In today’s episode of The Startup Chat, Steli and Hiten talk about optimizing your funnel no matter what type of funnel it is.
When it comes to acquiring new customers online, your funnels are a crucial part of the process. Therefore, optimization is essential if you want to increase conversions and sales.
In this week’s episode of The Startup Chat Steli and Hiten talk about what a funnel is, how to optimize it to increase conversions and sales and much more.
Time Stamped Show Notes:
00:32 What is a funnel.
02:09 How a funnel works.
02:38 Why every business has a funnel.
04:00 Why you should measure every step of your funnel.
05:01 How most founders look at their funnels.
06:07 How to analyze a funnel.
07:21 One thing that isn’t measured enough.
07:40 Why time is one of the key components in improving a funnel an entire business.
11:02 Why it’s important to figure out what percentage of people are signing up and dropping out.
3 Key Points:
- No matter what stage of business you are, you do have a funnel.
- Measure every step of your funnel.
- You need to know all the steps and numbers in a funnel to really understand what’s going on.
Steli Efti: Hey everybody, this is Steli Efti.
Hiten Shah: And this is Hiten Shah, and today on the Start-Up Chat we’re going to talk about optimizing your funnel, no matter what kind of funnel it is. So, Steli what the f*ck is a funnel?
Steli Efti: Oh, that’s a really good question. Well, a funnel is a mental representation or a model of how to think about a customer journey with you. Or any kind of journey with you, like anytime you’re trying to take a business relationship from nothing to a conversion of something you could visualize that or create a model of it that looks like a funnel. Like something that is big at the top and that goes kind of narrow down, and at the end there is just a few things that will pop out. So as a simple example, the easiest example to talk about is probably a customer funnel. At the top of it you think about all the prospects that you are advertising to, sending cold e-mails to, e-mailing, cold calling, whatever the hell you’re prospecting at the top of the funnel, and marketing at the top of the funnel. And then some of these people and prospects will take the next step in the relationship and actually talk to you and entertain the idea and try things out, and consumer information from you, give you more information. That’s probably the qualifying part of the journey and then some of those people that are interested and qualified and conversing with you will take the next step to actually try out the product so they are not trial users and some of these trial users will go down all the way down to them making a purchasing decision and becoming a customer. And if we took every step as a step in the funnel, it typically starts with a very big number and the number goes smaller and smaller and smaller, every single step until somebody is converted to being a customer of yours.
Hiten Shah: Great, that’s great. And the funnels work for mobile apps, the funnels work for sales, funnels work for a SAAS product, it doesn’t matter. We’re talking about just the step by step process people take to get from point A to point Z. Whatever your point Z is, usually a purchase.
Steli Efti: Yeah, and you could apply the same thing for fundraising, right? But we’re going to talk about specifically for customers since that’s our kind of bread and butter and most of our listener’s interests. Alright, so I’m going to throw out my first tip or my first thought, and we can go back and forth on this. First of all what I want to say is: no matter where your business is or where your start-up is, no matter how early it is or how late. No matter how good or how bad things are going, you do have a funnel. I’ve heard people tell me: “Steli we don’t really have a sales funnel, or a customer funnel.” Like, no you do. Your funnel might just be zero, zero, zero, zero, zero. Right? It might just be zero prospects, leads to zero qualified prospects, leads to zero customers, but you have a funnel, right? You do have one, you might not be aware of it. You might have not designed it purposefully, but you have one. And most people don’t have the zero, zero, zero on most companies or founders, or many of them, they just have a bad one, or one they haven’t worked on as mindfully, so they think because they have not worked on a funnel; it doesn’t it exist. It does. And that’s my first piece of advice or thing I want to throw out there is: you have one, so sit down and or stand up, go to a white board, or take a piece of paper and write down what your funnel looks like today, and visualize it. So you know what the health and the state of health is of your business.
