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Understanding the Sales Funnel and Funnel Math in Google AdWords Campaigns
Understanding your customers is crucial for e-commerce success, as it ensures that your offerings align with their preferences and needs. This alignment is essential for creating effective marketing strategies, optimizing website design for better user experience, and developing content that resonates with your audience. By comprehensively understanding customer preferences, e-commerce businesses can avoid costly mismatches between their products and services and what their customers actually seek, ultimately leading to increased customer satisfaction, loyalty, and higher sales.
Alfred Goldberg June 5, 2023 - 2 min read
In the bustling world of digital marketing, Google AdWords continues to lead as an effective platform for attracting, engaging, and converting customers. However, mastering this tool is not a simple task. One of the concepts essential for a successful AdWords campaign is understanding the "Sales Funnel" and "Funnel Math." These foundational concepts help digital marketers make data-driven decisions and craft campaigns that generate high returns on investment.
The Sales Funnel Concept
The sales funnel is a model that describes the customer journey from the initial stage of becoming aware of your product or service, to making a purchase. The funnel consists of four primary stages: Awareness, Interest, Decision, and Action.
- Awareness: At this stage, the prospective customers are introduced to your business and what it offers. Google AdWords can help you generate this awareness through various advertising options such as search, display, and video ads.
- Interest: Potential customers intrigued by your products or services will start seeking more information after the awareness stage. This is where targeted content and remarketing campaigns can keep your brand on their radar.
- Decision: Here, the customer has narrowed their options and is close to purchasing. The focus at this stage is to make your offering more attractive than your competitors'. Providing exclusive deals, bonuses, or discounts can be beneficial.
- Action: The final stage is when the customer completes the transaction. Your goal doesn’t end here, as ensuring a great user experience can convert these customers into repeat buyers or brand advocates.
Funnel Math and Google AdWords
Funnel math is a term used in marketing and sales to analyze a sales funnel's conversion rates and performance. It involves measuring and evaluating the various stages of a customer's journey through the sales process, from initial awareness to final conversion.
Funnel math involves tracking the number of people at each funnel stage and calculating conversion rates. This helps businesses identify areas of improvement, optimize their marketing and sales strategies, and increase overall conversion rates and revenue. It helps you understand conversion rates at each stage, calculate customer acquisition costs, and measure ROI.
Here's how it works in Google AdWords:
- Impressions: The number of times your ad is shown. This corresponds to the awareness stage of the sales funnel. There are several metrics and reports in Google AdWords to analyze your impressions performance.
- Impression share
Impression share (IS) is the percentage of impressions your ads receive compared to the total number of impressions your ads could get.
Impression share = impressions / total eligible impressions
Eligible impressions are estimated using many factors, including targeting settings, approval statuses, and quality. Impression share data is available for campaigns, ad groups, product groups (for Shopping campaigns), and keywords. Impression share is an excellent way to understand whether your ads might reach more people if you increase your bid or budget.
- Search lost IS (budget)
The percentage of time that your ads weren't shown on the Search Network due to insufficient budget. This data is available at the campaign level only.
- Search lost IS (rank)
The percentage of time your ads weren't shown on the Search Network due to poor Ad Rank in the auction.
- Auction Insights
The auction insights report lets you compare your performance with other advertisers who are participating in the same auctions that you are. This information can help you make strategic decisions about bidding and budgeting by showing you where you're succeeding and where you may miss opportunities for improved performance. The auction insights report is available for Search, Shopping, and Performance Max campaigns.
Clicks
When a user clicks on your ad, it shows interest in your offering.
Click-through rate (CTR)
The Click-through rate (CTR) is a key performance metric that tells you what percentage of people who saw your ad clicked. Clickthrough rate (CTR) can gauge how well your keywords, ads, and free listings perform.
CTR = clicks ÷ impressions
CTR is the number of clicks your ad receives divided by the number of times your ad is shown: clicks ÷ impressions = CTR. For example, if you had 5 clicks and 100 impressions, your CTR would be 5%.
Each of your ads, listings, and keywords has its CTRs that you can see listed in your account.
A high CTR indicates that users find your ads and listings helpful and relevant. CTR also contributes to your keyword's expected CTR, a component of Ad Rank. Note that a good CTR is relative to what you're advertising and on which networks.
You can use CTR to gauge which ads, listings, and keywords are successful for you and which need to be improved. The more your keywords, ads, and listings relate to each other and your business, the more likely a user will click on your ad or listing after searching your keyword phrase.
Several organizations, such as WordStream, regularly publish industry average click-through rates (CTR) that could be useful to compare with your own.
