Startup Marketing Part 1: Losing People Through the Bottom of Your Funnel

I had a realization recently while talking with a Micropreneur Academy member: focusing on increasing traffic and improving conversion rates is a fantastic game plan for a startup. But if you offer a recurring service a third step is required: retaining your existing customers.

If you’re focusing hard on optimizing your website sales funnel it’s easy to ignore what existing customers are saying. It’s also hard to prioritize what to work on next: traffic, conversions or new product features. And traffic and conversion rates are the forces that grow your business.

But adding new features is at times more important than focusing on sales. I talk a lot about marketing/sales on this blog because it’s crucial to your success, but in this case there’s a real trade off between growing revenue and keeping your current customers happy.

So to put this idea into perspective I’ve started referring to a customer cancellation as losing someone through the bottom of your sales funnel.

The Third Leg
With sales funnels, the key metrics that you control are your traffic (how many people you send into the top of your funnel) and you conversion rate (how many people make it to the next step in the funnel).

You send traffic through SEO, AdWords, blogging, podcasting, tweeting, social media and other methods you’ve no doubt heard about. Since traffic is so hip everyone’s talking about it.

You improve a conversion rate by improving that step in the process, typically using A/B testing (I recommend Google’s Website Optimizer for website A/B testing, but any A/B testing engine will do).

But if you own a recurring product, once you’ve gone through the effort of convincing someone to buy, it’s painful if they cancel after a single month.

The Bottom of Your Funnel
For the sake of this example let’s say you have a Software-as-a-Service (SaaS) application.

Since you did your niche research and built a mailing list, your app launched with a bang and you received several sign-ups in the first week. Since you had some high quality traffic sources to your conversion rate was high, and you will never have an easier time of driving traffic to an application as when it launches. So you’re set for the first two legs of this race.

But odds are you’re going to begin receiving feature requests from customers almost immediately. Since you launched with the minimal feature set possible in order to begin generating revenue and get real feedback, this is expected and it’s a great situation to be in.

However, you can easily fumble the ball at this point. There is a critical time in the first 1-2 months after launch where you need to crank through the initial feature requests or you will begin to lose customers through the bottom of your funnel.

You will drive traffic and convert that traffic to customers only to have them cancel because they aren’t happy with your service.

Letting this happen is worse than not improving conversion rates. Every customer who cancels due to a lack of features (or any other fixable reason) translates to time and effort you spent sending them to your website and converting them into a customer. Think about it this way: if your conversion rate is 1%, losing a single customer is like 100 people never coming to your website. Strike that traffic from your logs.

I’m a bit weepy just thinking about it.

The Solution
The solution is first to realize this is happening, and second, to stop the leak before working on anything else. Adding the handful of key features that will retain most of your customers is higher priority than improving your conversion rate, and definitely higher priority than generating more traffic.

Thinking of customer cancellations as the third leg of your sales funnel helps you realize that the health of your business depends on all of these activities, and when any one is “leaky” you are losing customers one way or another.

If you can’t get any customers into your funnel you will never make a sale.

If you can’t convince some percentage of prospects to move to the next step in your funnel, you won’t sell any product.

And if you can’t stop customers from flowing out through the bottom of your funnel, you will die by attrition.

You work too hard generating traffic and converting it to customers. Don’t waste it. Plug your funnel.

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4 comments ↓

#1 Jas Panesar on 12.15.09 at 3:03 pm

Hey Rob,

Great summary of what we discussed in the Academy. It totally makes sense that once you sell the “breakthrough” you don’t want the breakthrough to crumble easily.

If the health of any business is determined by the number of new customers it gets, the wealth of any business can be determined by the number of customers it keeps!

#2 Jason Cohen on 12.23.09 at 3:43 pm

I’d argue it’s even more widely important than just businesses with recurring revenue.

Single-pay products always have a way to purchase future upgrades. It might mean re-earning their business once a year instead of once a month, but it’s the same principle.

Then there’s the “word of mouth” that comes from a well-treated customer — that’s a powerful effect that’s important for every business, even services or brick-and-mortar.

There’s never a time when it’s OK to stop thrilling your customers.

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