What is a Marketing Funnel, And Why Should You Care?

August 10, 2015

Small Business Marketing Funnel Example

If you’ve done any research at all into growing your small business you’ve likely heard that you need to be:

  • “filling the top of your funnel”
  • “focusing on the middle of the funnel”
  • “tightening the bottom of your funnel”
  • and other such marketing jargon

Which probably leaves you wondering, “what is a marketing funnel?” and “why do I need one?”

In this article I am going to not only demystify the marketing funnel, but provide you the framework to see where your current marketing activities lie in the funnel and how these things all work together to find prospects and nurture them until they are ready to buy your product or service.

What Is a Marketing Funnel?

A marketing, or purchase funnel is a term used to describe the overall marketing activities that are in place to help a visitor progress through a defined sequence resulting in a new customer. It is called a funnel because as you move down towards the user making a purchase decision and becoming a customer the number of people decrease, leaving it looking like a funnel.

They typically are illustrated with new prospects entering in the top and exiting out the bottom as a customer.

I’ve seen funnels illustrated in every which way, even upside down arguing that because there is effort involved in selling the prospect they are lifted up into the next stage. No matter what the diagram looks like at the end of the day a marketing funnel is the steps you and your prospect will take on their journey to become a customer. These can be:

  • Ads you run
  • Coupons
  • Emails you send out
  • Phone consultations
  • Providing an estimate
  • Having coffee with a prospect
  • etc.

Think of each of these activities as a potential waypoint on the buyers journey. When these are plotted as a line and arranged they fall somewhere between the top of the funnel (just heard of you) and the bottom of the funnel (considering a purchase). When you look at the number of times each of these interactions happened in a given time period it probably looks a bit like this:

An example of a small business marketing funnel

A savvy marketer can factor in time to close and forecast with astonishing accuracy earnings into the future based on the [funnels metrics], traffic in each stage, average order value, and time to close.

What Does This Mean For My Business?

With around 66% of small businesses either maintaining or increasing their digital marketing spend* the landscape is undoubtedly going to become more competitive. Since most only advertising pricing is based on an auction style model more competition means increased cost.

By essentially mapping each stage of the buying process in your “Marketing Funnel” you can calculate how much you can afford to spend on a visitor to your website, per lead, per consultation, and per customer as a whole while remaining profitable.

While this doesn’t sound like much it really separates the men from the boys as they say by allowing you to “nail it, then scale it”. Small businesses that flourish know these numbers and are willing to spend money confidently on their advertising, rapidly growing their businesses.

*Based on the results of this AT&T Study

Real World Example: How Marketing Funnels Work

To illustrate this in real life consider the following simple example:

Joe recently turned over 100,000 miles in his car and it is starting to make interesting sounds when he is driving in to work. It’s always been a solid car and it does the job. With a new kid on the way Joe and his wife plan on driving Joe’s trusty car into the ground since money is a bit tight and it is just transportation after all.

That weekend Joe is watching the football game when he sees an ad for a new car. Not even aware of it, the ad is tucked away in Joe’s subconscious. Over the coming weeks there are a few more ads reminding Joe about them and he in turn starts noticing that the new cars look pretty nice. That night he decides to hop on Google and read a bit more about a new car. He’s not going to buy one mind you… But it would be nice to read a bit about them.

Enter The Top Of The Marketing Funnel

You are here: Top of the Marketing Funnel

The top of the marketing funnel is where potential customers are first identified. In order to be in the funnel they must be “known” to the marketer. But as in our example of Joe you’ll see that a prospect doesn’t need to opt in to identify themselves…

When Joe first clicked on the car dealers link from Google the car dealer placed a “cookie” in Joe’s browser cache identifying Joe’s computer as a potential customer. (They actually placed 42 cookies, but hey who’s counting) The cookies are harmless enough, the car dealer doesn’t know who Joe is… But they know someone operating that computer is interested in their cars… Even which model he was checking out.

Ford Tracking Cookies From Visiting Their Site

Hello Big Brother… Ford Places 42 Cookies On Your Computer Just For Visiting Their Site!

The next morning when Joe is having his coffee he goes to check the weather and notices there is an shiny new Ford Fusion below his forecast… The same one he checked out last night! Because Ford is using [retargeting ads] these cars follow Joe around the internet for awhile until he eventually he caves and decides it couldn’t hurt to get a price. The website allows him to build a Fusion to his liking but afterwards there is a button that promises a “best price” from local dealerships. Joe is about to descend deeper into the funnel.

The Middle Of The Funnel

You are here: Middle of the Marketing Funnel

The purpose of the middle of the marketing funnel is typically to segment the prospect. This is done by identifying what that prospect is interested in. Typically a sophisticated marketer will rotate through the benefits of their product until the prospect bites (clicks). This identifies key triggers to making a purchase decision allowing the marketer can approach and ask for the sale from the best position.

Let’s return to our example of Joe to see this in action…

When Joe goes to get his best price he is met with a form asking for his information. Curiosity gets the best of him so he goes ahead and enters his info… Simple enough and later that day he receives a few introductions from sales people at local dealerships and quotes for that Ford Fusion he’s been looking at.

Get A Price Quote - Where Visitors Turn To Contacts

Entering Information On A Contact Form Is A Common Way To Move A Prospect Down The Marketing Funnel

He makes a note, ignores them and after a few tries the sales people are off hunting for their next victim and Joe is in the clear, or so he thinks. The car goes on the back burner and Joe continues to receive periodic emails from Ford. He skims a few but overall he ignores them.

