Using Conversion Funnels to Drive Digital Marketing ROI

February 20, 2017

Let’s say your design team launches a new product at the end of the month.

Now it’s the marketing team’s responsibility to get people to buy the product. Perhaps they do a social media campaign, send an email blast, or craft compelling copy on the product page.

But, at the end of the quarter, when the CEO asks the marketing team to explain why sales are so high (or so low), what do you say?

If you understand how to map out and track a buyer’s journey through each stage of the sales process, you won’t have any problem proving the return on your marketing efforts to your boss.

Even more important, you’ll be able to point out exactly which efforts contributed to your success and which you should tweak in the future to get better results.

Creating a conversion funnel and analyzing what happens at each stage of the sales process is an effective way to quantify the value of your marketing efforts.

Once you know what works (and what doesn't), you’ll be more efficient at converting new users – improving your conversion rate.

This article walks you through how to use a conversion funnel to measure marketing ROI:

  • What's a conversion funnel?
  • How do you calculate the conversion rate for each stage of the conversion funnel?
  • How do you calculate the overall conversion rate and drop off rate?
  • What are macro and micro conversions? Why are they important?
  • How do you calculate the overall ROI for marketing efforts?

What’s a conversion funnel?

A conversion funnel shows you whether your marketing efforts are converting site visitors into customers.

The Conversion Funnel is a series of steps that a prospect takes to become a customer. Conversion funnels can be simple or complex. They can offer an overview of your entire marketing strategy or give you insight into a specific subsection of your marketing.

A typical conversion funnel has three core steps, all of which lead to the fourth, most important step, a purchase.

  1. Billing & Shipping – User inputs billing and shipping details.
  2. Payment – User inputs payment information.
  3. Review – User reviews and confirms purchase.

conversion funnel

You can use a conversion funnel to collect data about how prospective customers experience the buying process. This data, in turn, allows you to assign a conversion value to marketing efforts.

What’s a conversion value?

A conversion value is a combination of the values you assign to each effort in the sales process. It takes into account that not all marketing efforts yield equal results – some efforts will be more useful than others in guiding a user to make a purchase.

Knowing the conversion value allows you to track the effectiveness of your digital marketing efforts.

Using a Conversion Funnel to Track User Behavior

To determine where to focus your marketing efforts to boost ROI, you need to understand when users enter the conversion funnel and when they drop off.

1. Calculate the Conversion Rate at Each Stage of the Conversion Funnel

First, determine how many users are in each phase of the funnel. Then, calculate the conversion rate to see the percent of users that move from one step to the next.

Funnel Step Users Conversion Rate
Billing & Shipping 4,300
Payment 3,600 84%
Review 2,600 72%
Purchase Completed 2,300 89%

 

How to Calculate the Conversion Rate

Conversion Rate = [Number of Users (in one stage of the funnel) / Number of Users (in the next stage of the funnel)] * 100

Example: (4,300 / 3,600) * 100 = 84%

The conversion rate for the jump from a user filling out her billing & shipping information to providing payment information is 84%.

2. Calculate the Conversion Rate for the Entire Sales Process

Second, determine the overall conversion rate and compare it to the drop off, or abandonment rate.

A drop off rate measures the number of users who enter the conversion funnel and then leave without completing it.

For example, let’s say you go to Nordstroms' website to buy a pair of socks. Once you find a pair that you like, you move the socks to your shopping cart and begin filling out shipping information.

But before you input payment information, you realize you should do some price comparison with Target. If Target has the same pair of socks, but at a lower price, you’re likely to abandon your Nordstroms' shopping cart and buy the socks at Target.

How to Calculate the Drop Off Rate

Overall Drop Off Rate = [ (Number of Users (in billing & shipping phase) – Number of Users (in purchase phase) ) / Number of Users (in billing & shipping phase) ] * 100

Example: [(4,300 – 2,300) / 4,300] * 100 = 47%

The overall conversion rate provides a baseline for understanding your overall win rate.

How to Calculate the Overall Conversion Rate

Overall Conversion Rate = [Number of Users (in billing and shipping phase) / Number of Users (in purchase phase)] * 100

Example: (2,300 / 4,300) * 100 = 54%.

The overall conversion rate for the jump from a user filling out her billing & shipping information to completing a purchase is 54%.

Using a Conversion Funnel to Optimize Marketing Efforts

It’s easy enough to say that you want to increase your overall conversions, but how exactly can you achieve this goal?

After calculating the conversion rates for each step in the conversion funnel, it’s time to identify which marketing efforts can increase conversions and decrease user drop-off.

What role does marketing play in moving your audience from one step to the next? What can your marketing team do to enhance the buyer’s journey?

