How big does your funnel need to be?

I was reminded by a client today that observing the results of an ongoing marketing campaign is a lot of fun. What’s fun for me is predicting (or trying to anyway) the funnel math for each campaign. I’ve written about the math of the marketing funnel here, and, to me, the marketing funnel represents the backbone of everything the marketer needs to think, do, consider, create, manage, and optimize for each and every campaign. Let’s walk through an example of the marketing funnel here.

If our goal is to earn $100,000 in revenue this quarter, and the price of our widget is $75, how wide does our funnel need to be at the very top? Here’s how you get there.

$100,000 / $75 = 1,333.33, so we need to sell 1,334 widgets to get to our revenue goal. How many widgets are sold in the average order? This number can only come from past performance or a guess. For this example, let’s assume, on average that each customer purchases 1.4 widgets. That would mean we would need to process 953 orders. Another way to say that would be that we need 953 “conversions“.

In order to earn 953 conversions / orders, how many visitors do we need to drive to our website? From past performance, we may know that we convert, on average 9.6% of our website visitors. Therefore, since 953 / .096 = 9,927, we need to drive at least 9,927 visitors to our website for this campaign. Let’s round that number up to 10,000, just to be sure.

So, we need to drive 10k visitors to our website this quarter. How do we do that? Let’s run a campaign on Facebook, targeted to our regional widget audience. The average clickthrough rate (CTR) from Facebook is all over the board, but conservatively, if we estimate a 1.75% CTR, then we would need to reach 571,428 people in our target audience (10,000 / .015 = 571,428). To earn that CTR, we would need to make our ad creative attractive enough and our call to action (CTA) clear and compelling enough to get 1.75% of those 571,428 people to click through to the website.

Finally, when you advertise on a social platform like Facebook, you don’t automatically reach 100% of your target audience. As you can see in the graphic to the right, the target audience for this ad is 590k people, but the estimated reach is 1500-4000 people. The way that works is, if your ad is really good (beautiful compelling image, great CTA), then you’ll probably reach the 4,000 on average each day.

If your campaign on Facebook is 90 days, that means if your ad is good, this ad would reach about 360,000 people, or about 60% of the target audience. So, for our example, if we extrapolate using that number, our target audience on Facebook would need to be about 952,000 people.

That’s why we call it a funnel: it’s huge on top (952,000) and tiny on the bottom (953 orders). And then we have to determine what our cost per click for these 10,000 people to click through to our website. If your budget is $5,000, then you can afford to pay 50 cents per click, which is pretty good considering your average order is $105 ($75 price x 1.4 widgets per order).

Marketers would do well to create a funnel to estimate every campaign on the front end and then finalize the actual funnel on the back end.

 

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