Hiten Shah: Yeah, I love that. I think even a fundraising funnel, if your fundraising, you’re starting with meetings and then there’s a bunch of steps. Like, the second meeting, the partner meeting, and then eventually the terms sheet and then the close, right? What I, my tip here is, even things that are offline, like a fundraising like that? Measure it. Measure every step of it, even the small ones if you can, or if you can think through it. What I see a lot is people are just not measuring the steps of the funnel. They’re like: “Okay, I got an intro, and then I got to a partner meeting, and then I got a terms sheet.” Well there’s all these steps in between, and if you’re really in a fundraising process, it’s actually valuable to get a little more granular than that. The same thing applies to a sales process, and being able to measure not just every step, but every call. Or everything that happens in between and adding those steps in, because sometimes in a funnel there are pieces of that, that you have no visibility on in the beginning. And then when you realize where your sort of improvement opportunities are, where the drop offs are and things like that, you start needing to measure sort of the things that are in between.
Steli Efti: Yeah, what I’ve realized talking to many, many founders is that usually I encounter one of two scenarios: Either the founders only measure the end result. The conversion, so you talk to them and you go, “How’s fundraising going?” And they go, “Well we had 3 term sheets, or we had one term sheet so far. We had two partner meetings so far,”. Whatever the last step in their conversion is, that’s the one number that they know, but they don’t know every step that came before. They don’t have real context on how fundraising is going overall, and I don’t know just knowing that number because I don’t know if they had one conversation that led to one term sheet. Or if they had a 1,000 conversations that led to one term sheet. Those are different situations. The same thing is true in sales, a lot of times it’s just like, “Oh yeah, well our team is closing about three new customers a month.” Okay, well what are all the steps that come before that? “Well, I don’t know we do lots of calls, lots of this lots of that.” So either they only look at the last number, the conversion, or they look at the first number and the last number. So they’ll say, “We pinged 100 investors and we got one term sheet from one investor.” Or “We made 100 cold calls and we closed one deal Steli, how do we get more deals closed?” And I always say, “I don’t f*cking know.” I need to know a little bit more about your funnel to know what to do to improve it, and where the leaks are and where the opportunities are. Again, if you do 100 calls, and you only reach one person and you close one person, there’s nothing I can do for you in terms of teaching you how to close better. You’re already 100% close rate. Your sucks, right? You’re calling 99 numbers you shouldn’t call, or you call at the wrong time, or there’s things that can be optimized in terms of why aren’t you reaching more people. But its not a ‘Why aren’t you closing more people’, because you close everybody you could close. You need to know all the steps in the funnel, the numbers, to really understand what’s going on. Where to fix things, or where things are broken. My understanding there’s three scenarios: One is people don’t measure anything, and then the other two scenarios is they either just measure the end or the beginning and the end, and they forget the middle of the journey. Which usually is where all the insights are, and where all the opportunity is, in terms of making improvements.
Hiten Shah: Love that, so my tip is more about sort of measurement, and one thing I don’t see people measure in the to get from one step to another, can be a critical component to measuring a funnel that is just often not done. And the value of measuring the time is to help you understand how long does it actually take, and how can we speed up the time? Because improvement isn’t just about making more people do the thing, it’s also about how fast they do it.