1. Measure Micro and Macro Conversions

It’s important to analyze your conversion funnel on two levels: the micro conversions that push a prospect from one step to the next and the macro conversions that lead to a purchase.

Tracking macro and micro conversions shows how effective your marketing efforts are at driving users to perform specific actions.

Macro Conversion – The major step performed by users that coordinates with your business objectives. For example, when a user purchases one of your products or services.

Micro Conversion – The smaller step or interaction that leads to a macro conversion. For example, an email blast that attracts a user to a specific product on your website. The email presents a prospective customer with an action she can take to push her to the next step in the funnel.

Tracking micro and macro conversions requires testing different marketing elements, like calls to action (CTAs), page colors, or the content itself.

By altering different marketing elements and measuring how those changes increase or decrease the conversion rate, you can determine which efforts are most effective – what you should continue to do.

For example, let’s assume the following scenario using the conversion funnel from above.

  • You run a social media campaign that increases the users at the “Billing & Shipping” stage from 4,300 to 12,000. (Total increase of 7,700 users)
  • You change the color scheme and CTAs on the “Billing & Shipping page,” which decreases the conversion rate.
  • You change the layout of the “Payment” page to make it more user friendly, which increases the conversion rate from 3,600 to 10,000. (Total increase of 6,400 users)
  • You make the content on the “Review” page more conversational and improve the page load speed, which increases the conversion rate from 2,600 to 7,400. (Total increase of 4,800 users)

 

Funnel Step Initial Users Change in Users New Conversion Rate
Billing & Shipping 4,300 12,000
Payment 3,600 10,000 83%
Review 2,600 7,400 74%
Purchase Complete 2,300 6,800 92%

 

These changes increased the overall conversion rate from 54% to 57%.

(6,800 / 12,000) * 100 = 57%

The majority of these actions featured alterations on-page features. However, you also can test micro and macro conversions with ads, social media campaigns, and email marketing.

  • You run a retargeting ad that aims to get 50 people to sign up for your newsletter. Twenty of them end up subscribing. This gives you a 40% conversion rate, since 20 out of 50 performed the target action.
  • Out of the 20 people who subscribed to your newsletter, four purchase your product/service. This gives you a 20% conversion rate since, 4 out of 20 people performed the target action.

2. Measure the ROI of Your Marketing Campaign

Next, assign a dollar value to your marketing efforts at each phase of the conversion funnel.

Collectively, our marketing funnel example converted 57% of users, meaning that for every 100 people that entered the funnel about 57 made a purchase.

In order to place a dollar value on the marketing that led to this conversion rate and start measuring ROI, you have to know two values:

  1. Cost of Marketing
  2. Total Macro Conversions

Let’s assign a hypothetical dollar value to the marketing efforts from our previous scenario:

Funnel Step Cost of Marketing
Billing & Shipping $10,000
Payment $3,500
Review $6,500
Total $20,000

 

It costs $20,000 to run a marketing campaign that drives 6,800 purchases.

If you divide the total cost ($20,000) by the number of purchases, or macro conversions (6,800), you see that the value of your marketing efforts is roughly $2.94 per purchase.

$20,000 / 6,800 total purchases = $2.94 per purchase

If spending $2.94 per purchase fits within your profit margin, then your marketing campaign generated a positive ROI. If not, you need to figure out how to lower your costs but still increase your conversion rate.

Looking back to our example, you may notice that we tried three different marketing activities at the billing and shipping stage: a social media campaign, adjusted CTAs, and a new color scheme.

The social media campaign increased the conversion rate, but the new CTAs and colors decreased it. To lower your marketing costs at this stage, you could continue the social media campaign but avoid altering the CTAs and colors, since the originals already worked.

*Disclaimer: this is not a light assumption to make. For the purposes of our exercise, we kept the concepts simple, but it’s important to understand that marketing funnels often work as a package: the changes you make in step 1 could have an effect on step 3 and so on as the funnels become more complex. That’s why it’s important to test different marketing scenarios.

The Takeaway

Analyzing each step in the conversion funnel forces you to consider your marketing efforts in smaller segments. This micro view makes it easier to analyze, test, and improve the marketing activities you do to convert prospective customers.

The process we present for analyzing your conversion funnel results in a much more effective approach to increasing ROI for your business.


About the Author

Richard Castello, SEO Brand

"Richard 'Rich' Castello is the PPC & Web Analytics Strategist at SEO Brand, a full service digital marketing and web development agency with offices and clients all over the world. In Rich's spare time, he enjoys traveling and reading. To learn more about Rich, connect with him on LinkedIn.