Later that month Joe and his wife have the baby and it is immediately apparent that his two door car is not kid friendly. That evening Joe is back on the website researching car seat options for the four door Ford Fusion that has been stalking him around the internet.

Little does Joe know, whenever he clicks links in an email or on their website, Ford’s [marketing automation software] records the behavior and sends the information to their customer relationship management software (CRM). It also tailors future communications as we’ll see next.

Bottom Of The Funnel, Where Leads Turn Into Sales

You are here: Bottom of the Marketing Funnel

Once a prospect has identified a key purchase motivator they are typically dropped down to the bottom of the funnel where a sale is attempted. At this point the prospect is hot and the clock is ticking!

The next day Joe receives an email from Ford with a picture of a young family in front of their shiny Ford Fusion complete with a baby in a car seat. (Yes, this is creepy and entirely possible). The text below centers on it being kid friendly, safe, and still a lot of fun to drive.

Joe clicks the link to schedule a test drive. When he arrives at the dealership it is apparent that the salesman has done his homework on Joe’s profile because the tour starts with an inspection of the ample car seat room in the back seat, room for a stroller in the trunk, and about 10 minutes worth of bullet points on the cars award winning safety. Before they start the test drive Joe realizes his wallet is about to get a bit lighter.

While Joe may or may not buy, from a prospect standpoint he is at his most qualified point. He is interested enough to give 100% of his attention to the problem of his transportation and wants a sales presentation in the form of a test drive.

Take Action: How To Use A Marketing Funnel To Improve Your Business

Step 1: Understand Your Marketing Funnel

The first thing you need to do to really “own” these concepts is to visualize a marketing funnel as applied to your business. What are the steps your clients are taking to purchase your product? Is it uncovering further information about their problem, a contact request form on your website, then a phone call where you present your solution for sale? Marketing funnels do not need to be complex.

Step 2: Determine The Value Of A Customer

Next determine (if you don’t know this already) the average value of one customer to your business. If you are a realtor this may be several thousand dollars. If you sell T Shirts at events it may be $20. Typically you will want to take a lifetime value of the customer. (A personal trainer may run you $120 per session, but on average her clients book her 2 times a week and retain her for 3 months for an average of 24 sessions).

$120 x 24 sessions = $2,880 Average Customer Value

Further Reading: Here is a great article from Entrepreneur that goes deeper on calculating the lifetime value of a customer.

Step 3: Get An Idea Of The Steps A Buyer Takes To Purchase Your Product

Now it’s time to get an idea of the specific steps in your business that a client takes prior to purchasing. We visualized it in step one. Now put pen to paper and write them down. Go high level here and aim for 3 – 5 steps.

Examples:

  • Visit Website -> Submits Contact Form -> Discovery Phone Call -> Customer
  • Receives Flyer -> Schedules Free Training Session -> Shows Up To Session -> Customer

Step 4: Get An Idea Of Your Conversion Rate Between Your Marketing Funnel Stages

Once you have established the steps your customers are taking let’s put some numbers to them. Take the last month and use that for your data. Having a wild guess of a number is okay, you can always get more accurate in the future. These numbers are incredibly important because they will ground you in reality and literally change the way you look at your business.

Here is an example based on the personal trainer above:

What is a marketing funnel, and why your should care

As illustrated above we now see all kinds of incredibly valuable information about our business that would help us making informed decisions regarding our marketing. Based on this we know that:

  • Each flyer we send out is worth $11.52 in revenue.
  • Booking a session is worth $460.80.
  • Each session attendee is worth $1,152.

If you were Mary, you might look at this and immediately start following up with people who book free sessions to increase show up rate!

Step 5: Understand The Questions Your Prospect Has In Each Step

Next you want to understand the questions in your prospects mind in each of the steps of your marketing funnel. To use Mary’s personal training as an example again it might be something like:

  • Top of Funnel: Do Personal Trainers Help People Lose Weight?
  • Middle Of Funnel: Can A Personal Trainer Help Me Lose Weight? Do I Need A Trainer?
  • Bottom Of Funnel: Is Mary The Right For Me? Does The Value Outweigh The Cost?

Step 6: Determine The Best Answers To Those Questions

Once you have these questions determined it’s time to draft your best answers to them. Based on your experience what answer motivates people those most? Make a note of these next to the questions.

Step 7: Create Emails and Marketing Communications To Speak To The Stages And Corresponding Questions

Finally apply these answers in your communications with the client. These communications can include:

  • Ad Text
  • Articles and Blog Posts
  • Emails
  • Consultation Calls
  • Face to Face Meetings
  • Interviews

While it seems pretty self explanatory most people will compose a few emails around the marketing funnel lifecycles and that’s the end of it. I’m a big advocate of actually mapping your customers buying journey because it’s often eye opening and will change your sales approach as well. By speaking to the current questions they have your marketing will be in sync and therefore much more effective.

Step 8: Automate Your Marketing Funnel

Once you have everything together it’s time to set it and forget it… (Or at least have your automation specialist handle it.) The premise of marketing automation is taking these pieces of content you came up with in the 7 steps above and making sure they are delivered consistently to every new prospect in you funnel. This creates a flywheel that allows you to not only grow your business, but move on to other tasks confident your funnel is churning out new customers around the clock.

Further Reading: Marketing Automation For Small Business In 5 Easy Steps

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Marketing Automation for Small Business Should Grow Results Over Time

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