Funnel Analysis: Definition, Benefits And Key Steps

By Indeed Editorial Team

Published 13 October 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Marketers and sales professionals use a range of analytical methods to measure how well they connect with potential consumers. One type of analysis involves mapping the customer journey through a funnel, which starts out wide and narrows as customers perform certain actions. If you are a sales or marketing professional, learning about this technique can help you improve your strategies and increase the revenue you bring to the company.

In this article, we define funnel analysis, describe some processes you might evaluate with the funnel model, share some benefits of this type of analysis and explain how to conduct it on a sales or marketing process.

What Is Funnel Analysis?

Funnel analysis is an evaluation method used by sales and marketing professionals to describe the steps customers take before completing a certain action, like buying a product or subscribing to a service. The funnel shape refers to the initial group of potential customers, which is often very large. As customers move through the process, the number of customers in each stage grows smaller. By the end of the funnel, the only customers left are the ones who complete the action the marketing and sales professionals want them to perform.

Related: What Is The Difference Between Sales And Marketing?

Types Of Funnel Processes

Here are a few of the key processes sales and marketing professionals might evaluate with this method:

Sales

The sales process is one of the most common processes in funnel analysis. The funnel shape works well to describe the different steps consumers take before deciding to purchase a product or service from a company. Here are the key stages in a sales funnel:

  • Awareness

  • Interest

  • Desire

  • Action

  • Loyalty

Sales and marketing professionals who want to improve their company's consumer appeal might employ this analysis within each of those stages. For example, a sales director who wants to improve their team's close rate might perform an analysis on the desire stage to see what factors encourage consumers to move into the action stage and make a purchase. They might find that potential customers who received a personalised email from the sales team during this stage were more likely to convert into paying customers. This knowledge can help the sales director design sales processes that appeal to consumers.

Web activity

Marketers often use this model to understand traffic on a company's website or social media accounts. Here are a few key customer actions that marketers might assess with a funnel model:

  • Subscribing to a newsletter or social media account

  • Sharing a post

  • Visiting a website

  • Following a link from an online ad

  • Making an online purchase

Related: What Is SEO? (Plus How To Use It In Marketing Campaigns)

Benefits Of This Process

Using this method to track customer behaviour can provide a variety of benefits for a company, including:

Increased understanding of pain points

Pain points are events during sales or marketing funnels that cause consumers to drop out of the funnel or stop pursuing their interest in a company's products or services. If marketing and sales professionals can identify the pain points in certain stages, they can improve their tactics to retain more potential customers. Analysis helps with this process because it measures the percentage of consumers who leave the funnel at certain points.

For example, a software company might have a specific sales cycle for corporate customers. Analysis of this sales cycle might help the sales manager identify places where the company loses potential customers, like the time between the customer's first call and their demo meeting with an engineer. Once they know that this is a pain point, the sales director might ask the content marketing team to create resources, like videos and infographics, that the sales team can send to customers during this period to keep their interest active.

Related: What Is A Point Of Sale System? (With Types And Benefits)

Increased close rate

Understanding the reasons customers leave a sales cycle can help sales professionals increase the close rate for the company, which is the percentage of potential customers who decide to make a purchase. By improving each individual stage in the process, they can ensure that more customers remain in the funnel when the time comes to make a decision. Also, if each stage in the process has improved for the customers, they may have a more positive impression of the company, increasing their desire to make a purchase.

For example, a car dealership's sales director might perform a multi-step analysis and identify four main pain points throughout the stages of the sales cycle. Over six months, the director implements new programmes and policies to improve the customers' experience at each stage of the process. As each stage improves, the overall close rate might also increase, as customers are more likely to be satisfied with their service throughout the sales experience.

Related: How To Improve Your Sales Skills: A Step-By-Step Guide

More successful lead generation

This method can tell sales and marketing professionals about the success of their marketing efforts with customers of different ages, occupations and locations. Understanding what types of customers are most likely to perform certain tasks, like subscribing to a social media account or making an online purchase, can help marketers design lead generation activities that attract these customers. With larger, more relevant lead pools, sales professionals might find it easier to meet or surpass their sales quota, helping the company to grow.

For example, a tutoring company's sales and marketing team might work together to conduct an analysis on the online sales process for the company. Through this analysis, they might learn that the potential customers who are most likely to close a deal are college students, while parents of younger students often prefer to purchase tutoring over the phone. Knowing this, the marketing team might design some lead generation strategies that target college students, like free webinars about study skills. By attracting more consumers who close in the funnel, the marketers can support the sales team and increase the company's revenue.

Related: What Is Lead Management? (Importance, Steps And Tips)

How To Conduct This Analysis In 5 Steps?

Here are five steps you can take to conduct this type of evaluation on a sales or marketing process:

1. Determine the process you want to analyse

You can use this method to analyse any process that starts with a large group of potential customers and ends with a smaller one. You might use it to examine the entire sales process for a product or a single stage within that sales process. Marketers and social media analysts might also use this model to understand the browsing behaviour of consumers who visit a company's website or social media account. When you choose the process to model, identify the group of consumers who take part in the process and the ultimate goal of the process.

Related: How To Become A Market Research Analyst: A Complete Guide

2. Divide the process into stages

Once you have identified a process to model, you can divide it into stages to place it in the funnel diagram. Consider key actions that the customer takes during the process, which might indicate the end of one stage and the beginning of another. For example, in a traditional sales cycle, the customer might see advertisements for the company on their social media feed and search pages during the awareness stage. When the customer clicks on a link to visit the company's website, they enter the interest phase.

Related: How To Increase Sales Volume (With Tips And Steps)

3. Find conversion rates

After you divide the customer process into stages, you can use marketing and sales data to find the conversion rate between the stages. You can usually find this information by using an analytics program that tracks the web traffic and sales activity of a brand. For example, to find the conversion rate between awareness and interest, you might compare the approximate reach of all the company's web advertising efforts to the number of website visits by unique users. Sales and marketing management programs often collect this information and display it in reports or dashboards, making it easy to locate.

Related: What Is Social Media Analytics? (Definition And Importance)

4. Create the model

This method usually involves creating a graphic representation of the process and labelling each stage with its title and conversion rate. You might create a funnel by hand or use a graphics program to make your chart. Some marketing and sales management tools have pre-made funnel templates that you can use. Consider using contrasting colours to emphasise the conversion rates between stages. At the transition between each stage, write the conversion rate in a decimal or percent.

Related: What Is The Bottom Of The Funnel? With Ideas And Tips

5. Analyse the data

Once you have created the funnel, you can use it to identify pain points where customers leave the cycle without completing the main objective. For example, a funnel model of a marketing process might find that consumers sign up for webinars, but a relatively low percent of them attend the programmes. The company's marketing team loses the opportunity to strengthen the customers' relationship with the brand if they miss the webinar. After finding a pain point, investigate it to improve the process. To increase the number of customers who attend webinars, the marketing team might send reminder emails.

Explore more articles