How to tell if your marketing is working

Is your marketing doing anything?

At its most basic: when things like branding and email campaigns and ads go in --> users, customers, and revenue should come out. The more, the better. This is your funnel.

What The Funnel

"Funnel" is how marketing and sales (and "growth") people model the process of customer acquisition. There are many arguments about how the model breaks down into stages and whether a funnel is even the right metaphor (flywheels!).

Don't let the perfect be the enemy of the good. There's a model that matches the business you have, or want to have. Find it, put it to work, and be ready to change it as your business changes.

Having a funnel enables you to have everyone pulling in the same direction at the same time, working to test and improve the same numbers. It also gives you a way to debug your go to market--the collective term for everything marketing and sales.

As you scale, you'll find that different teams will each have their own internal models with their own stages for the specific part of the funnel they work on. For example, sales teams have a set of typical stages for their part of the funnel that involve different levels of "qualification" and "opportunity" that an "account" goes through as it transforms from lead to customer.

In order to competently run your business and hold your own in board meetings with investors--you need understand your funnel and every team's version of that funnel and all the levers you can pull to change how these funnels work.

More And Better

More volume of people in the funnel is good. Better conversion rates from each stage of the funnel to the next is good.

More volume and better conversion is best.

Starter Metrics

To have any idea of what's going on with a funnel, there are some basic metrics you need.

• Unqualified Leads: any person who comes to your website...
• Marketing Qualified Leads: ...and exhibits interest and/or fits your target persona...
• Product Qualified Leads: ...when your product or app is the only thing people interact with, then there are specific things that they do with it that will tell you they have a need and willingness to buy...
• Sales Qualified Leads: ...and then interacts with your product or staff in a way that indicates need, ability, and willingness to buy..
• Closed/Won: ...and becomes a customer
• Closed/Lost: ...or does not become a customer
• Absolute numbers in each stage
• Conversion rates from each stage to the next
• Changes in both the absolute numbers and conversion rates over time: week-over-week (WoW), month-over-month (MoM), etc

If your product or app is the primary thing that people interact with once they find you, then your product is marketing and sales and your funnel metrics will be user interaction oriented. Map out stages based on specific interactions or combinations of interactions over time.

As you advance, you should be able to track specific cohorts as they move through stages by groupings like: conference, webinar, ad campaign, landing page, Product Hunt launch, etc.

Intermediate Metrics

Here are some additional technical metrics that can help you understand the quality of leads entering your funnel and understand the specific mechanics of revenue generation.

• Churn Rate: customers who leave
• Churn Rate by cohort: tells you whether any particular tactic is generating poor quality customers
• Customer Acquisition Cost (CAC): how much money you spend to get a customer
• Payback Period: how long it takes to earn back that money
• Average Selling Price (ASP), Annual Contract Value (ACV), and Customer Lifetime Value (LTV)
• Sales Cycle: the time it takes to turn a lead into a customer, sometimes just sales' portion of it
• Conversion rates between Marketing Qualified Lead to Customer and between MQL to Churned Customer
• Sales Pipeline $ per MQL
• Cost Per unqualified Lead (CPL) or per MQL
• Revenue per Lead or per MQL
• % of MQLs disqualified (DQ-ed) by sales
• Conversion rate from Sales Qualified Lead (SQL) to Customer
• Ratio of ASP to Pipeline per SQL

There is a neverending supply of metrics you could measure. But there's no single, universal metric. Optimizing for any single metric will blind you to evidence that some part of your go to market is not working.

Whatever you choose to measure, do it consistently and rigorously. Be explicit about your assumptions and methodology. Don't compare apples to oranges.

Disconfirmatory evidence is way more useful than confirmatory evidence. Spending less time pursuing strategies and tactics that don't work limits sunk costs and frees time to do something that will.

Debugging Your Funnel

How do you think about improving a funnel?

There are only two indicators of improving marketing and sales performance: 1) more volume and 2) better conversion rates.

More volume at one end should result in more customers at the other. A better conversion rate at any stage should result in more volume at the next stage, which should result in more customers at the end. If any of those things is not true, you have a capacity or execution problem.

• Capacity: your people or processes or product can't handle the volume of leads
• Execution: you have the capacity, but there is a specific inefficiency in how it's being used or a specific process that's not working or a specific gap in your product that loses people etc

If a downstream metric changes independently of something that happened upstream--you don't know something you should know.

• Positive independent change in downstream metric: find what did that and replicate it, keeping in mind that it might be a delayed reaction to an upstream change
• Negative independent change in downstream metric: find what did that and stop the bleeding

There are a few other common ways of materially impacting the numbers.

• Time in funnel: changing the time it takes to move someone through the funnel, or any part of the funnel, increases your capacity
• Friction: changing any points of friction, such as requiring credit card information or adding a free tier, impacts time in funnel

Beware False Success

Bigger numbers are not always a good thing.

You might be sacrificing the quality of your leads and customers to increase the quantity of leads and conversions. Having a larger volume of leads than you can handle is money lost. Treating leads badly, "burning" them, creates a base of poor sentiment and negative word of mouth.

Keeping an eye on loss-oriented metrics such as decreasing conversion rates, increasing Closed/Lost numbers, and increasing churn will help spot these problems.

Funnel Template

Here's a basic funnel template I made as a starting point. Feel free to fork and put it to work!

Good luck!

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P.S. More Terminology

• Suspect: someone who arrives on your website or you interact with at a conference booth, etc
• Prospect: someone who might possibly have some interest in being a user or buyer
• Lead: someone who might definitely have some interesting in buying
• Qualification: Progressively determining the likelihood of someone having a need you meet, being able and willing to buy, etc
• Raw Lead: suspect, prospect, unqualified lead
• Account: the sales term for a lead, the amount of qualification varies org to org
• Disqualification: determining that a lead is not willing, able, or likely to buy
• Marketing Qualified Lead (MQL): someone who might definitely have some interest in buying and also has the right demographics, firmographics, persona, etc
• Product Qualified Lead (PQL): someone who becomes qualified through their interaction with your product
• Sales Accepted Lead (SAL): MQLs that have been validated as having sufficient probability to buy to be actively worked on by a salesperson
• Sales Qualified Lead (SQL): SALs that have been qualified to the extent of a salesperson being able to say with certainty that the lead has a problem that the product solves, the desire to solve that problem, and the financial means to buy
• Opportunity (Opp or Op): qualification beyond SAL, generally broken up into stages with formal definitions used to measure sales functions
• Disqualify (DQ): state that a lead is unqualified.
• Customer Acquisition Cost (CAC): exactly what it sounds like, what goes into this cost varies from one company to the next
• Cost Per Lead (CPL): exactly what it sounds like
• Friction: anything that slows down a person's movement through the funnel, like having to give you a credit card number to start a trial
• Payback Period: how long it takes for a customer to pay off CAC before they become profitable, which does not factor the ongoing cost to service a customer
• Lifetime Value (LTV): the total expected revenue someone will generate over their time as a customer with you
• Annual Contract Value (ACV): exactly what it sounds like
• Average Selling Price (ASP): exactly what it sounds like
• Sales Cycle: typically the amount of time it takes to close a deal from when it enters the pipeline from a sales perspective, which differs from company to company
• Sales Efficiency: inverse of Payback Period, a measure of how effective sales (and marketing) are at generating revenue
• Pipeline: the $ of all the deals forecasted at any level fo the sales org — i.e. each rep has a pipeline, but so does their team, and so does the entire sales org
• Proof of Concept (POC) [aka Trial]: trial period, sometimes paid for by the prospective customer (Paid POC)