A product takes its users on a journey, reaching destinations they couldn’t have dreamed of seeing without it. Understanding this journey and how to get people to do what you want them to do is the purpose of a funnel analysis.
As marketing guru Seth Godin says, “embracing the funnel changes the way you treat people. And treating different people differently is what consumers demand.”
Understanding your funnels is key to creating a great product experience: that’s why at June, we offer free funnel reports and sales funnel analytics. In this article, you’ll get the basics you need to know about funnel analysis marketing to get results you want.
What Is Funnel Analysis?
A customer funnel is a representation of a user’s journey toward a meaningful interaction with your business. A feature activation funnel, for example, describes the steps taken by a user to start using a specific feature of your product. For instance, here is a possible journey that a Twitter user takes after registering on the platform:
- See tweet from your product’s Twitter account
- Click on tweet
- Read landing page
- Click on pricing page
- Read pricing page
- Click on free trial offer
- Subscribe to free trial
- Browse product dashboard
- Final action: Import email contacts in product (activated feature)
The further you go in a user funnel, the more likely the customer is to drop off, hence the comparison with physical funnels getting narrower the more you approach the bottom.
A funnel analysis is about identifying the different steps of your funnel, their characteristics in the context of your business, and how to optimize it to make each step faster and cheaper.
The Purpose Of Funnel Analysis
Mastering funnel analysis offers 3 main benefits for your business.
A funnel analysis identifies pain points in your users’ experience that cause them to leave your product. Having people visit your website is great, but it’s useless if you cannot find a way to keep them around. Without retention, your product is dead. If you don’t want that, you need to find how, when and why users opt out of your product or service: funnel tracking helps with that.
Talking to the wrong audience is another fatal mistake when you are trying to acquire and retain new users. It doesn’t matter how optimized your website’s copy is or how appealing your customer testimonials are if the people you’re talking to are not a good fit for your product―you can’t sell glasses to a blind man. Funnel analysis tells you where your users originate from, which is valuable to assess your best traffic sources, reduce your customer acquisition costs, and increase your marketing return-on-investment.
Last but not least, funnel analysis provides vital data to drive product decisions. Product development is basically about doing more of what works and less of what doesn’t. Funnels show you where you should focus your efforts to increase growth.
If you define an activation funnel for each feature of your product for example, you can objectively see which features users love to use. If you identify these features, you can redesign your user interface to push them to the front and attract more customers.
How to do funnel analysis: funnel analysis example
1. Define Your Funnel Analytics Needs
You can see funnels in everything that’s happening within your product. But since your resources are limited, you need to focus on what matters most for your business to grow.
To find out which funnels are most relevant to improve in your situation, you can start with studying your power users―active users displaying high engagement. Take the following power user curve powered by June:
In this chart, the product has some engaged users, but the product is not designed to encourage a daily habit. If this power user curve comes from a consumer product, engagement and retention need a lot more work and you will find onboarding funnels, retention funnels, and feature activation funnels helpful.
This second chart shows a more encouraging situation with a tipping point where usage starts increasing again: 7% of users open your product on a daily basis (31 total active days) and 25% every workday (at least 20 total active days), making them interesting groups of users to learn from.
Something good is going on, so you can now find out who these people are, where do they come from, which features they are using, and where they learned about your product to improve your growth strategy. You will want to optimize your subscription funnel, your free-to-paid sales funnel, or your team-invite funnel to create virality.
Dave McClure proposes the AARRR model to visualize each step of the product management funnel:
- Acquisition - How do users find out about your product
- Activation - How do users subscribe to your product
- Retention - What makes people keep using the product
- Revenue - How does your business make money
- Referral - How can you get your existing users to get more people involved
Each step can be turned into its own funnel. You can find more useful funnels depending on the industry you’re in or the type of product you’re building. Each situation calls for different models. In B2B, you want to optimize a sales funnel. In a B2C consumer app on the other hand, your focus might be increasing your signup rate.
