. It would not be useful for a business to set out and measure conversions without comparison to its previous performances or other similarly sized competitors with a comparable business model.
Year-on-Year Comparisons and Trend Analyses
Year on year analytics focus on picking up the differences in performances over a comparable time in a fiscal year. These reports tend to be backward-looking and focus on performances. Trend analyses, on the other hand, attempt to predict the prevailing trends in a target market and how a business should prepare for any eventualities. Predicting future trends allows a business to not get flatfooted and avoid either being negatively impacted by an adverse environment or failing to capitalize on a favorable situation due to unpreparedness.
Interpretation and Application of Funnel Report Outcomes
An important factor to consider is that the sales funnel is primarily influenced by two departments. Initially, the marketing department is responsible for raising brand awareness and drumming up interest in the general target market and enticing potential customers to engage with the brand. Once that has been achieved, it is up to the sales department to get the clients over the line and ensure that the client’s sign deals. Further, most companies have client retention or a customer services department which focuses on solving client issues as they are discovered, and ensuring that customers refrain from discontinuing business dealings with the company. In this section, funnel reports in the context of each department will be covered, fully noting the underlying drivers of performances in each department.
Marketing Team Effectiveness
This department primarily and almost exclusively uses a single metric. The metric is effectively the lead follow through to the business after a marketing campaign. Typically the marketing department has an allocated budget for certain financial periods. These budgets may fluctuate but regardless, there is a way to comparably measure the effectiveness of the department’s usage of their budget using funnel analytic reporting. The metric of measurement, in this case, is the cost per lead.
Given that a $10 million ad campaign online – say on Facebook – results in 1 million new leads for a business, this would imply $10 per lead. This imaginary scenario technically would be an impressive return considering some firms reported an average cost per lead of $21.05. The lowest reported by a firm in that instance is $7 per lead. This kind of variation reveals that leads found on any given platform are not the same quality for each business model. In fact, b2b leads, for example, are among the costliest leads to generate and yet b2b clients can be the most profitable for any business model. Ironically, because businesses tend to be less flexible than individuals, converting b2b clients can be quite effort-intensive. We can thus infer that:
- Cost per lead varies depending on the platform used for marketing. Some platforms offer handy tools (like cost per click); however, this does not apply on all online platforms and is inapplicable for television, print and other forms of campaigns.
- The cost per lead does not necessarily indicate the quality of the lead. Some leads may cost less but bring fewer gains to the business while other leads cost more and yet the gains to the business far outweigh the initial costs of acquisition.
- The most valuable leads are not always the most convertible. The contrary is not necessarily true.
One thing we can conclude, then, is that a successful marketing campaign is one that brings the most leads with an ideal balance between convertibility and profitability. Highly profitable leads that are costly and difficult to convert and easily convertible cheap leads with very low margins bring less value to the business. Funnel Analytics are required to find a perfect balance here. This is because the market is not neatly segmented and businesses will likely have to balance their budget between different platforms and different target markets to determine the most profitable combination of their marketing mix.
Landing Page and Initial Contact
If a potential lead clicks through to a landing page of your business, they are either going to follow up and request contact with the business or they are going to do something else. Funnel analysis is key to determining the possible reasons why potential clients may abandon their initial interest after an initial click. For example, a business selling goods online may have poor conversion rates from potential leads for reasons such as:
- Their website is difficult to navigate and customers are losing interest,
- The pricing strategies and product offerings implemented by the business is a mismatch to the target market,
- The availability of substitutes and the prominence of competitive forces or,
- Poor onboarding practices on platforms where potential customers require minimal human contact before a purchase decision.
The main point is that low conversion rates at this stage are merely a symptom of a deeper underlying problem, rather than a problem in itself.
Sales Team Effectiveness
This topic is covered more in detail on the discussion regarding Sales Funnels vs Sales Pipeline here. However, a brief overview is that the performance of the sales team has to be measured from two perspectives. The sales pipeline and its analysis reveal the cash flow a business can expect and the short-term financial positions it might enter. An effective sales team ensures that the business generates enough cash from its sales. Additionally, the sales funnel analyses conversions. When a sales team neglects to convince some convertible leads to sign a deal, they may be losing the business significant profit. Another important metric that emerges from this stage is the cost per acquisition. Using sales funnel reporting, a business can track the source of a lead, the costs of the initial campaign and ultimately how much the business has spent to get a deal out of customers from specific campaigns. This metric will be covered a bit further in the next section which
Customer Service, Support and Retention
As emphasized in earlier sections of this article, customer retention is significantly more profitable than customer acquisition. Sales funnel analytics are powerful tools by this stage of the business. Not only is a business able to track retention rates or customer churn (the number of customers the business loses in a given period in relation to the customers which existed prior to the beginning of that period), but it is possible to gain insight into the beyond mere churn rates. With sales funnel reporting, a business could determine:
- Which customers are more loyal to the business – which advertising campaign they were sourced from, their demographics and other data and
- How profitable a customer is; i.e. how much total net profit on average does a business gain from a certain segment of the market.
If these points sound familiar, it is because the concepts in customer retention are similar to those in customer acquisition, the most profitable customers in terms of margins are not necessarily the most loyal while the most loyal customers may be more valuable to the business over time but might have significantly lower profit margins. Once again, there is a balance to be found and the answer lies in a comprehensive sales funnel analysis.
Utilizing Strategy in Marketing and Operational Decisions
It is not a coincidence that the most successful businesses thrive to achieve integration in their business practice. The integration enables a business to move on from a transactional business model and move towards a customer-centric approach which aligns the goals of marketing, sales, and customer service departments to improve the customer journey, the customer experience at all stages in the business and ultimately to improve customer retention and profitability of the business.
Effective Funnel Analytics Strategies
The most effective tools which offer nuanced insights into your business’ sales funnel are not simply bought off the shelf. Different business models require different customization – like the ones offered by IronFocus. If it is not clear already, analytic reporting should not be a one-time event. Even if reports are generated periodically, the data contained should not be a periodic snapshot of the current state of the sales funnel. Rather the report should be an amalgamation of data generated continuously in real-time. Some of the features of the approach taken by IronFocus include:
- Continuous Monitoring & Improvement: The constant monitoring of your data and lead generation flow to make sure that the customer journey is as friction-free as possible.
- Delivery of Services: Streamlined reports, pattern insights, analysis and solutions for your most complex data dilemmas. We will propose options to optimize your internal processes, giving you the tools and information your company needs to make quick and accurate decisions.