Every sales funnel is a work-in-progress – no matter how effective your funnel is, there’s always space for improvement.
That’s why today we are going to discuss how to increase your sales funnel efficiency.
Want to get a better return on investment on your marketing spend?
- What Is Sales Funnel Efficiency?
- What Factors Contribute to Sales Funnel Efficiency?
- How To Increase Your Sales Funnel Efficiency
- Want To Learn More About Growing Your Online Business With Sales Funnels?
What Is Sales Funnel Efficiency?
Okay, so before we get into how you can improve your sales funnel efficiency, let’s first define what this term means.
Consequently, improving your sales funnel efficiency means increasing your marketing spend ROI.
Let’s say that you used to make $2 in profit for every $1 that you spent on traffic – that’s an ROI of 100%.
But then you figured out how to optimize your sales funnel in a way that allowed you to make $3 in profit for every $1 that you spent on traffic.
This means that you have doubled your sales funnel efficiency – your marketing spend ROI went from 100% to 200%.
Typically, increasing your sales funnel efficiency is the most straightforward way to increase your profits.
That’s why we recommend focusing on that first – you can worry about all the other ways to improve profit margins later.
What Factors Contribute to Sales Funnel Efficiency?
Okay, so now that you know what sales funnel efficiency is, let’s take a look at the three key factors that contribute to it:
- Sales funnel conversion rates.
- Average order value (AOV).
- Customer lifetime value (CLV).
Sales Funnel Conversion Rates
A conversion is an act of responding to the call to action by taking that action – usually, that means progressing to the next stage in the sales funnel.
Meanwhile, a conversion rate is a metric that shows what percentage of people who have been presented with the call to action converted.
You can calculate it by taking the number of visitors that converted, dividing it by the total number of visitors, and multiplying it by 100.
If 100 people visited your sales page and 10 of them ended up buying your product, the conversion rate of that sales page is 10%.
10 / 100 x 100 = 10
Every stage of the sales funnel has its own conversion rate:
- Landing page visitor to lead conversion rate.
- Lead to paying customer conversion rate.
- Paying customer to repeat customer conversion rate.
Also, there’s the overall conversion rate of the sales funnel, which shows what percentage of people who have entered that sales funnel made it all the way to its end.
When we are talking about a sales funnel that has just one offer, then the lead to paying customer conversion rate and the overall sales funnel conversion rate are the same metric.
However, if the sales funnel in question has more than just one offer, then the overall sales funnel conversion rate is a separate metric.
Say, in the case of the Value Ladder sales funnel, it measures the percentage of people who have bought the Frontend, Middle, and Backend offers.
There are also conversion rates for additional offers such as downsells, upsells, and cross-sells.
Conversation rate optimization is the practice of systematically making adjustments to the pages in your sales funnel with the aim of increasing their conversion rate. It can be a great way to improve your sales funnel efficiency.
Average Order Value (AOV)
Average order value (AOV) is a metric that shows how much revenue, on average, does every sale that you make generates.
You can calculate it by dividing the revenue generated within a specific time period by the number of sales made within that same time period.
If last month you made 10 sales and generated $1,000 in revenue, then the average order value for that month was $100.
$1000 / 10 = $100
Increasing your average order value is another great way to improve your sales funnel efficiency.
Customer Lifetime Value (CLV)
Customer lifetime value (CLV) is a metric that shows how much profit the average customer generates over the entire course of the business relationship.
It’s a more complicated metric to calculate – in fact, there are several competing approaches, so not all businesses use the same formula.
One way to calculate customer lifetime value is to first calculate the average lifetime value (LTV):
LTV = Average Order Value x the Average Number of Transactions During a Specific Period of Time + the Average Retention Period.
Once you have the LTV number, you can then use it to calculate the CLV:
CLV = Lifetime Value x Profit Margins
Let’s say that:
- Your average order value is $100.
- The average customer shops at your store once a year.
- The average customer remains a customer for an average of 3 years.
Your LTV is $300:
$100 x 1 x 3 = $300
Now let’s say that your profit margin is 10%.
That means that your CLV is $30.
$300 x 0.1 = $30
Note that there’s a 10x difference between the CLV and LTV – mixing up these metrics can get you in trouble!
If you can figure out how to increase your CLV, you will automatically increase your sales funnel efficiency as well.
How To Increase Your Sales Funnel Efficiency
So now that you understand the key factors that contribute to your sales funnel efficiency, the question is how can you improve these metrics?
Increase Your Conversion Rates With the Help of Paid Advertising
We advise starting with conversion rate optimization:
- Set up a paid advertising campaign designed to send traffic to your lead magnet landing page.
- Once you have sent enough traffic to your lead magnet landing page to get reliable conversion rate data for all stages of your funnel, analyze that data to see what is the weakest link in your funnel. Which stage has the lowest conversion rate?
- Figure out what the problem is and how to fix it. Once you have identified that weak link, you need to ask why the conversion rate for that stage of the funnel is so low. It might be a structural issue where there is a fundamental flaw in your sales funnel. Maybe your offer doesn’t resonate with your ideal customers? Maybe there’s no logical progression from the previous offer to this one? Maybe the previous offer was a letdown, so people don’t trust you anymore? Or it might be a “cosmetic” issue where the sales funnel structure is solid but the design or copywriting on that particular page is lacking.
- Test the solution. Once you have identified the problem and come up with the solution, you want to test that solution to see whether it works. This is easy to do with cosmetic issues because you can simply run a split test. However, when it comes to structural issues, you might need to build a whole new sales funnel and test it against the old one.
- Keep the new version or go back to the drawing board. If your solution produced an increase in the conversion rate, you should keep the new version of the page or the sales funnel. However, if you didn’t get the result that you were hoping for, then you need to go back to the drawing board and come up with another solution. Also, keep in mind that it’s possible that you have incorrectly identified the problem, so that’s worth examining as well.
