In an ideal world, you would of course have a cylinder-shaped sales funnel, where all the people that have heard of your e-commerce business end up buying your product. The typical scenario, however, is one where only a tiny fraction of all the people that have been exposed to your company actually get interested and eventually become paying clients, whereas most don’t even start to care for further interaction with your brand.
What’s great about visualising your customers’ journey, is that it can directly help you increase sales. Once you start to understand your ecommerce visitors and the customer journey they go through, you can reduce the unnecessary obstacles and target your messages better, guiding your customers all the way through the sales funnel: from a first-time visitor to a loyal customer.
A Graph of the Ecommerce Sales Funnel depicts the stages of a customer journey. It is used as a diagnostic tool and for deeper tactical planning.
Introduction to Ecommerce Sales Funnel
Although terminology for sales funnels varies (e.g. sales process/ revenue/ conversion funnel, etc.), all of them essentially refer to the structured view at the customers’ buying process: everything from a prospect getting to know your brand to purchase the product, to them coming back for repeated purchases and becoming loyal customers.
If you looked at it from a user’s point of view, just think of how many times you have passed an ad of a never-before-seen brand, which instantaneously converted you into a paying client? Exactly. Most of the purchases are at least somewhat premeditated and take a lot of convincing to do. Everything from you googling the product reviews and doing side-by-side product comparisons, to getting catchy newsletters in your mailbox and seeing the fun and memorable youtube sponsored ads before you finally decide to buy the product.
Sometimes, becoming a buyer can be as instant as right after seeing the ad for the very first time. And other times, companies have to convince a prospect a long time before she finally purchases a product. Regardless, all of the steps taken by the prospect could be assigned to one of the few stages of the sales funnel that every single person goes through before they become confident in their willingness to purchase or repurchase a certain product.
But because convincing people of the need for your product and of your superiority against competing brands is a hard task, not all will want to follow all the way, hence the funnel analogy.
The 4 Stages of a Sales Funnel
The ways that ecommerce companies lead their customers through this sales process vary depending on the nature of the product as well as the specifics of their audience. For example, some businesses have longer sales funnels. If you sell a luxury product, converting a visitor will probably take more time, as higher prices are usually seen as a bigger obstacle and typically require more convincing.
But generally, the stages of the sales funnel are essentially the same and can be applied to any ecommerce business.
Top of the Sales Funnel: Perception
Typically, you may find that a sales funnel starts with an “Awareness” stage. But working with our clients, we learned that thinking of the customer's perception of a brand rather than their awareness of it is proven to be more helpful. According to this logic, when you first introduce your brand to a prospect, rather than simply finding and qualifying a potential buyer, the more important conversion metric for this stage is whether you had succeeded in creating a desired impression for the visitors.
This stage of the ecommerce sales funnel is all about image and reputation building. It has to do with the intangible attributes: the positioning of your business among the other competitors, showcasing who you are as a brand and what sort of emotional values (as the basis for positioning) you associate yourselves with.
If you don’t cover this part, it is impossible to think of brand building (which, let’s be real, usually is a major way of creating additional value for countless ecommerce shops), and rely solely on the 2nd and 3rd stages (Consideration and Purchase, respectively), because those are more about the transaction and specifics of the product than anything else.
Middle of the Sales Funnel: Consideration
Think of this stage as product marketing. It is all about helping your prospect to understand the solution and the specifics of what your service/ product provides. In this stage of the customer journey, you should help to address the consumer’s needs and ability to understand the value of your product, so that he or she can start considering the brand’s purchase.
Bottom of the Sales Funnel: Purchase
This stage of the funnel is about action facilitation and the purchase itself. In here, you should incentivize the user to act now instead of postponing the user to act later. From the messaging perspective, it focuses on CTA promotional messaging. While from the action perspective, it is about promo campaigns, limited-time offers and such — anything that makes the user think “I want this and I need to buy this now”.
In B2Bs, a testimonial or specific client case study would be a great example of such an incentive.
Extension of the Sales Funnel: Retention
This stage is called an extension of the funnel as it is not required for certain businesses. But chances are, that you, as an ecommerce business, generate a part of the revenue by selling products to the customers that come back. In such a case, you should definitely include it in your sales funnel model.
The “Retention” stage is about engagement, loyalty and referral. Here, you should be trying to increase the frequency of the purchase, the overall money or share-of-wallet spent by the user you already have in the mix.
Why is knowing the sales funnel important?
So why do you, as an ecommerce business owner, a marketer or a marketing manager, need to care about all this?
As products differ from one another, so do their audiences and the ways people navigate the sales process. For a business developer, the sales funnel is, therefore, an essential tool that allows visualising what stages and in which order their prospects have to go through until they are ready to purchase (or repurchase) from the brand.
Having such knowledge enables you to better understand the different needs and expectations of the customers in the different stages of their journeys. Thus, it helps you to develop your marketing strategy and to optimize each stage for maximum sales.
Graph of a Sales Funnel from the perspective of the company’s actions. Note: this graph doesn’t have a time dimension and, therefore, doesn’t work as a roadmap.
Using the sales funnel for the planning of marketing activities
Using the sales funnel is helpful in the development of your strategic marketing actions plan. Looking at the customer journey from the perspective of the company’s actions can be a way to layout the essential elements of the marketing strategy, and the whole ecosystem you are working with for a specific product or brand, since it is about understanding what boxes you need to fill and how much attention and investment do you need for each of the stages (look for the action inspiration on the graph above).
What is a conversion rate and how are they measured?
