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How to do Funnel Analysis for Product Managers [with template]
Funnel analysis is one of the most common forms of data analysis techniques used by product managers. Before we get into how to conduct a funnel analysis, let's explain in more detail what funnel analysis is and why we use it.
What is Funnel Analysis in Product Management?
Funnel analysis is a tool used in product management to understand and optimise the process users go through to complete a desired action or conversion within a product. This action or conversion could be anything from signing up for a trial or demo of a product; to making a purchase or subscription; to completing a task or achieving a goal within a product.
Why Do Product Managers Use Funnel Analysis?
Product managers use funnel analysis to identify bottlenecks or points of friction in the conversion process that may be causing users to drop out of the conversion journey. By analysing data on the conversion process, product managers can understand how users interact with their products and identify opportunities to improve the product's user experience and increase the conversion rate. This can ultimately lead to increased revenue and growth for the product.
Product managers may also combine funnel analysis with segment analysis to compare how conversion rates vary by user attributes or behaviours. These insights can then identify opportunities for improvement within the user journey and help us better understand our user's behaviours.
How to Conduct a Funnel Analysis
While all funnels are different, the steps that a product manager would go through to conduct a funnel analysis are generally the same:
- Define the desired action or conversion: The first step is to identify the specific action or conversion that the product manager wants to track and optimise. This could be anything from signing up for a trial or demo of a product to making a purchase or subscription to completing a task or achieving a goal within a product.
- Break down the conversion process into stages: Once the desired action or conversion has been identified, the product manager can then break down the process into individual stages. For example, if the desired action is making a purchase, the stages might include becoming aware of the product, adding the product to a shopping cart, and completing the purchase.
- Identify the key metrics to track at each stage: For each stage of the conversion process, the product manager should identify the key metrics that they want to track. These could include the number of users who reach each stage, the percentage of users who complete each stage, and the time it takes for users to complete each stage.
- Set up tracking and measurement tools: To capture data for funnel analysis, the product manager will need to set up tracking and measurement tools such as analytics software or user feedback tools. These tools will allow the product manager to track and measure the key metrics identified in step 3.
- Analyse the data: Once the tracking and measurement tools are in place, the product manager can begin collecting data on the conversion process. They can then analyse this data to identify bottlenecks or points of friction in the process that may be causing users to drop out and can take steps to address these issues and optimise the user experience. Many analytics tools can do this for you, but you can also use my free template to help you with your analysis.
- Iterate and optimise: As the product manager continues to track and measure the conversion process, they can use the insights gained from funnel analysis to iterate on and optimise their product. This could involve making changes to the product's features, pricing, or other aspects of the user experience to improve the conversion rate.
How to Identify The Funnel Stage To Improve
By analysing the data collected through tracking and measurement tools, product managers can identify bottlenecks or points of friction in the conversion process that may be causing users to drop out.
For example, suppose the product manager sees that many users drop off at a particular stage in the funnel. In that case, they may prioritise addressing this issue to improve the conversion rate. They may also look for patterns or trends in the data that can help them understand why users are dropping off and what changes could be made to address the issue.
It's important to remember that addressing the stage of the funnel where the largest percentage of users drop off may not necessarily lead to an overall improvement in the conversion rate. This could be because other issues or bottlenecks in the conversion process also contribute to the low conversion rate.
In this case, it may be necessary for the product manager to take a more holistic approach to improve the conversion rate by addressing multiple issues in the funnel. This is why it's vital to model the impact of step improvements on the overall funnel conversion. You can use table three in my template to do this.
Overall, funnel analysis is an essential tool for product managers to understand and optimise the user experience and increase the conversion rate of their product. By analysing data on the conversion process and taking a holistic approach to addressing issues causing users to drop out, you can drive revenue and growth for your products.