The Hourglass Marketing Funnel: Explore Your Customer’s Buying Journey

One of the key challenges for any marketer is to set up an analytics system that can capture data from all channels for reaching potential customers. To turn prospects into buyers, marketers use a powerful tool called the hourglass marketing funnel which we will explore in this article. Today we will reveal how this tool works and why it is so effective.

What is a marketing conversion funnel?

Time to elucidate you on the subject you may have entered into your search engine for quite a while: conversion funnel marketing. Essentially, what is a conversion funnel?

A sales marketing funnel is an analytical tool that shows how a user goes from being curious about a product or service to taking a desired action, such as filling out a form, placing an order or making a purchase. The sales funnel is vital for running a business and boosting sales. It has a cone-shaped structure with several stages.

Savvy companies use the funnel as a way to optimise their marketing performance. It helps them to increase the demand for their product, identify bottlenecks, plan their sales strategy and measure the effectiveness of their advertising channel.

The process is visualised as an upside-down pyramid because fewer and fewer users move to the next stage as they go down the funnel. The reverse scheme is a better way to engage with users than the conventional one. It widens after the first 4 stages.

The reverse marketing funnel adds some crucial steps after the purchase, aimed at increasing revenue, repeating sales and referrals. By understanding how customers think and act, you can spark their interest in the product and nudge them towards buying it.

The hourglass funnel follows a step-by-step structure with these stages:

1. Using various channels to draw the target audience to the website;
2. Generating leads from potential buyers;
3. Converting leads into customers who buy the product or service.
   After the sale, it is advisable to include three more steps:
4. Train specialists to encourage customers to leave feedback;
5. Create incentives for customers to spread the word about the product or service they bought;
6. Develop an internal loyalty system for recurring sales.

The purpose of marketing tools is to:

• use the best communication strategy for the target audience to persuade them to buy a service or product;
• measure the impact of marketing tools on sales outcomes and customer engagement.

Levels of the conversion funnel

Here are the levels of a marketing conversion funnel.

• Awareness. It starts with website visitors with a problem or a need who discover a specific product or service that can help them;
• Interest. Only those visitors who are curious about the product stay and learn more about it at this stage;
• Evaluation. The visitors know the features of the product and realise that it can solve their problem at this stage. But they are not ready to buy it yet because they might consider other options. This stage can take a long time as these customers compare different products or services from competitors;
• Conversion. The target audience is persuaded that the product you offer is better than others at this stage. This is where you need to motivate them to buy your magic pill, for example, by offering a discount or highlighting the benefits of the service;
• Loyalty. You can use various tools to retain your customers and make them come back for more at this stage. Some of these tools are banners, chatbots, SMS-alerts, gift cards or bonuses for the next purchase.
• Referral. Your customers not only buy things, but they also recommend your product or service to others at this stage. To reach this stage, you need to provide a high-quality product and offer incentives for referrals.

Stages of the marketing funnel

Each stage has its own key metrics that you need to keep an eye on. To see how your marketing is paying off, you should monitor all the metrics. This will help you evaluate how well you have targeted your audience.

Awareness

• Impressions — How often your ad appears in front of the user;
• Reach — How many users have seen your ad;
• Conversions — How many users clicked on your ad or proceeded to order your service;
• Views — How many users watched your promotional video. You should check if they watch it till the end. This will help you assess the relevance and demand for your brand;
• Click-through rate (CTR) — the ratio of clicks on your link to impressions of your ad. For example, if your ad is shown 100 times and 10 users click on it, your CTR is 10%.

Conversion

• Marketing funnel conversion is the number of accomplished actions indicates user intention to buy, such as filling out a form, downloading a file or trying a demo version;

• Number of downloads — how many users downloaded your app, ebook or other digital product;

• Conversion rate — the percentage of users who bought your product or service after clicking on your ad or visiting your page. For example, if 120 users clicked on your product page after seeing your ad, and 5 of them placed an order, your conversion rate is 4.16%;

• Cost per acquisition (CPA) — the average amount of money you spend on advertising to get one customer. For example, if you spend $100 on ads and get 3 orders, your CPA is $33.33.

Loyalty

• Repeat purchases — how many customers come back to buy from you again;

• Customer lifetime value (CLV) — the total amount of money a customer spends on your products or services over time.

Consideration

• Clicks — how many times users clicked on your ad or proceeded to your order page;

• Subscriptions — how many subscribers in social media responded to your newsletter;

• Saved posts/ads — how many users saved your posts or ads for later;

• Time spent — how much time users spent studying the features of your product.