2. Dig Deep Into Each Step Of The Funnel
Now you know what kind of funnel you are looking for, it’s time to define each step of it. The AIDA model can be used to design any sort of consumer funnel:
- Awareness - The buyer becomes aware of your product
- Interest - The consumer becomes interested in learning about your value proposition in relation to his personal needs
- Desire - The user develops a buying intent
- Action - The user subscribes to a free trial or makes a purchase
Each user funnel can be broken down in a similar fashion. The best way to visualize each step is by using a simple bar chart. Here’s how June does with the funnel template:
Super simple: out of 14 users who signed up to June yesterday (first step), 85.7% opened a report in the app (second step).
3. Calculate Your Conversion Rates
The efficiency of your funnel depends on the conversion rate of each step. You can calculate the conversion rate for every step by dividing the number of users who proceeded to the next step by the number of users who entered said step.
In other words: Conversion rate = People who have done an action / Total number of people who have visited the page
If 30 people read your blog post and 15 end up subscribing to your newsletter, your conversion rate is 50%. The higher the better. Finding out if your conversion rate is good or bad is another story.
If your goal is to acquire 1000 new customers to keep your product growing―a plateauing product is a dead product after all―and your conversion rate is 30%, you can estimate you will need to find a way to have 3000 persons enter your signup funnel somehow.
If you don’t have the budget to reach these 3000 persons, then your conversion rate isn’t good enough and you might want to optimize it first. You can look at industry averages to assess whether your conversion rates are good enough, but each business is different.
For example, a study by First Page Sage shows that the average conversion rate for SaaS products is 2%, from website visit to potential customer: if you can convince 5% of the people that visit your website to subscribe to a free trial, you are already above industry average!
Optimize What Doesn’t Work
Now that your conversion funnel analysis has told you which parts of your funnel need improvement, you can adjust your product roadmap to fix them.
First, you want to take a look at your funnel data and prioritize your highest drop-off points―the parts with the lowest conversion rates. Doing so has a compounding effect, because the steps at the beginning at the funnel are usually also the highest drop-off points. For instance:
- Increasing your conversion rate from visitor to newsletter member from 1% to 2% is much more impactful than increasing the conversion rate of the final sales by 10%.
- If 1000 people visit your website, 2% subscribe to the newsletter, and 50% become customers, you get 10 new customers. If you increase the subscription rate by 1%, you have a 50% increase in new customers (15 instead of 10).
- If you focus on increasing your free-to-paid conversion rate from 50% to 60% (+10%) instead, you only get a 20% increase in new customers (12 instead of 10).
From there you can resort to other analysis to better understand your user journey: retention analysis, active users analysis, or feature audits, for example. The more data you can cross, the more perspectives you get, which will help you make informed decisions.
Of course, you still need to interact with your users through feedback surveys and customer interviews to get a more concrete sense of their needs.
A few ideas to improve your funnel:
- Better audience targeting and segmentation - Design marketing campaigns to attract the right people. Find out your audience demographics, which marketing channels they use, and post content there―people will be more likely to check out your product.
- Optimized user interface - Reduce the number of clicks needed to perform a step. The simpler a process is, the more likely the user is to stick around and proceed further down the funnel. Low waiting time is equally important: according to Google, a 1-second delay in load time can impact conversion by up to 20% in retail.
- Improve your copy to drive decision - If you can’t talk the same language your potential customers use, it is unlikely they will perform a transaction. You need to tell them simply and clearly the value they can get from your product and which action they need to take to obtain it. Trust is everything, so adding reviews and testimonials from people they can relate to also works wonders to improve your conversion rate.Adapt your pricing - bad pricing is another common reason for drop-offs. Optimize your pricing page to give a complete and transparent picture of your different pricing plans. Complex pricing will turn people off, so good communication is key. A good pricing strategy is just as important to make sure it corresponds to your users’ needs, so you might want to analyze your power user curve to find the right pricing strategy.
Make Your Own Funnel Analysis With June
June provides funnel reports for free on top of Segment. Heck, June is a whole analytics funnel itself, ready to offer reports for all sorts of things you’ll need to create an awesome product. All it takes are a few clicks. Sign up today and start growing your product with a website funnel analysis, it’s dead simple to integrate into your workflow.