Conversions:
This is the action stage, where the user performs the desired action, like purchasing, filling out a form, or downloading a brochure. The Conversion Rate (CR) tells you what percentage of people who clicked on your ad took the desired action.
Closing:
If you are an e-commerce provider, a conversion might be the same as a sales transaction. However, the website serves as a lead generation tool for many advertisers, and the leads still have to be closed by your sales team. In this case, tracking the closing rate for a Google ad lead is essential.
Lead Close Rate (LCR)
Lead Close Rate refers to the percentage of sales leads and outreach efforts that produce customer conversions and sales.
LCR = Leads Closed ÷ Total Leads
LCR becomes a key component of your Funnel Math.
Putting Funnel Math Into Practice
We use funnel math with our Google ad campaigns in two ways. The first is to analyze and measure conversion rates and performance against a benchmark. The second is to develop a budget for a Google ads campaign. Let's look at a hypothetical example of an analysis of a Google ads campaign for a fictitious company.
Analysis of Endless Sea Exotic Pets Google Ad's Campaign
Endless Sea Exotic Pets, founded in 2021, is a premier provider of rare, high-quality marine life for the dedicated and responsible aquatic pet enthusiast. From the vivid corners of coral reefs to the mysterious depths of the open ocean, they bring an astounding diversity of aquatic life to your living room.
In their mission to make Endless Sea Exotic Pets accessible to marine life enthusiasts everywhere, they've embraced the power of Google Ads to extend their reach and streamline their services. Google Ads has become an invaluable tool, enabling targeted advertising to reach potential pet owners with a deep love for marine life and a commitment to supporting ethical and sustainable pet practices. It's not just about visibility, however. Using advanced analytics, they fine-tune their strategies, offering specific product suggestions, informational content, and personalized experiences based on user interests and interactions.
Reviewing their metrics for May 2023, they have calculated the following:
- They had 25,222 Impressions
- Out of these, 3,562 people Clicked on their ads (CTR = 200/10,000 * 100 = 14.12%)
- Out of these 3,562, 82 visitors converted by calling their sales phone number or completing a lead form. (CR = 82/3562 * 100 = 2.3%)
- Out of these 82 leads who converted, the sales team closed deals with 7. (LCR = 7/82*100=8.54%)
Understanding these numbers can guide you in optimizing your AdWords campaign. Let’s tale a deeper dive and see how we might use this analysis to report our findings and make reccomendations to improve.
Impressions
Reports show that Endless Sea Exotic Pets had 25,222 impressions in May, but is that performance good or bad. Without context, the number doesn’t tell us much. It is useful to measure this against past months. In April, Endless had 29,449 an in March they had 43,551. This shows a downward trend in impressions. Bad, right? Not necessarily. All metrics should be reviewed together to determine actual performance trends. It is important to look into WHY impressions have dropped. This could be the result of fine tuning keywords by removing unprofitable key phrases, changes to budgets or targeting, pausing campaigns, or any number of factors.
Google Ads provides a handy history report that shows all changes to an account. We could review this to see what changes were made and discuss the reason with our team. In the case of Endless, keywords were removed, campaigns were paused, and targeting was changes to exclude some geographic areas that proved unprofitable to service.
We might also look at how our impression share has changed and compare to our competitors using the Auction Insights Report.
We would also want to compare our next metric, Click-Through-Rate. If our impressions decreased but our Click-Through-Rate increased, then it could mean that we have better focused our targeted keywords.
Click-Through-Rate
For instance, if your Click-through Rate is low, you might need to improve your ad's relevance or targeting. If the Conversion Rate is low, you might need to work on your landing page or the checkout process.
Cost Considerations and ROI Calculation
The effectiveness of your Google AdWords campaign also depends on your costs and the returns you get. Here are the key considerations:
- Cost Per Click (CPC): This is the average amount you pay for each click in your campaign. You can calculate this by dividing the total cost of your clicks by the number of clicks.
- Customer Acquisition Cost (CAC): This is the total cost of convincing a potential customer to buy a product or service. You can calculate CAC by dividing the total campaign cost by the number of conversions.
- Return On Investment (ROI): This calculates the profit made from the campaign. ROI = (Revenue - Cost)/Cost * 100. The higher the ROI, the more successful your campaign.
Conclusion
Understanding the sales funnel and funnel math specific to Google AdWords campaigns is critical to your digital marketing success. It enables you to identify which part of your marketing strategy needs optimization and helps you make data-driven decisions. Always remember, the ultimate goal is not just to drive traffic, but to convert that traffic into paying customers. By consistently analyzing and optimizing, you'll be able to create a sales funnel that guides your potential customers smoothly to the checkout page.
