Product Funnels - Part 2 - Conversion
Product Funnels - Part 2 - Conversion
How conversion could indicate customer satisfaction, product performance, or pricing and value perception, helping guide you to product market fit.
Welcome to the second part of this series, where we’re focusing on some principles we, as product managers, should understand about the various stages and functions of the product funnel.
Today, we’re diving into conversion, a critical aspect of any product funnel. Conversion could be seen as the point in your funnel where a visitor becomes a customer, think acquisition → conversion → monetization, but it’s also a way of measuring the performance of any interaction or step of your funnel. I know that seems pretty obvious, so let’s dig deeper.
What is conversion, and who manages it?
We can get to the bottom of conversion by understanding how it’s calculated. Conversion can be calculated anywhere with this simple formula:
As I said before, conversion is a factor in every step of a funnel, not a step in and of itself. Conversion from ads, email or search results to landing page, landing page to product page, product page to details page, details to cart, cart to success page, with many more steps in between.
Why measure conversion metrics?
We measure a lot of things in our companies: revenue, total sales, impressions, and ad spend, but without conversion, how else would we know how many customers we need to earn 10x in revenue?
Let’s say we made $10,000 yesterday from 100 customers. Now, you’d be forgiven if you thought our business was doing well, but if we had to attract 100,000 users to get those 100 customers, that paints a very different picture of our success. And with a conversion rate like that (0.1%), it’s likely we’re not that successful.
But conversion isn’t the only piece of the puzzle. Looking at metrics in an isolated way often doesn’t tell us much. Once you factor in things like acquisition costs and churn, things could look even more bleak.
What’s the goal?
The higher your conversion, the better. High conversion is a good sign of product market fit and can give you a competitive advantage over others in your industry. It translates to lower acquisition costs and more predictable growth.
Conversion is often used as a health indicator as well. Poor conversion could indicate issues like faltering customer satisfaction, a poorly performing product, or a conflict between pricing and value perception.
Your role as a product manager on any team
Regardless of where in the product org you are, you probably need to track conversion on your team. Poor conversion at your step in the funnel can impact other steps. Knowing how conversion performs at other funnel stages can also give you insights into where your metrics can improve. Here are some questions you should be able to answer:
Are there areas where you have a direct or indirect impact on conversion?
How would an improvement or decline in conversion impact revenue or other related metrics?
What is the expected conversion for your industry?
If you can answer the above questions, great! If you’re not sure, then you just need to spend a little more time looking into your conversion metrics.
Things to watch out for
You can measure conversion at every step of the funnel, but many teams also measure ‘overall’ conversion. Of all our users from the top of the funnel, how many complete the final step? Measuring conversion like this can tell you the overall health of your funnel, but it doesn’t tell you the whole picture.
There are a lot of things to consider when tracking down conversion issues. If you made an improvement to your funnel but aren’t seeing an uptick in conversion, it could be that, at the same time, there’s a decrease in conversion somewhere else.
It’s helpful to slice your metrics in different ways to pinpoint where a conversion issue stems. Here are a few of the things I tend to look for and a bit of a process for how to narrow down your search area:
When did the change in conversion start?
Is the conversion change isolated to a specific step in your funnel?
How does this compare to last year? Is this a seasonal change?
Does the change correlate with any changes in your product or funnel?
Is there a difference in conversion between device types?
Is conversion consistent across every country?
Is conversion consistent between acquisition sources?
Is there a specific landing page where conversion has dropped?
Is there a difference in conversion for a particular product?
What are your customer reviews and interviews saying?
Have you seen an increase in errors?
Are there outside forces, economic, political, or PR related that could be contributing?
It’s important to remember that If you have a conversion issue, it’s a sign that something else is wrong. You can think of it as an early warning bell, which you should not ignore.
So what’s next?
Just tracking conversion isn’t enough though. Without understanding how revenue, cost of goods, lifetime value, retention, repeat rate, and other metrics work in relation to conversion, you won’t truly understand how your product is performing.
Still, conversion is a good place to start, and should be a part of your metrics dashboards. I’m curious, what’s an issue you discovered in your product thanks to conversion tracking? I’d love to hear from you.
Product Funnels Series
Part 1 - Acquisition
This step of the funnel can impact every other step, and even if the acquisition teams are tracking this, it's worth taking at least a cursory look from time to time.
Part 2 - Conversion 👈
How conversion could indicate customer satisfaction, product performance, or pricing and value perception, helping guide you to product market fit.
Part 3 - Monetization
You might think you have nothing to do with monetization, but many aspects of the funnel can impact your company's revenue.