Business model 101: How bad does your funnel leak?

Having discussed number crunching for Freemium in my last post, I would like to focus on another aspect of Freemium (and Subscription) products whose understanding is critical to the success of these models: The Conversion Funnel

You don’t need to look at a web analytics dashboard to understand what a conversion funnel is. The navigation of any website requires a user to take decisions and every decision point is a potential point at which the user may exit the site. E.g. The user might click on a link to write a review and the CTA might require the user to log-in, which the user may not be comfortable doing and hence falls off. As users gradually fall off at various points, one ends up with the so-called conversion funnel.

As a business owner, it is important to recognize decision points on your website which are deal breakers i.e. points which may prevent the user from using your website any further.

Typically, a Freemium site has the following broad drop-off decision points which make the conversion funnel.
Landing page
Sign-up page
Conversion to paid

The landing page is the first important gate and can sometimes be the trickiest. A user who comes to the site, is most likely there for a reason (the fraud clicks notwithstanding) and the landing page is where he builds his first understanding of the site. The landing page needs to connect with the user’s need. This can be quite tricky because your traffic might be coming from multiple sources and you need to continue the messaging flow from every source. A user coming in from a search engine advertisement has a specific need which he is trying to address while a user coming in by clicking a casual ad on a news page that he was reading might just be curious. Hence, it is important to
ensure your landing page is in sync with the campaigns that you run

The second decision point is often the sign-up page. Much of the traffic may drop-off simply because it is too cumbersome to fill out a registration form. However, if your site absolutely requires people to be logged in, the key is to make the log-in process as simple as possible. You can always bug the user for the name of his dog once he becomes a repeat user rather than chase him off the first day itself.

The third big drop-off point is the on-boarding experience. This is probably the toughest one to fix and it is really a function of how well-designed and intuitive your website is. The bottomline is that a new user should intuitively understand (or be guided appropriately) how to successfully complete at least one important workflow on the site.

The fourth drop-off point is, of course, the point at which you ask users to pay. This is not really a drop-off in case of Freemium but is a definite drop-off for a subscription product with a trial period.

There is a fifth drop-off point in some cases which might be an action that one needs to perform on the site which users might not be comfortable doing. E.g. an unknown website asking for your mobile number before you continue using the site may prevent people from continuing since they don’t want their number to end up with an SMS marketer. Unless absolutely important, you are better off not having these additional drop-off points.

Why is the conversion funnel so important?
The conversion funnel, ultimately, can be the single biggest factor affecting your marketing budget. While most marketing managers focus on getting quality traffic to their site within a certain budget and on optimizing cost per visit, what really matters is the cost per acquisition. Cost per visit is typically the cost per legitimate traffic you pay to your traffic sources, but cost per acquisition is the marketing budget you spend per paying customer. This decreases as conversions get better

For any stage in the conversion funnel, if the conversion drops to half (i.e. 50% to 25%), the cost of acquisition doubles. More importantly, if the conversion drops even by 10% at every stage, the effect on the cost per acquisition gets compounded.

There is one more way good monitoring and actions on your conversion funnel can bring down marketing costs. When you take corrective action to improve your funnel, you are, in all likelihood, improving the user experience or responding to a user behavior. A better user experience will result I better word of mouth which automatically reduces your cost of acquisition.

Hence, it is very important to keep track of your conversion funnel.

Everything that I’ve written up here is useless and just another blog post if you do all that and do not do the single most important thing for your conversion funnel:

Talk to the users who drop-off! And listen carefully!

If you read only one line in the whole post, I hope it is this one.

About the author: Sangeet Paul Choudary is a leader in the New Ventures group at Intuit Asia-Pac

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