What is conversion funnel?

A conversion funnel describes the path from first contact to a final outcome, such as a purchase or a subscription, as a series of stages. At each stage a share of people drop out, so the group gets smaller as it moves along. The funnel shows where the loss is largest and therefore where an improvement would add the most to the final result.

How it works

Each stage has a conversion rate, the share of people who reach it from the stage before. The overall conversion rate is the product of all the stage rates, so small changes multiply. A funnel with four stages at 50% each converts only 0.5 x 0.5 x 0.5 x 0.5 = 6.25% of visitors, and lifting any one stage by ten percent of its value lifts the whole result by the same ten percent.

The trade-off is that stages are not independent. A change that attracts more visitors at the top, such as a broader ad, often lowers the quality of people entering and drags down the later rates. Time also matters, because people at the bottom today entered the top days or weeks ago, so reading the stages on the same day can mislead.

Example

Say an online course site gets 10,000 visitors a month. 20% sign up for a free trial (2,000), 40% of those finish the first lesson (800), and 25% of those buy (200). The overall conversion is 200 / 10,000 = 2%. If the site improves the lesson-completion stage from 40% to 50%, the buyers become 10,000 x 0.20 x 0.50 x 0.25 = 250, a rise of 25% from one change. Raising the trial sign-up from 20% to 25% would give the same 250. The numbers are an illustration.

How to model it in Machinations

Draw a Source for visitors and a chain of Pools, one for each stage. Between the Pools place a Gate, with the stage conversion rate on its output, and send the other branch to a Drain for the people lost. Add a Delay where people wait between stages. Make each stage rate a Lever, then Play many times and chart the final Pool to see which stage change moves the total most.