Marketing Funnel Metrics

Without a flawless system for analysing online marketing methods, the calculation can be inaccurate. To optimise your spending, you need to figure out the maximum amount of money you can spend per customer in this customer conversion funnel and per lead.

Cost per acquisition (CPA)

Cost per acquisition, commonly known as CPA, is a marketing metric that indicates how much it costs to get one customer down your funnel, from the first interaction point to the final destination at the bottom of the conversion funel.

Essentially, it implies that the user is supposed to complete a specific action: a click, a purchase, a lead, or any other option that comes to you mind — and depends on the goals of your marketing campaign.

CPA is a crucial metric that can be scrutinized from different angles:

• Investment. A clear vision and thorough analysis of CPA can navigate your business decisions, highlighting the areas where you should invest more funds.
• Campaign Optimization. CPA helps business owners to compare the effectiveness of different marketing approaches, allowing them to focus on tactics that bring in customers at the lowest cost.
• Budget Decisions. CPA is an integral part of budget management as it serves as a tool that can exhibit how much money is spent on acquiring a customer, thus enabling the business owner to allot the marketing budget effectively.
• Profitability Analysis. By comparing CPA to the lifetime value of a customer, businesses can define whether their marketing strategies work as planned and make adjustments if necessary.

To calculate cost per acquisition, divide your campaign by the number of customers acquired via that same campaign. If you need a clear formula, here what it looks like:

CPA = Campaign Cost / Conversions

Conversion rates

You need to know the following data: the number of people who visited the website and the number of people who made a purchase.

• The web conversion funnel rate is calculated using this formula: leads / visits. For example, if 2000 people visited an event page and 55 people filled out an application, the page conversion rate is 2.75%.
• The conversion rate of the sales department is calculated as follows: number of purchases / leads. Let’s say, we contacted 215 potential buyers or attendees for the event and sold 20 seats, the CR is 9.75%.
• The ideal price to spend per lead, buyer and visitor.

What is the difference between the marketing and sales funnel?

Contrary to the popular belief, marketing funnel and sales conversion funnel are not exactly the same: they may work together, all aligned with the needs of your business, but each has its own distinct objective.

A sales funnel helps you build relationships with people who are already aware of your presence in the market: this tool shows these people why your brand is the perfect fit for them.

A marketing funnel, on the other hand, only helps you locate the right customers and attract them to your brand.

As one doesn't exclude the other, you should combine both approaches in your campaigns to convert more customers, increase your sales and revenue, and scale up your business.

How to calculate the marketing conversion funnel

You don’t want to waste your budget on online marketing tools that don’t work. But setting up “fancy” analytical systems is costly and you need results now. What is required to calculate this metric?

How to calculate website conversions

• Find out the ideal prices:

  • The cost per lead in an ideal scenario (customer price/sales conversion rate);

  • The cost per visitor (cost per customer multiplied by the sales conversion rate and the website conversion rate).

• Calculate the actual costs:

  • The cost per visitor you attract (budget/number of new visitors);

  • The cost per lead (budget/increase in leads);

  • The cost per customer (budget/customers from generated leads).

• Compare the expected and obtained results.

The optimal and allowable costs

To calculate the optimal amount to spend per buyer and visitor, you need to know these indicators: the optimal cost and the website conversion rate.

For instance, we want to attract buyers with a cost of $100. We can use this formula to calculate the ideal cost per lead: multiply the cost per buyer by the order conversion rate.

As for the optimal cost per visitor, the following formula can be applied: multiply the cost per buyer by the order conversion rate and the website conversion rate.

The actual costs and results of using the hourglass marketing funnel

To calculate the cost per user you attract, you need to take into account the percentage of growth during your marketing campaign. The cost per visitor is equal to the marketing budget divided by the increase in website users.

For example, if 3000 people visited the site and 1100 of them came during the marketing campaign, that means 1900 came without any promotion. If you spent $100 on marketing campaigns, it indicates you attracted each visitor for $0.09.

Cost per lead

If you already had some leads before the marketing campaign, you should only count the ones that came during the promotion.

The actual cost per lead can be calculated with this formula: marketing budget / increase in leads. For instance, you generated 35 new leads during the advertising period, while normally you would have around 18. The increase was 17. The budget was $100. That means you spent $5.88 on each lead.

The cost of acquiring a real customer

To calculate this number, you have to consider how many of the leads you attracted became buyers. The formula is this: advertising budget / number of customers from generated leads.

For example, you got 5 new customers during the advertising campaign. You spent $100 on advertising, so you paid $20 for each customer. By analysing this data, you can figure out which tools are not very effective and whether you need to adjust the costs of visitors or change other metrics.

