How to use Funnel Analysis in practice?

Funnels and funnel analyses are great tools that can help you find problems and opportunities, optimize processes as well as manage projects. They are widely used by technological firms. However, many industries are still not using them, despite their big potential.

In this post, I will show you the main concepts. For more details, I recommend checking my online course Funnel Analysis for Management Consultants & Analysts.

Let’s look what are funnel analysis and how you can use them not only to increase sales but also to manage projects and tests.

What is a funnel?

A funnel is a tool that can be used to map and analyze a series of events that lead to a particular goal. In other words, you map the stages that you have to go through to achieve your goal. The goal may be Sales, Gross Margin, number of customers acquired, and number of projects done. Funnel analysis can help you manage the process of achieving the goal and find ways to improve the situation. Let’s look at a short movie that will give you an idea how what it looks like.

Funnels are used in sales and marketing, especially when it comes to the online world. It enables you to map the customer journey and find out where you are losing potential customers. Thanks to that, you have a good idea of what you should focus on.

Let’s look at an example of a sales funnel e-commerce:

In our presentation Funnel analysis, you can check also other examples of funnels for direct sales, mobile apps, saas, and marketplaces.

Bear in mind that the stages used in the funnel should be adjusted to the sales process used in a specific industry.

You will use the funnel to find potential improvements that will help you achieve your goal. I recommend using it for potential improvements and a cost-benefit analysis. This will help you decide whether the improvements will make financial sense or not. Not all ideas are worth implementing

Cohort Analysis and Funnel Analysis combined.

Quite often you want to go deeper and analyze what the sales funnel looks like for different segments, and cohorts. This is when cohort analysis comes in handy.

Let’s start with a short definition of what we actually mean by cohorts and cohort analysis.

As you can see a cohort is a group of people, events that share the same defining characteristics. In many cases, it will be a segment of customers. However, it may also be simply a group of customers who were acquired in the same month or through the same channel. For example, in the same cohort, you may have people that have bought your product in the same month. Members of the same cohort usually have common characteristics, and in the case of customers common experiences, occur within a given period. Cohorts help you disaggregate the results, find outliers and improve the business.

Let’s now see how you can combine cohorts with funnel analysis.

As you can see by combining cohorts with funnel analysis you can get a much deeper understanding of the whole process. It’s easier to find potential improvements and spend your money as well as time on the right projects.

Alternative use cases of funnel analysis

So far, we have discussed how to use funnels to increase sales. However, they are widely used also for other purposes:

1. Managing tests. Most businesses will be improved through a series of small tests. To be able to manage them you can use the funnel approach. The first step is to define the stages through which every test has to go through. Let’s look at a short video with some examples
   
   It’s worth mentioning that you have to be also very good at picking the right ideas to be tested. To get the best ideas we will usually use a ranking. Have a look at the example of how to create a ranking in Excel.
2. Managing a project. Funnels can also be used to successfully manage a project. You first have to divide it into smaller tasks. After that, you define the stages you want to track. Usually, people use 4 stages: To be done, Work in Progress, Resources Needed, Done. You map all the tasks, and you adjust their locations on regular bases (e.g., every day). The funnel created thanks to that is sometimes called Kanban. Let’s see what such a funnel can look like for consulting project:
   

That’s in short. As always, I recommend checking for more examples of our online course Funnel Analysis for Management Consultants & Analysts. You will find there +2.5 hours of content and more than 50 lectures, that will teach you all the things you need to create great charts fast as a Management Consultant.

Have a look also at our post on Segmentation.

You can also check the post in a form of a presentation.