Digital Marketing Digital Marketing 101

Digital Marketing 101: Understanding the Digital Marketing Funnel

This post originally published on the General Assembly Digital Marketing Blog.

When we started our latest session of Digital Marketing at General Assembly’s Atlanta campus, I told the class, “the term ‘digital marketing’ is a misnomer. It’s marketing, but we focus on getting our message to our audience digitally. But it’s still marketing.” What I meant is that the fundamental purpose of marketing hasn’t changed, but the ways we communicate with our audience and the speed with which we reach them has changed dramatically.

In the first two posts of this series, branding and measurement, we built the foundation of how you’ll start your marketing campaign. This post focuses on how you will determine how much reach you will require to achieve the goals of each campaign. The following steps will begin at the very bottom of the funnel with “conversions”, which could be orders, email addresses, or registered users of a product. We’ll work our way up the funnel, and then explain the math. For this example, we will use orders of a widget that costs $50.

  • Revenue: At $50 per widget, how many widgets do we need to sell to meet our revenue goal?
  • Average order amount: We only sell one product, the widget, but how many does each customer purchase, on average?
  • Orders: How many orders do we need, at the average order amount, to reach our revenue goal?
  • Conversion rate: What percentage of our website visitors do we to convert into orders?
  • Website visitors: How many prospects reach our website?
    Click through rate (CTR): What percentage of people who see our content in ads, email, blogs, or social media click through to the website?
  • Total reach: How many total individuals need to see our content (ads, email, blogs, or social media) in order to meet our website visitors goal with our CTR?
  • Time: Over what period of time are we going to measure these results?
  • Budget: How much money will we have to spend to achieve our goals?

These are the terms common to all digital marketing campaigns, though there are other terms not covered here to keep the example simple. Below, we explain the math of each level of the funnel that is used to get to the next level of the funnel.

  • Revenue: Our revenue goal is $10,000 per month.
  • Average order amount: Historically, our customers, on average, purchase 1.75 widgets each time they place an order, or an average order amount of $87.50 per order.
  • Orders: At 1.75 widgets per order, to reach $10,000 in a month, we need 115 (we rounded up from 10,000/87.50=114.29) orders each month.
  • Conversion rate: Our historical conversion rate is 3.6%, meaning that, if 1,000 visitors reach our website, we will get 36 orders at an average of $87.50 per order.
  • Website visitors: To reach our goal of $10,000 in revenue per month at $87.50 per order and a 3.6% conversion rate, we will need 3,174 website visitors each month.
  • Click through rate (CTR): Our average historical click through rate across all content (ads, email, blogs, or social media) is .975%.
  • Total reach: Knowing that our CTR is .975%, in order to get 3,174 visitors to the website, we will need to reach 325,538 prospects with our marketing (3,174/.00975=325,538).
  • Time: We’ll need to reach this many prospective customers each month.
  • Budget: Across Google, Facebook, and Twitter ads, or average cost per click (CPC) is $1.38; therefore, we will need to budget $4,380 (site visitors*CPC) to reach our goals each month, and our Return on Investment (ROI) on these ad dollars spent will be 128% (($10,000/$4,380)-1)=1.28 or 128%).

We’ve used the term “historical” here to demonstrate that the best measurement of future performance is past performance. All marketers would do well to know how their previous marketing campaigns have performed, so they can make a reasonable estimate of how future campaigns will perform, and know if they are doing better or worse than before. The historical numbers in this example are the things that we know about our existing marketing funnel. We use math or business goals to get the other numbers.

Marketing is all about the numbers, starting with your “bottom of funnel” goal, which, in this case, is $10,000 per month in revenue from a $50 widget. To get that $10,000, we need to spend $4,380 and reach 325,538 people in our audience.

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