For ecommerce and multichannel retail businesses, sales funnel metrics are essential. Using a sales funnel model is a smart way to follow your customer’s journey from initial interaction to purchase, and analyzing funnel metrics can help you move people from lead to customer more quickly. And there’s good news: Sales funnel metrics aren’t that complicated to calculate, and the benefits to your business will make the time you invest in analyzing funnel metrics 100% worth it. We’ve put together a handy cheat sheet on sales funnel metrics - read on for more information about defining the sales funnel, calculating important metrics and more.
At the most basic level, a sales funnel is a customer’s buying process. It’s a way to measure the customer journey — the process by which someone discovers your brand, learns more about your products, and then ideally makes a purchase to become a customer. But a sales funnel isn’t just about your customer — it’s also about your business. Understanding your sales funnel can help you better define - and optimize - your processes for finding potential customers and selling your products. Sales funnels can apply to practically any business, in any industry. As long as you’re selling a product or service, you have a sales funnel. A sales funnel simply helps customers:
What that funnel look like obviously differs depending on your product or service and industry - for example, if you sell enterprise software, you might have a much longer sales funnel that involves several meetings with stakeholders - if you sell makeup, you might have a very short funnel that involves just one or two digital interactions. For ecommerce businesses in particular, the sales funnel typically consists of four stages: awareness, interest, desire, and action. At each stage, your goal is to strategically help the customer move along to the next stage of the funnel until they eventually convert.
For ecommerce and retail brands, defining your sales funnel is essential. When you define your sales funnel, you can better understand what you should be doing at each stage of the funnel to give your customers what they’re looking for - and you can evaluate how well your efforts are working. Knowing each step of your sales funnel will help you come up with a winning marketing strategy, and analyzing sales funnel metrics can help you allocate your time and resources more efficiently as you evaluate what’s going well and where you need to focus your efforts.
Your sales funnel should be comprised of a few key metrics, including entry point, conversion rate, and average sale. Below, we’ll go into more detail about each metric, including why it’s important and how to calculate it.
Your entrances can be defined as the number of leads that enter your sales funnel during a specific period of time. To find your entry point, it’s important to know where your sales funnel starts. Does it begin when someone joins your email list? When they walk into your brick-and-mortar store? When they click on a Facebook ad? What exactly does that look like for your store - and how can you track it? Define where your sales funnel starts and you’ll define your entry point - and get to your number of entrances. This is an important funnel metric, because it’s the starting point for the rest of your sales funnel. You can calculate your entrances by adding up the number of leads you’ve reached in various ways during a specified timeframe. You can also calculate this on a per channel or per campaign level (for example, tallying up the total number of clicks from your Facebook or Google ads). For ecommerce websites, if you’re not evaluating conversion on an individual campaign or channel level, an easy way to define this is just the total traffic that visits your website in a given period.
Your conversion rate is the percentage of leads who convert into customers. Since your goal is to convert as many leads as possible, defining your conversion rate can help you figure out the best way to do that. More than that, tracking your conversion rate over time will improve your efficiency and, ultimately, help increase your revenue. For most ecommerce businesses, a conversion equals a sale. But depending on what you’re measuring, a conversion can also mean an email subscription, a download, an event signup or any other desired action taken. If you have a particularly long sales funnel, you may even have several different smaller conversions along the way that you want to track, and working down from the top of the funnel can help you spot any weak links in your sales funnel. For example, if you sell a high-end custom product and your sales funnel involves requesting a quote and submitting information before ultimately purchasing, you might have two or even three different conversion rates throughout the funnel - and two or three opportunities for people to fall off before purchasing. Conversion rate is one of the easiest sales funnel metrics to calculate - you just divide the total number of conversions by the total number of leads who entered the funnel, and then multiply by 100 to get a percentage.
If you’re trying to track multiple conversion rates throughout your funnel, you’ll just divide the total number of customers who made it to the “converting” step by the total number of customers at the previous step in the funnel (then multiply by 100).
Ultimately, you want your conversions to turn into revenue. Tracking your total sales - the total revenue generated from orders placed in a given time period - is a great way to evaluate that, and determine just how much money your sales funnel is bringing in. To calculate total sales, you’ll just want to add up the revenue generated from your sales for the period you’re looking at - a number you probably have easy access to. If not, you can calculate it by multiplying your total number of sales in a given time period by the price per unit of the items sold.
Total sales is one of (if not the) most important metric for measuring the overall effectiveness of your sales funnel and tracking your growth over time. If you’re converting customers and your total sales are high, you’re in a great place. If you’re converting customers but your total sales aren’t where you want them to be, you may need to look into measures like ramping up customer acquisition or adjusting your product pricing.
Another important funnel metric is average order value. This term refers to the average revenue generated by an order - or the conclusion of your sales funnel, for ecommerce - and it’s measured by finding the average amount spent on an individual sale per customer. It’s also a very simple metric to calculate. You can find your average order value by taking your total revenue generated in a given time period, and then dividing by the number of orders you received in the same time period.
Average order value is important because it can help you see, on average, how valuable each customer who completes your sales funnel is. If your average order is small, you may want to consider expanding your target audience and looking for customers who spend more - or using things like product bundles, cross-sells and upsells to drive up your average order value. However - keep in mind that this only looks at the value of an individual purchase. To understand the impact of the customers you’re converting over time, you’ll also want to look at their lifetime value, or how much they’re likely to spend with you over their entire relationship with you.
Sales funnel metrics can help you understand your performance through the lens of a few critical, performance-driven KPIs, and help you identify opportunities for growth. Keep in mind: it’s important to look at the sales funnel as a whole instead of cherry-picking one or two metrics. By analyzing the entire sales funnel, you can determine where you’re doing well and where you might be losing prospects. Once you identify those trends, you can strategically plug the holes by ramping up efforts in those areas. Metrics such as the length of your sales cycle can also be helpful when you’re trying to determine the effectiveness of your funnel overall. Sales funnel metrics can also help optimize your efforts as you work to improve your ROI. Any gaps in your funnel will drive your return on investment down, so you want to be sure you’re maximizing every step. Keeping an eye on these metrics will allow you to constantly optimize your process so that leads will convert more reliably, and your ROI will improve. Finally, your funnel metrics will help you see how people are ultimately responding to what you’re doing. Is your click-through rate high? Is your email list growing? These are good indicators that you’re doing a good job of putting out content people want to interact with. If not, it’s a good indicator of where you need to make changes in order to get a better response. Identifying your sales funnel metrics and drawing the right conclusions can take some time and effort. But once you’ve got the process down, regularly analyzing your funnel metrics can take your business to the next level.
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