What are sales funnels?
If you’re involved in marketing, you’ll be very familiar with sales funnels. They are known by many names, including:
- AAARRR funnels
- A3R3 funnels
- Pirate funnels
The acronym comes from:
- Awareness
- Acquisition
- Activation
- Retention
- Referral
- Revenue
Essentially, they describe a typical customer journey, from first becoming aware of a brand all the way through to a sale or revenue generation.
A big advantage of the funnel is that businesses can examine each area and identify bottlenecks by breaking down the customer journey into bite-sized chunks. This process helped them understand which areas of the journey needed work or attention.
Overall, they were better than traditional marketing because they were quick, efficient, and effective. However, they aren’t perfect.
Issues with sales funnels
While sales funnels still have a place in generating growth, there are some issues.
1. Competition
Using a sales funnel used to be a competitive advantage. However, they’ve become standard, so they don’t have the edge they once did.
2. Too concerned with lead generation
Funnels create an overemphasis on shoveling leads into a linear system. This imbalance means that businesses focus more on leads and not necessarily on extracting maximum value from customers.
3. CAC is spiraling
Customer acquisition costs (CAC) have been gradually increasing as digital marketing on Facebook, Google, and Instagram becomes more competitive. Achieving growth via a funnel means casting a wide net and paying higher advertising costs.
4. Too linear
Funnels are very linear. To increase growth, you need to increase marketing spending to push more customers through the funnel. Scaling is about increasing revenues without adding costs at the same rate, so sales funnels can fall short in that respect.
5. Creates silos
Another disadvantage of the sales funnel is that it creates silos. Product teams work on the product, while marketing teams work out how to sell it. This process reduces the chances of a more holistic approach to getting your product in the hands of your users.
What is a sales loop?
A loop refers to any closed system where one point connects to another. Any output of a loop must also be input. This nonlinearity is what sets loops apart from sales funnels.
Funnels are very focused on awareness and acquisition. However, loops look at things differently.
The idea with loops is that when customers buy a product or service, they also help deliver more customers. Then, those customers help generate more customers, and so on.
Instead of a linear kind of growth, you get exponential growth.
The Dropbox referral program is an excellent example of this. Dropbox customers are incentivized to invite your friends to use Dropbox, and we’ll increase your storage space. Then, if their friends accept the offer, they can invite their friends. The loop begins again with each new user, meaning accelerated viral growth is possible.
Basically, this method uses the power of exponential numbers. If ten users invite ten users, then 100 users are now involved. If that 100 invites ten more people, your product or service has gotten in front of 1000 people.
Additionally, it’s worth thinking about the source of the invitation. If a friend refers to a product or service, you’ll probably be more likely to consider it than if you saw an ad.
Product-led growth
Over the last few years, product-led growth has emerged as a viable form of marketing. The idea is simple: get your product to sell itself.
Slack is a famous example. Instead of spending a lot on sales and marketing, they got their product in the hands of the people who would benefit most from it. Users who found utility in the product shared it across their organization. Soon, everyone was using it.
While product-led growth is attractive, it won’t work for every type of business. For starters, it generally relies on free or freemium products that are easily shared amongst users.
Non-product vs. product loops
You can further break down loops into non-product and product loops.
Non-product loops
Non-product loops refer to things like:
- Word of mouth and referrals
- Content that attracts interest in a product and drives more engagement (i.e., TikTok videos)
- Sales loops that deliver customers and then reinvest the revenues into more sales outreach
Product loops
Product loops are things built inside the product to help generate engagement and virality. Some examples are:
- Multiplayer games that encourage users to recruit their friends
- Social platforms that drive engagement through user-generated content
- Pop-up notifications that encourage re-engagement
Stacking loops
Using several loops in conjunction with each other is an excellent way to drive exponential growth.
For example, one loop could be about referrals, while the other could be focused on using content generated by the product to advertise to new users. For example, SurveyMonkey and TikTok watermark their logo on content shared by users, therefore advertising the product through the user’s network.
Conclusion: Which is better, funnels or loops?
Well, it depends on your product. A sales funnel is still relevant for businesses that sell one-time purchase products or high-ticket items. Additionally, B2B products with long sales cycles can still benefit from a more traditional model.
An AAARRR model still has referrals. So there is a case for still using them but bumping up your focus on using loops.
Of course, businesses still need to generate enough momentum to make loops work. Product-led growth sometimes works, but it won’t solve every business’s problems.
You still need a good marketing campaign to drive awareness and generate consumers. So consider using a linear model to get the word out about your product and drive interest. Then, once you’ve captured users, employ loops to help you drive extra revenue and referrals via content, word-of-mouth, etc.
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