Posts Tagged ‘Funnel Analysis’

Freemium and OpenSource Funnels

Thursday, July 22nd, 2010

In my last blogpost titled “Why Free? Why Now?” I provided some background on the impetus and the reasoning behind LoopFuse’s move to provide a free marketing automation offering. It has been only three weeks since our launch of FreeView, but the response has already been overwhelming. One of the most interesting changes that comes with a move into a freemium model is the shape of the funnel. Over the past several years I’ve studied the funnels of dozens of companies and I’ve noticed that those companies based on freemium models (including opensource) show some very distinctive and interesting patterns.

The Mouth of the Funnel

The first distinctive feature of a freemium-based funnel is obviously that the funnel’s mouth becomes extremely large. Providing anything of significant value for free will attract a large number of people. The number of people attracted is directly related to the amount of value provided for free and inversely related to the “friction” in obtaining that value. For example, when Ben and Jerry’s offers a free ice-cream cone a line will form. But as the line grows the “friction” to obtain the free ice-cream becomes a disincentive for people who realize that waiting an hour in line for a $3 cone may not be worth the effort. However, if the free item were an iPhone instead of an ice-cream cone then the length of the line would naturally extend much farther as people weighed the value of their time against the inconvenience.

Freemium companies must not only ensure that their free offering provides significant value, but also that the “friction” required to obtain that value is minimized. For example what information must the prospect divulge about him/herself and/or his/her organization to access the free offering? What setup and configuration tasks must be completed? How aggressive is the push to migrate from the free offering to the paid upgrade? The value of the free offering minus the total friction required to obtain that value will directly drive the relative size of the earliest stages of the funnel.   Of course, in order for people to consider a free offering they must be aware of it. While word-of-mouth is a key component of the freemium marketing strategy, there is still a very important role for traditional marketing to drive awareness.

Behavior-Driven Funnel Definition

The second distinctive feature of a freemium-based funnel is the segmentation of the funnel based on behavior. Traditionally the progression of a lead through the segments of the funnel has been based on external indicators such as registration, download of collateral, participation in webinars, product trial download, contacting sales for assistance, etc.  However, due to the volume of leads being managed inside the funnel, a freemium model must provide a hyper-efficient means of measuring the progression of a lead towards purchase and must maintain a level of accuracy in that measurement to ensure that we are not overwhelming the sales team with unqualified leads. Therefore, the segments of the funnel may need to become more specialized based on data being collected directly from the usage statistics of the free offering. For example, in our own funnel, LoopFuse knows exactly how many users, leads, forms, lists, nurturing programs, reports, and campaigns are in use by every single FreeView user. These statistics are key criteria for the promotion of a lead inside of our own funnel segments. This type of integration is usually much easier with SaaS freemium models than with pure opensource models because the usage statistics are more readily available.

The Patient Sales Model

The third distinctive feature of a freemium-based funnel is the lack of momentum in the early stages of the funnel. In a former life I worked at an opensource company and we used to discuss the concept of the “patient sales model”. The concept was based on our observations that it often took YEARS before a free user was ready to purchase a premium upgrade. A user would download the software, become familiar with it’s capabilities and limitations, and it would become part of his/her default toolkit. At some point in the future he/she would pull out that software and would run into a limitation that could only be overcome by upgrading into a premium version. At this point the value proposition is clear to the purchaser, the friction of adoption is zero, and the prospect is usually ready to pay for the value they are receiving. However, there is no magic formula that will predict when this circumstance will present itself. Freemium models front-load the funnel with lots of users on the basis that eventually they will run into this situation.  Also, traditional metrics such as days-to-close can become misleading in freemium models unless you start the clock at the point of opportunity creation rather than lead creation.

While the LoopFuse freemium offering (FreeView) is only a few weeks old, we can already see the momentum impact at the front of the funnel. We have already revised our internal funnel segmentation to better utilize the FreeView behavioral data to more accurately identify those prospects who are gaining the most value and are therefore more likely to pay. I am fascinated by the funnels of freemium and opensource companies and look forward to watching the evolution of our own funnel and the subtle patterns and idiosynchrasies we identify along the way. For a great in depth article on the “Fundamentals of a Volume Market Engine” I highly recommend reading Fred Holahan’s article on OpenSource Business Resource.

Identify exactly how marketing can reduce the sales-cycle time and nurture prospects to action

Tuesday, February 9th, 2010

We are now up to fourth way marketing automation provides job security for marketers from 5 Ways Marketing Automation Provides Job Security for Marketers.  Below is the excerpt from the white paper:

“4. Identify exactly how marketing can reduce the sales-cycle time and nurture prospects to action.

When was the last time you sat down and mapped your marketing collateral to your prospects buying cycle?  Funnel analysis provides marketers with quantifiable data, reflecting the rate at which prospects are advancing through your sales process. This report answers the most important question a marketer has to answer – “At what rate are my prospects moving along the lead funnel?”  Marketing automation can transform this analysis and benchmark it over time delivering key metrics, such as the rate of conversion between first contact-to-conversion or lead-to-opportunity. This analysis can help marketers beef up nurturing and campaign initiatives accordingly.

Funnel analysis gives marketers visibility into the sales cycle and helps identify how marketing can do a better job educating prospects from lead to sale.  Marketers can use funnel analysis as the basis for collaborating with sales by working together to build programs more efficiently at each stage of the pipeline.  Marketers can then support the sales process with thought leadership or specific campaigns while sales may be able to provide key insight about the customers’ buying triggers.

Did you ever want to know how many days it takes for your prospects to move from one step of your sales process to the next?  Marketing automation can empower marketers with dashboard analytics on marketing and sales cycles.  Insight into the funnel progress enables marketers to know exactly how long it’s taking for prospects to move along every stage of the sales cycle and lead funnel. The ability to benchmark this metric over time further extends the power of this reporting tool. This information can be used to build better budget forecasts for finance and help the marketing department become more responsive to unpredictable market conditions.  A sudden change in the sales cycle could alert marketing to changes in the competitive landscape or macroeconomic environment.  The quicker marketing can take advantage of these changes, the more valuable they are to the organization.

Job Security Scorecard:

  • Benchmark the lead-to-sales conversion rate over time.  Identify when campaigns or initiatives drive above average close rates.
  • Forecast more accurately by benchmarking the total number of leads it takes to drive revenue targets at the bottom of the funnel.  Set realistic achievable targets for marketing and sales during strategic planning sessions with the CFO and CEO.
  • Identify what roles are most likely to evaluate products and services and how to meet the unique needs of these individuals based on role, region, or industry.
  • Identify how long it will take for prospects to convert to revenue based on historical averages.
  • Identify bottlenecks in the sales cycle.  Are sales reps incapable of addressing specific objectives?  Does marketing material address all of the buyers core needs?”

Download a free copy of 5 Ways Marketing Automation Provides Job Security for Marketers

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