Steli Efti: That’s beautiful. So velocity, time is actually one of the main key components in improving all the metrics in your funnel and improving your entire business in a crazy way. Think about it, this is so obvious but still underutilized. It doesn’t matter how many deals you close in a vacuum. If you close 100 deals but it takes you a year to do so, and then close 100 deals a day. Are those two very different businesses? Although, we talk about the same result, right? Those are incredibly different businesses, and the metrics and the business model is completely different. So one big thing to work on, in terms of improving the funnel is to improve, and shorten the time it takes to go from one step to another. So I love that you brought that up, and I’ll throw, I’ll double click on this by throwing one very simple trick, and there’s many, many more. But one simple trick in terms of shortening the cycle, is just to cut down the wastefulness of time that you have. So instead of doing one-hour demos, or two-hour demos, do it in 15 or 30 minutes. Instead of taking three steps: an introductory call, a check-up call, a demo call, and a Q&A Call. Ask yourself: Do you really need 4 steps, or is one of those steps unnecessary? Could you merge some of them? Or make even all four steps just one step. Where do you have too much time and too little urgency? And the other thing is using the power of right the f*ck now. Many, many times people will waste time. Especially sales people, when they have somebody’s full attention and energy they will waste it. I’ll give you one simple example: you have a prospect on the phone, you talk to them, you qualify them. Both agree you want to have another meeting, and then you say, “Let’s hang up and I will send you an e-mail to schedule a follow-up call.” That drives me crazy. That is the dumbest thing ever. So you hang up, and then two hours later you need to remember to send them an e-mail to schedule a time. Then a day later they check that e-mail, and then they check their calendar and they’ll reply to you, ‘Sorry I can’t make that time but here is an alternative that would work for me.’ Then it takes you another day to get back to them that, that doesn’t work. Now you wasted a whole week scheduling when you already had them on the phone. When you have them on the phone and they say ‘yes, let’s have another meeting’, and you agree you need another meeting, just say: “Hey do you have your calendar in front of you? Yes you do? I do too. Let’s find a time right now. Can you do next Tuesday this time? No. Can you do next Wednesday that time? No. What time works for you? Thursday that time? Cool. I sent you a calendar invite can you quickly accept and RSVP.” Boom, beautiful we have the next steps laid out, there’s a bit of homework but we know next Thursday at 3 PM we’re talking. Now there’s no more homework, no more time. You’re not going to waste a whole week to schedule something that’s probably going to be scheduled for a week after. Now that took you two weeks of time to go from this call to the next call, it took you just three days or four days. Find places where you’re wasting time and cut that out. That can be a huge benefit. What other things can we do to optimize metrics in our funnel? Let’s maybe take another one or two and then wrap this up.
Hiten Shah: Yeah, another one I really like to do, is I like to take a funnel and usually people look at the conversion rate between each step. And I actually like to literally do math and figure out how much for each step, how many people- what percentage of are continuing and what percentage of people are dropping. By actually looking at the numbers, it makes it much clearer where your opportunity actually is.
Steli Efti: I love that. Alright, let me throw one last one on my end. In terms of optimizing your funnel; look for complexity and try to eliminate as much as possible of it. A lot of times when there is a lot of complexity involved going from one step to the next, it slows things down and it drops the conversion of things dramatically. And I’ll give one simple example: having a sales team that discounts things heavily or having an open policy when it comes to negotiating contracts or negotiating pricing with every single customer. The moment you give a sales team the power to offer any kind of creative pricing based on what they think the customer wants, needs, or demands, you’ve introduced a world of complexity in your funnel. Right now, the sales person, it’s based on their emotions, it’s based on how aggressive the customer is negotiating, it’s based on how good or bad the quota is going, what the price is going to be. Often times it makes these decisions much more complicated, the sales person doesn’t know, “Should I give in here or not?” There’s no framework, there’s no rules or guidelines, there’s no playbook on what we do and how we do it. Every individual does whatever they do, and so it will increase the complexity for the sales person to make all these decisions on their own. But it also will make your business model incredibly complex, because now every single customer is a completely different pricing. So it’s going to make it a nightmare for you to really understand how much is a customer worth? Because this customer gets three months free, and then full price. But that customer gets no free time, but 20% price discount now but after six months we go back up for 30 because then the fundraising is over- When you do these crazy things, that happen all the time especially in start-ups, in terms of your discounting you introduce a world of complexity in your funnel and in your business and it can make things incredibly messy. So make sure to look for complexity, make sure to look for friction in your funnel and eliminate it as much as possible. The smoother the steps are, the more stream line the steps are that a customer has to take to go from one point to the next, or your sales team or your marketing team to guide a customer from one step to the next, the more powerful your funnel is going to be. The more successful your business is going to be.
Hiten Shah: Couldn’t agree more, remove friction.
Steli Efti: Alright, that’s it from us, hope that has given you guys a few ideas on how to tackle your funnel, how to improve your funnel and ultimately improve your business. We’ll heal all of you very soon.
Hiten Shah: Later.