Each of the funnel stages can be measured, and tracked digitally through various digital channels, and even via surveys and questionnaires. One important metric is called a conversion rate and it refers to how much of the visitor's percentage-wise convert from one stage to another.
Conversion Rate Formula
Conversion Rate = Sessions with transactions / Total sessions
It should be noted that measuring the conversion rate, is not the unique website visitors that are taken into account, but rather the number of sessions, which refer to a visit by an individual within a given time period (most often around 30 minutes). The same customer that visits, say, twice per the same period will count as one session, otherwise, it will count as a separate session.
For instance, a 3% purchase conversion rate (which, by the way, is typical for ecommerce websites) indicates that out of 100 website visitors, 97 bounced while 3 made the purchase. When otherwise not indicated, it can also refer to the overall conversion rate of the website visitors that end up making a purchase.
There are, however, more metrics (such as active users, potential users, new user registrations, etc.) to follow that help in understanding what in the sales funnel could be improved.
Benchmark your KPIs
The sales funnel allows you to tailor your marketing strategy according to the specifics and the performance of each stage of the funnel (and, well, also according to the strategies of your competitors).
Typically, you want to measure the kind of user groups you have in each of the sales funnel stages, and their relationships with your brands as well as with the other brands, by identifying where you have the biggest drop-offs compared to the benchmark or other brands in the category.
The idea is that the funnel alone doesn't make much sense if you use it without direct comparison with your competitors. Say your purchase conversion rate is 1% -- is it a positive or a negative indicator of your performance?
Our point exactly. Not only are the conversion rates industry-specific, but they are also country-, season-, device- and much more -specific. For instance, according to IRP Commerce, in December of 2020, the average conversion rate for the arts and crafts industry was 3.79%, while that of the baby & child industry was 0.99%.
This graph shows recent conversion rates across a number of industries. Based on data from IRP Commerce; Source.
Therefore, the metrics’ values themselves are irrelevant. But when compared to the other companies, it can help you build a more precise picture of where you are in the competitive landscape and how well your ecommerce business operates.
Who should you benchmark your KPIs against?
When it comes to deciding who you should benchmark yourself against, however, you may often find that there are major outliers, such as Amazon with its 13% conversion rate (which is nearly 7x higher than the industry average), or differences between conversion rates of ecommerce shops in the same industry: say, a retail e-shop targeting younger people vs. one that aims for the older generation.
For that reason, you should always be aware of the industry trends. But whenever possible, aim to compare yourself with companies with a considerably comparable market share to yours in order to develop reasonable key performance indicators (KPIs) for yourself.
Then, you can decide accordingly as to which of the areas you should focus on and develop your marketing strategy around.
Focus on the stage where you lose the most prospects
If you are able to pinpoint in which stage you lose most of your customers as compared to the benchmark, it could be a solid indicator of where you should put your marketing efforts into.
For different companies, it could mean different stages. For you, it could be the very end of the funnel, say, the payment page. If you have a steep drop off in purchase compared to competitors, the cause for such a situation may be inadequate pricing or that your e-shop requires too many technical steps for the prospect to go through in order to transfer her money. Or maybe it takes a little extra convincing from your side, like quality assurance, or a promise of the money-back guarantee, for your prospect to be 100% sure about the purchase.
The point is -- knowing exactly where it is that you lose your prospects compared to the competitors, you can focus the energy, time and budget to understand the reasons behind it, and to eventually better the customer journey of that particular stage so that the conversion rates increase.
Understand where your efforts can bring about the biggest impact
On the other hand, some setbacks compared to the industry standards may not always be worth focusing your efforts on, as you always need to be mindful of the input vs the output ratio. It means that certain areas make sense to focus on exclusively because your input there could bring the most results in the shortest amount of time.
Therefore, before determining which stage of the funnel to focus on, you should look at the metrics in terms of:
- How high can it reach? What are the possible upper limits?
- Where can you reach the change with the easiest effort and investment?
Graph of a Sales Funnel from the perspective of the company’s solutions for better conversion.
When a certain stage is not converting well, there are some general ideas for the solutions that could be applied:
Awareness: to convert the people from being not aware to now being aware of your brand, you should increase spending and use targeted channels, which will bring more value statistically;
Consideration: if the visitors are not considering your offerings, it most probably means that the messages don’t stick. Therefore, in order to get the visitors considering your brand, you should create communication for the core segments with an emphasis on different benefits, or try to reposition yourself for better differentiation in the market;
Purchase: if the visitors bounce in this stage, you may consider changing the purchase incentives, such as price, segment, packaging, visibility in-store, offers and such;
Repeat Purchase: entering the extension of the funnel, the retention phase, you should investigate the customers’ satisfaction and quality, audit the portfolio, establish repeated comm. Channels and such for a better-repeated purchase conversion;
Recommendation: very often a bad reputation gets in the way of your customers’ willingness to recommend your brand to their peers. In such case, consider monitor reputation and approachability; try to create long term and differentiated value;
Attachment: building an emotional connection is the most important aspect for turning your customer into a fan. For that, aim for making the offering differentiated, develop loyalty schemes and actions.
However, as mentioned before, it is not always sufficient to know the conversion rates between the stages of the sales funnel, as there are other metrics that matter as well. Say you struggle with converting your visitors from the awareness into the consideration stage. Here, in order to make your communication efforts effective, you would additionally need to know:
- what kind of people is not converting?
- why are they not converting to the next stage specifically?
Having answered these questions, the information now becomes more measurable and can be turned into actions, namely adapting the messaging to better cater to your audience and their needs.