Data-Driven Marketing
Know The Marketing Funnel — Proven Secret to Get & Retain New Customers — Introducing Part 1
Track how your marketing budget is bringing in customers. There’s a method to this madness
My friend and I started a startup almost a decade ago.
We’d take customer feedback to design the ideal shirt.
The core idea was sound — and the business was slowly growing. Unfortunately, that growth was not fast enough for us to devote more time.
I saw an out. I sold my shares in that startup and made a whopping 12x return!
Awesome, right? I just hit the jackpot!
Nope.
We stopped 3 feet away from gold. The business had tremendous potential. We just didn’t know how to read it.
We Had No Clue About Using A Marketing Growth Funnel
Well, we were not alone in this.
But that can not be an excuse. We can’t make mistakes because others also do that.
The statistic above is proof that entrepreneurs leave so much money on the table! Only because we don’t know how to see it!
Almost a decade later, when I was leading the marketing for a startup, I customized the famed AARRR Framework according to our needs.
Our business was an early-stage entry in the service industry. We needed to optimize our marketing spend. Our Customer Acquisition Cost (CAC) had to go lower. We aimed to increase Customer Lifetime Value (LTV).
These needs led to using the Marketing growth funnel, in a slightly modified manner.
What is Marketing Growth Funnel?
Pirate Metrics (AARRR) or Marketing Growth Funnel is a framework used by marketers. It helps to
- Tracks what stage consumers are in
- Shows how to grow customer base by moving using different steps of the funnel
Our customized version looked like this —
How does it help Marketers?
Helps New Customer Acquisition
Every business starts with customer acquisition. The first three parts of the funnel focus on acquisition.
If Uber enters a new country — It’s customer base would be zero there. It has to start from scratch. The first three steps — Awareness, Activation, and Acquisition outline the journey a potential customer goes through.
Shows How to Retain Customers
44% of businesses focus on customer acquisition, while only 18% focus on customer retention. It is cheaper to retain customers than to acquire new ones. Acquiring a new customer costs 5 times more than retaining existing ones.
Imagine your local Starbucks — Its daily customers are mostly regulars. Starbucks doesn’t have to pay to bring them back — just maintain a standard service. If it only served new customers, Starbucks would have run out of consumers in its service area.
Tells How & Where Marketers Should Spend
CMO Survey projects that digital marketing spending will increase from 44% to 54% by 2024. Why are they increasing the budget? Because Digital Marketing has become more cost-effective.
This tool helps in making such decisions. This is called a funnel because the top part has more audience in it. The further it goes down, the narrower it becomes. The top of the funnel (Awareness) is about casting a wide net. From that wide reach, the aware audience gets activated. A portion of that activated audience becomes paid customers.
The top of the funnel has to be wider. If you see that your total number of aware audiences is similar compared to the activated audience, you need to make more people aware of your product. Similarly, if a large number is aware but no one is paying for your product, you need to focus on acquisition.
In our T-shirt business, more than 50% of our aware audience became our paid customers. We needed to spend on awareness and expand distribution. We could have used Facebook Ads to target a different locality.
Helps Manage Marketing Budget
Once you understand the funnel, you will see that you can calculate channel-wise customer acquisition costs. That means you will be able to see which channel (like Google Ads) brings in most customers at the cheapest rate.
For example, If Facebook is costing $2 per acquisition and Google ads are costing $1.5, it is prudent to use Google Ads.
Now Let’s Have a Look At How to Use The Funnel
I will use two examples in each of the segments to make the concept easier to understand.
Step 01: Growth Funnel Starts from Creating AWARENESS
By definition, Awareness is the process of letting your intended audience know that your product is now available for consumption. This is called a top-of-the-funnel activity.
While awareness can feel like spreading a random net, you have to be careful with it. According to MarketingBlender, 73% of consumers report feeling frustrated when they see irrelevant content.
In this era of micro-targeting, you can promote your products to those who are likely to be interested.
Writing on Medium — Example:
Imagine that you have just written your first article in Medium. Your first step would be to make people aware of that article. As this is your first article, you don’t have any followers in Medium. You can submit the article to a publication to reach its base. Then you can share the article with your peers and on social media. You can use paid ads to get it to people who are not connected with you. All of these activities will push your article in front of them. This audience might become aware of it if they pay attention.
To calculate how many people you have reached, sum up all the people you have potentially reached. For this exercise, let’s assume you have written an article title “Why Do I Hate My Work?” and it has reached 5000 people. However, they have not clicked on the article yet.
T-Shirt Selling Website — Example:
You are planning to sell t-shirts online.
You have your website and products ready. You have started Social Media & Search Engine Marketing to promote your product. 10,000 people have seen your ads on social media and 10,000 more have seen them on search engines. These 20,000 people are now aware of your product.