Statistics

It can only be calculated if you have data for several months: website traffic and number of sales. This data allows you to calculate the average value for that period. If you had few visitors and requests, you should take statistics for different time periods. The error margin in this case might be quite high.

The accumulated statistics can help you accurately estimate some parameters in the past. But there is a possibility that the interests of your target audience have changed. You need to recalculate all the metrics more often to stay up to date.

If the actual cost per visitor, lead and buyer is lower than the intended cost, then you have chosen the right marketing tools. If the cost is higher, you need to tweak your campaign methods.

How to measure the performance of the hourglass marketing funnel

Hourglass funnel tools

In the digital marketing era, marketers have a lot of power over this metric. They use various components of marketing campaigns for this purpose:

• Social media. This is a vital tool at the top of the funnel. It can boost the visibility of your product or service. It works for both retaining existing customers and attracting new ones who are interested in your brand. You should choose the social media platforms where you can find your potential customers and where you can share your content effectively.
• Email. This is a powerful tool, especially for keeping users engaged. You can collect leads by email and share your content with them;
• Lead magnets. These are an enticing offer that you give to someone in exchange for their contact information. Usually, an email or a phone number. A lead magnet can be a gift coupon, a free e-book, a short training video;
• Website and SEO. These are essential for driving traffic to your website. You need to build trust in your brand, show your expertise and provide special offers.

How to make the most of the conversion funnel

You should use it throughout your business journey, starting from the launch of your project. After all, digital marketing tools are becoming more popular and effective for promoting your product or boosting your sales. The traditional marketing funnel is outdated, as savvy marketers add extra steps: cross-selling and loyalty programs. The best and fastest way to convert is to keep your existing customers interested.

Examples of the hourglass marketing funnel

Language school

An advertising banner of a certain language school was seen by 5000 people. Out of them, 350 called the company for more information. 150 people enrolled and paid for a course. 50 people completed the payment and started the course. This means that the conversion rate is 1%. The formula to calculate it is: 50*100/5000. The school could use some extra steps, but for now the referral stage works well for this brand.

What are the marketing funnel stages for this school?

Advertising agency

Implementing a loyalty program as an extra funnel stage can boost the chances of upselling customers.

How to analyse the hourglass marketing funnel

To analyse the data on your acquired customers, increase the number of purchases and enhance your marketing performance, you need to set up primary data collection. You can use advertising, analytics and CRM systems for this purpose. The key metric at every stage is the conversion rate. You should keep track of how much traffic and leads are moving through your sales marketing funnel. You also need to analyse both the overall metrics and the individual stages.

Here are some examples:

• A low video click-through rate is not a big concern if the conversion rate is high;
• If the ad has a low CTR of 0.3%, you should try new ways of engaging and define what will spark the most interest in your target audience. A higher CTR will mean that you can get more people to click through to the next stage at the same cost. This will help you lower the cost of conversions.

Stages of sales funnel construction:

• Offer a unique value proposition;
• Generate leads;
• Address objections.

How to optimise the sales conversion funnel

After analysing the data, you need to fine-tune your strategy. You can boost your conversion rate by using methods such as:

• Setting the right goals and metrics to market your product. Don’t waste time on vanity metrics that don’t matter. Focus on the ones that show how many people ordered your product, visited your website, clicked your link and opened your messages. What is your cost per lead? How do you measure the impact of your marketing efforts on your brand awareness?
• Expanding your channels to spread the word about your product or service. Reach out to more potential customers through different platforms and mediums.
• Widening the top of the funnel to attract more users who prefer your product over others. You can do this by highlighting your unique value proposition. Tell your prospects why they need your product and what benefits it offers that set it apart from the rest.
• Fixing the leaky stage of the funnel where you lose most of your prospects. You need to create a 'sticky' experience that keeps them engaged at every level. Identify where the drop-offs are happening and plug the holes.

Conclusion

The hourglass marketing funnel helps you evaluate and improve your business promotion tools on a regular basis. It is an instrument for detecting and correcting flaws and gaps in your overall brand selling strategy. You should analyze and segment your target audience and understand their needs.

The article explained the characteristics of the conventional and hourglass sales funnels. It showed that the latter is the most effective for boosting your business. This tool allows you to increase conversion rates by implementing two additional stages: a loyalty program and getting referrals.

If your analytics indicate that your marketing tool is working well, advertising is generating good results and costs are fully justified, then you can scale up. Increase your marketing budget and see how it affects your performance.

It is important to identify where and why you are losing customers along the way to the purchase. All these points will help you monitor the effectiveness and relevance of your hourglass marketing funnel tools.