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How to Calculate Your Marketing Funnel Metrics & Budget

How to Calculate Your Marketing Funnel Metrics & Budget

As any marketing team knows, the customer journey can be varied and tricky to nail down.

A marketing funnel gives structure to an otherwise chaotic experience. It helps your marketing team better understand the customer’s mindset while shopping for a solution to their problem. A strong marketing funnel also points out gaps in the customer journey to help you continuously improve your strategy.

In this article, you’ll learn what a strong marketing funnel looks like, how a marketing funnel differs from a sales funnel, and the best marketing funnel metrics to calculate so you can build an iron-clad strategy to attract and convert buyers.

Read more: How to Calculate Your Marketing Funnel Metrics and Budget

What is a marketing funnel?

A marketing funnel is a model marketing teams use to organize their customer journey.

This funnel represents the stages any customer moves through as they interact with your brand, often starting with awareness and ending with loyalty.

Beyond its use to provide structure to the customer journey, a marketing funnel is also used to track and measure a marketing team’s efforts to attract new business. Campaigns, webinars, blog articles, social media, demos, and other marketing activities all fall into various stages of the funnel and contribute to brand awareness and perception.

The 3 stages of any marketing funnel

There is no one-size-fits-all template for a “good” marketing funnel. It all boils down to your organization’s goals and your target buyers.

That’s why it’s crucial that you understand your customer, their needs, and the major hurdles your product or service can help them overcome.

Many organizations turn to a model called the AIDA, meaning:

  • Awareness. The buyer is aware they have a problem and that there are tools to solve it.
  • Interest. The buyer is interested in learning how your tool can solve their problem.
  • Desire. The buyer begins to evaluate your tool compared to the competition.
  • Action. The buyer makes a decision whether or not to purchase your tool.

Elias St. Elmo Lewis created the AIDA model in the 19th century, which still rings true today. Now, many B2B organizations have adapted the AIDA into three stages: Top of the funnel, middle of the funnel, and bottom of the funnel.

Let’s look at each of these stages in detail.

1. Top of the funnel

The top of the funnel, or ToFU, encompasses the awareness stage. This is the moment when your marketing team introduces your brand and gives top-level insight into its capabilities.

Buyers at this stage might not know about your product or services yet. For this reason, the top of the funnel focuses on content that generates lead awareness, like:

  • Paid ad placements across your social media or digital media channels.
  • Guest speaking placements on podcasts or webinars within your vertical.
  • Educational content that plays into an overall SEO strategy and helps to generate organic traffic to your website.
  • Product-focused landing pages that serve to teach website visitors top-level information about your product and the challenges it can help solve.

2. Middle of the funnel

The middle of the funnel, or MoFU, represents the moment in a buyer’s journey when they are actively evaluating tools that can solve their pain point.

At this stage, your marketing efforts can point to the many reasons why your product is trustworthy and reliable, and you can solve these problems through engaging content.

Some examples of MoFU content include:

  • Gated content that talks directly to the pain points your potential buyers face.
  • How-to guides that offer step-by-step instructions for how to solve a problem.
  • Product overviews that give a high-level perspective of how to use your product.
  • A nurture email campaign focused on highly informative, product-focused content.

3. Bottom of the funnel

The bottom of the funnel, or BoFU, is the last stage a prospective buyer will enter. It’s a transactional stage where you want the lead you’ve been nurturing to take a specific action.

Depending on your organization’s strategic goals or KPIs, the action you’d want a prospective buyer to take could be to make a purchase or shuffle them to the sales team, where they’ll run through the sales funnel next.

The bottom of the funnel is a crucial time to share content that proves your brand’s value and gives a buyer a specific reason to choose you over a competitor. BoFU content might look like:

  • A live demo with an in-house expert.
  • A buyer’s guide featuring in-depth knowledge of your tool’s performance compared to competitors.
  • Customer stories to provide social proof that your product works as promised.

How is a marketing funnel different from a sales funnel?

At a quick glance, a marketing funnel and a sales funnel look nearly identical. After all, they’re both designed to guide potential customers and convert them from browsers to customers.