Once you have fixed the weakest link in your sales funnel, move on to the next weakest link and repeat the process.
Here’s how our co-founder Russel Brunson explains this conversion rate optimization process:
As we have mentioned in the introduction, every sales funnel is a work-in-progress, so you will never reach a point where you are done optimizing. There’s always space for improvement.
By the way, if you are wondering why we are advising you to use paid traffic for this, it’s because paid traffic is fast, predictable, and scalable, which makes it ideal for testing sales funnels.
Moreover, once you increase your sales funnel efficiency to the point where your sales funnel is consistently profitable, paid advertising becomes like a slot machine where you put in $1 and get $2, $5, or even $10 out. It can be a reliable way to make money once you figure it out.
That’s why it’s best to first optimize your sales funnel using paid traffic and then start investing in building traffic-generating assets such as social media profiles, a YouTube channel, a company blog, etc.
Increase Your Average Order Value (AOV) With Upsells and Cross-Sells
The easiest way to increase your average order value is to add upsells and cross-sells to each offer in your sales funnel.
An upsell is an offer that is an upgrade on the initial offer that the customer has already accepted (e.g. “Would you like to supersize that?”).
Here are some upsell ideas:
- Increase the quantity of the product. This works well for physical products that are sold in specific quantities, especially ones priced by weight (e.g. food items, supplements, etc.).
- Offer a subscription. This works well for physical products that people buy regularly such as hygiene and personal grooming items (e.g. toothpaste, soap, razors, etc.).
- Add extra content. This works well for info products. You can offer an upgraded package that includes interviews with experts, detailed case studies, resources such as 30-day plans, etc.
Of course, for these upsells to work, you need to not only offer an upgrade on the initial offer but make it obvious that the upsell is a better deal.
Meanwhile, a cross-sell is an offer that is complementary to the initial offer that the customer has already accepted (e.g. “Would you like fries with that?”).
Here are some cross-sell ideas:
- Pitch accessories. This works well for physical products. Say, if someone is buying a backpack you can also offer them packing cubes, a travel wallet, etc.
- Offer a relevant info product. This works well for both physical and digital products. Say, if someone is about to buy makeup from your online store, you can offer them video tutorials on applying it.
- Offer a personal consultation. This works well for info products. Say, if someone buys an ebook on starting an eCommerce business, you can also cross-sell them a personal consultation on the subject.
If you haven’t implemented upsells and cross-sells in your sales funnel yet, we urge you to do so because it will almost certainly increase your average order value.
Increase Customer Lifetime Value by Improving Retention
Customer lifetime value is the most complex of the three metrics that we are discussing in this article which is why you might need to take time to think about how to best approach it.
Arguably, the most straightforward way to increase it is improving customer retention, which is something that businesses often don’t give enough attention to.
Ultimately, the more value you provide, the easier it will be for you to retain customers, so that’s what we advise focusing on.
After all, the Value Ladder sales funnel is predicated on the idea that you start by asking for a small commitment and then provide enough value in exchange, which allows you to build the trust required for a larger commitment, and so on.
The whole model collapses if at any stage of the funnel you ask for a commitment but then fail to provide enough value – people simply won’t trust you enough to take the next step in your sales funnel.
That’s why it’s best to use this formula all throughout your sales funnel:
Low Price + High Value = Irresistible Offer
Obviously, as the person progresses through your sales funnel, the price of your offers is going to increase at each stage, so it won’t stay low in absolute terms.
But it needs to always remain low relative to the value that you are providing – you want people to feel like they got a great deal at every stage of your funnel.
That’s the secret to building true customer loyalty.
Now, with all that out of the way, here are some tactics that can help you increase customer lifetime value:
- Stay in touch. You want to continue providing free value via email even if the person has declined your most recent offer. Send them roundups with interesting links, share case studies, offer free resources, etc. That way, if they ever need a solution to a problem that one of your products addresses, your offer will be the first option that comes to their minds.
- Celebrate their successes. If you know that a customer has just hit an important milestone, reach out to them personally and congratulate them. You might also want to send them a gift – it can be something small, like branded merchandise. It’s the gesture that counts. Also, if you are selling software, you might want to automate celebrating milestones, no matter how small. Everyone needs acknowledgment!
- Conduct exit surveys. If you have a subscription product, conduct exit surveys with people who cancel their subscriptions. You can automatically send one to everyone who cancels, then reach out to those who responded and say that you would love to get more feedback. Maybe they would be willing to do a quick 15-minute call? Getting a better understanding of why people are canceling their subscriptions can help you reduce churn.
Keep in mind that customer retention is the key to building a sustainable business. It makes sense to invest time, energy, and money into improving it.
Fortunately, once you start to truly put customers first, retaining them becomes much easier.
Want To Learn More About Growing Your Online Business With Sales Funnels?
Our co-founder, Russel Brunson, has written a best-selling book series called “The Secrets Trilogy”.
The first book in this trilogy, “DotCom Secrets”, is all about growing your online business with sales funnels.
Want to know how to:
- Build a profitable sales funnel?
- Optimize an existing sales funnel?
- Maximize your revenue with cross-sells, upsells, and downsells?
Russel discusses all that and more in “DotCom Secrets”- he shares the strategies and tactics that he used to take ClickFunnels from zero to $10M+ in annual revenue in just one year (it’s at $100M+ now!).
So if you want to learn from a proven entrepreneur who has built a 9-figure online business and is one of the world’s top experts on sales funnels, you should definitely get yourself a copy of “DotCom Secrets”.
Or, better yet, let us send you one for free – all we ask is that you cover the shipping!