You can see these numbers from the ad you will run. Apart from paid ads, there are other ways to promote. That’s a different topic and I will write about that later.
Step 02: Now that audiences are aware, it is time to ACTIVATE them
Once your intended audience knows about your product, it is time for you to make them consider purchasing it. This step should bring the consumers to your touchpoint. If they are not interacting with a touchpoint that you control, then you have not activated them properly.
63% of consumers need to hear a product/service’s claims 3–5 times before they actually believe them. Activating is not easy — and it takes persistent efforts.
The activation can happen well before purchase or all steps can happen in quick succession.
Writing on Medium — Example:
Your article has reached 5000 people but they have not clicked it. The number of people who click on it and views it becomes your activated audience. They can also skip the viewing process and directly subscribe to your email list.
Let’s assume out of 5,000 people, 1,000 people viewed the article. You have a 20% conversion rate here. If this holds, you can assume that if you reach 10,000 people, 2,000 of them would have viewed the article.
Also, this information gives you clues to improve your awareness-to-acquisition ratio. If you think 20% is low, you can work on your featured image, title, and subtitle.
T-Shirt Selling Website — Example:
From your ads, you have reached 20,000 people. 1,000 of them clicked on them and landed on your website. If they are on your website, you can retarget them. In summary, you have activated them. Your AWARENESS TO ACTIVATION conversion rate is —
Some of them may even sign up for newsletters or updates. They can create an account on your e-commerce site.
If you have enough information to reach them again, then that audience qualifies as the activated audience.
Step 03: The next step is Customer ACQUISITION
The acquisition is a process of making an aware or activated audience your paying customer. The moment they purchase your product, they become their customers.
You must try to maintain an easy-to-use customer database. Remember, retention is easier than acquisition. These audiences are now using your product but you can’t take them for granted.
Writing on Medium — Example:
Out of the 1000 people who viewed your article, 500 have read it. As per Medium policy, you will generate revenue. These audiences have become paying customers.
However, this is less than ideal because you don’t exactly know who they are or how to reach them. That is why successful writers like Tim Denning or Sinem Günel ask you to subscribe using your email. If you also ask your readers to subscribe, then you may have their email ID.
Let’s assume you have their email ID as well. You write a series of emails promoting your ebook or course. 10% of the email list eventually purchases from you. This is a group that purchased directly and willingly from you. They become our acquired consumers/customers.
T-Shirt Selling Website — Example:
You have successfully brought 1000 people to your website. They have checked out your product and like them. The pricing is in their range. 100 of them purchase a t-shirt from you.
What is the Point of these Ratios/ Conversion Rates?
These ratios will help you improve performance
If you see that only 5% of your aware audience are visiting the website, you can experiment with our ad image, copy, call to action, and targeting to see if your results improve.
Similarly, if you find that only 10% of your activated audience are becoming paid customers, you can run retargeting campaigns with limited-time discounts, lowered prices, down-selling products, etc. to get more consumers.
As a Medium Writer, you discovered that your number of views is low. You can increase your article view numbers by promoting your long-form articles through the short form. Tom Fenske runs a publication named “The Shortform” which might help you reach more readers.
T-Shirt Selling Website — Example:
You have reached 20,000 people with your ads and only 5% clicked on them. You can change the image you used, the ad copy, and even the call to action button. With digital media ads, you can do A/B testing to see which one does better. Out of those 20,000, if you can bring in a 10% extra audience to your website, your revenue can increase an extra 10%.
Out of those 1000 who visited your site, only 100 bought t-shirts from them. The other 900 maybe didn’t like the designs, fabric quality, or didn’t find the right size. You should create an exit questionnaire to capture their feedback. Let’s assume it 100 of them left because their size was not available. You can make that available and run a retargeting ad saying “New Sizes Available”.
Some might be leaving because of the price. You can offer them old designs at discounted prices or offer limited-time bundle pricing. Pricing is often a psychological game.
All of these will increase your number of total paid customers.
We will cover the other 2 funnel elements in a future article. Those two are focused on Customer Retention and Loyalty.
How To Use Marketing Growth Funnel — Part 2
Final Thoughts
Understanding what to do with each stage of the funnel helps you achieve more. To summarize, the growth funnel can
- Help New Customer Acquisition
- Show How to Retain Existing Customers
- Suggest How & Where Marketers Should Spend
- Assist in Managing Marketing Budget
The Funnel asks you to make audiences aware of your product, activate them and acquire them by converting them into paid customers.
I did a consulting project once with a startup that was not using its funnel properly. When they agreed to offer down-selling options, their sales increased by 8% within a week! That 8% was always there on the table but they didn’t know how to take that.
Don’t leave money on the table.
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