Understanding the metrics of your funnel is a crucial step before you can start scaling the traffic you are getting to it.
Before creating any funnel you need to create a simple model and understand what kind of numbers you need to be hitting before you launch any traffic to the funnel.
I see a lot of people not understanding their numbers as the main cause of the failures with their funnels, as rarely you will see your funnel convert right from the start.
So here are 5 simple steps you can use to build the funnel model that will ease your decision making and allow you to scale your funnel.
1) Determine you Average Order Value (AOV)
If you have one product and one payment plan it will be easy. If you have multiple products and pricing tiers, you need to do an estimate or pull any historical data.
Average order value is the amount of money your customers spend on the first transaction with you on average.
So from historical data, you would pull all the revenue you generated on the first transaction and divide it by number of customers
AOV = Number of customer
Total 1st purchase revenue
2) Determine your profit margins
This will greatly depend on the type of product/service you are selling, but this is also a crucial step.
You need to know how much profits you are making on each sale so you can know what’s acceptable Acquisition cost for you.
Now, this can vary a lot depending on the business situation (for example info product VS Physical product, Monthly recurring service VS one-off, funded startup vs bootstrapped) and you are the only one to know how much you can and should afford to acquire a customer.
3) Get your target Cost Per Acquisition
Once you’ve determined the profits you are making on each sale, you can go ahead and determine what is your target cost per acquisition (OR CPA, or Customer Acquisition Cost).
You can choose to make a 10x ROI on each customer
You can be more conservative and chose 2x ROI
If you just want growth and will make profits later, you can choose to be break even (CPA = Profit you’re making on the first sale)
Or you need growth at any cost you can choose to have payback period, IE CPA > Profits you make on the first sale. Here you would need to understand your numbers really well and have some external funding to allow you to take losses on first purchase.
4) Map your funnel by steps your customers need to take
There are a couple of ways to go about this one.
Here’s one that is the most simple
List all of the actions your prospect need to make to get to the purchase with you.
An example would be:
Click an ad
Sign up for a free webinar
Show up on the webinar
Schedule a call with a strategist (strategy session)
Make a purchase on the phone
Now name each of those steps as a separate cost to do that action:
Cost per click
Cost per Webinar registrant
Cost per webinar attendee
Cost per strategy session
Cost per purchase
Now you have the list of all the numbers that you need to be tracking in your funnel.
5) Work backwards to get a model
You have your last number (Cost per purchase = CPA) and you know how much you are willing to get that number.
Now work backwards to see how the rest of the numbers need to be
If your close rate on the phone is 20% you need to have 5 calls to make 1 purchase.
That means your Cost per Strategy session needs to be CPA divided by 5.
If your webinar attendees convert at 10%, you need to have 50 people on the webinar to get 5 calls.
That means your cost per webinar attendee needs to be CPA divided by 50
If your webinar registrants attend the webinar at 75%, you need to have 67 webinar registrants to get 50 attendees
That means your cost per webinar registrant needs to be CPA divided by 67
And finally, if your clicks to landing page convert at 50%, you need to have 134 clicks to get 67 registrants.
That means your cost per click needs to be CPA divided by 134
Let’s do a quick example.
Let’s say your CPA target is $200
Based on the guide above:
Cost per strategy session needs to be $40 (200 / 5 IE CPA / # of strategy calls)
Cost per Attendee needs to be $4 (200 / 50 IE CPA / # of attendees)
Cost per registrant needs to be $3 (200 / 67 IE CPA / # of registrants)
Cost per click needs to be $1.5 (200 / 134 IE CPA / # clicks)
How to use this model:
This model is your north star. You always want to be mapping out the ideal scenario and what is the best outcome you want to achieve.
It also needs to serve you to cross-reference the actual numbers and see where is the biggest room for improvement.
You will do that by identifying which actual numbers have the biggest discrepancy against the model.
It can also serve you as a guide where to focus most of your efforts to improve the performance of the funnel.
In our case above, the biggest bottleneck is the close rate on the phone (20%). If we wanted to slash our CPA by half, the only thing we’d need to do is double the close rate on the phone to 40% and we’d have CPA for $100 (assuming all other numbers stay the same).
Numbers sometimes cause confusion, but they are vital to any success with funnels. As one of my mentors always said, “it’s all a numbers game”
Started with online advertising and marketing in 2014. Managed over $1,000,000 in ad spend over duration of his career and generated over $3,000,000 in revenue with paid traffic. Currently works as on paid acquisition at Kettle and Fire and is owner and advisor in his Kangaroo agency which is specialized in Facebook advertising and acquiring customers via paid online traffic.