Look a little closer, and you’ll see some nuances that set a marketing funnel apart.

For one, marketing funnels are typically wider in scope than sales funnels. Marketing funnels start at the awareness stage, making your brand stand out to someone who might not have heard of you before. A sales funnel transforms that awareness into value for a customer.

A sales funnel typically ends at the conversion stage, when a customer signs a contract. A marketing funnel, on the other hand, goes even further to turn a one-off customer into a repeat buyer, vocal advocate, or loyal customer who refers new business to you.

4 marketing funnel metrics to calculate

Once you’ve established how your organization plans to move buyers through the marketing funnel, you need to track the success of your efforts. That’s where calculating certain metrics, like click-through rates and conversion rates, comes into play.

Luckily, you don’t have to be a math wiz to calculate these metrics. They are all simple equations that rely on your data to understand how effective your team is at getting marketing qualified leads to convert into customers.

Let’s look at four commonly used metrics to learn how to calculate them and why each is important.

Cost per acquisition (CPA)

Cost per acquisition (CPA) is a metric that looks at how much it costs to get a customer to take an action with your brand. In other words, how much does your team have to spend to move a potential buyer through the funnel?

To calculate CPA, start by dividing the marketing campaign cost by the number of customers you acquired in that same campaign.

The equation for CPA looks like:

Campaign cost / Acquired customers = Cost per Acquisition

CPA is crucial to understand how efficiently you use your budget. If your acquisition cost doesn’t align with your goals or is larger than your budget, that’s a clear sign you need to reevaluate your marketing efforts.

Customer lifetime value (CLV)

Customer lifetime value (CLV) shows you the overall revenue a customer contributes during their relationship with your business. Basically, it gives you insight into how profitable pursuing a lead could be.

CLV is tied closely to customer retention, making it particularly important for software-as-a-service (SaaS) companies, which often use a subscription-based model for users to pay at regular intervals.

Calculate CLV as a baseline across your customers and multiply your average customer lifespan by your average annual customer value.

The equation for a CLV baseline looks like this:

Average customer lifespan in years x Average annual customer value = Customer Lifetime Value

You can also calculate the individual CLV of a customer by plugging in the metrics for that customer’s lifespan and value. From there, you can compare it to your established benchmark to gauge whether that customer was ideal for your organization.

Return on ad spend (ROAS)

Return on ad spend (ROAS) is a metric that shows you the financial benefit of an advertising campaign. This performance marketing metric will show you the amount of revenue earned compared to how much of your budget you spent.

There are many different ways to calculate ROAS, but here is a simple equation we recommend:

Revenue generated from ads / Cost of ads = Return on Ad Spend

Conversion rate

Conversion rate is the percentage of leads that complete a specific action. This action will be different for every marketing team but may include opportunities like:

  • Signing up for a demo
  • Clicking an ad
  • Contacting a sales rep from a landing page
  • Signing up for  an email list
  • Agreeing to a service
  • Making a purchase

It’s also helpful to look at conversion rates for your different marketing channels. This way, you can track the effectiveness of your campaigns across channels and identify areas of success or ways your team can improve.

Every team might calculate their conversion rates differently because there are so many ways to interpret conversation rates.

As a general rule of thumb, you can calculate the conversion rate with the following equation:

(Conversions / Total visitors) x 100 = Conversion Rate

Most marketers look to improve their conversion rates on a regular basis. If this is the case, you should update the funnel with improved conversion percentages. Remember, even small changes in conversion rates will dramatically impact the top-of-the-funnel metrics you need to achieve your goal.

Invest in Planful to automate your marketing funnel metrics

Measuring marketing funnel metrics manually is a full-time job.

A marketing performance management platform, like Planful for Marketing, automatically calculates these metrics so you can track, monitor, and measure the impact of your marketing efforts.

That way, you can focus on more critical tasks like strategic goal-building and optimizing your campaigns to accelerate growth at your company.

We’ve even built a free tool to help you create a proper marketing funnel so you can start tailoring your marketing strategy right away.

Try out Planful’s free Operational Marketing Funnel Builder, or get a demo to learn more.

BudgetingMarketing Performance ManagementPlanful for Marketing

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