The Sales funnel in Unit-economy indicators

as an effective tool of Technological Entrepreneurship

Elena V. Vasilieva
Department of Business Informatics
Financial University under the Government of the Russian Federation
Moscow, Russia
evvasileva@fa.ru

Abstract. An entrepreneur who is looking for the best strategy to promote their products and
services in the digital markets should understand that Internet entrepreneurship, like any kind of
activity, is subject to certain laws of management, Economics, marketing, require a thorough anal-
ysis of competitiveness, the study of performance metrics and conduct a deep behavioral analysis.
The study of the characteristic levels of the sales funnel, and the main strategies for the manage-
ment of the product funnel, the technique of design and analysis of grocery funnel using metrics,
Unit Economics, as a new method of economic modeling to assess profitability on the basis of
one business unit. Highlighted features of the strategy development funnel selling by the method
of Critical Chain Management and Theory of Constraints. A method of finding bottlenecks in the
sales funnel is proposed, which consists in a consistent assessment of the impact on the profit of
each of its five basic metrics, for each of which there are development tools that allow you to find
points of rapid profit growth.
Keywords: strategy, management, product management, Internet technologies, digital mar-
kets, design thinking.

I. INTRODUCTION
According to Global Digital, the number of users of Internet resources in the world by 2018
reached 4,021 billion people. In December 2018, the international telecommunication Union pub-
lished the report “Measuring the information society”, which confirmed that more than half of the
world's population (51.2 %) is permanently connected to the global network [1]. The top ten world
leaders in the conditional ranking of the number of the Internet audience includes China with 668
million users (51.98 % of the total population), India – 350 million (26.0 %), USA – 277 million
(85.1 %), Japan – 110 million (87.3 %), Brazil 110 million (52.4 per cent), Russia – 87.5 million
(59.8 %), and Germany – 72 million (86.7 %), Indonesia 71 million (26.7 %), Nigeria – 70 million
(35.8 %), Mexico – 59 million (45.4 %). At the Russian investment forum in Sochi on February
27, 2017, the audience of Runet (Russian Internet zone) was announced – 86 million people [2].
In 2018 according to the Russian Association of electronic communications, the number of users
of Runet has reached 90 million people, and mobile audience continues to grow (24.3 million
people), ahead of the desktop (13.9 million people) [3].
Many aspiring entrepreneurs who are just going to enter the digital markets with their project have
too much confidence that the “blue ocean “of the” Internet” [4] is completely free from competition. It
is also a common misconception that the consumer is always open to innovation, ready to pay any price
just to become the first owner of a unique product. However, it is necessary to understand that Internet
entrepreneurship, like any kind of activity, is subject to certain laws of management, Economics, mar-
keting. This poses a challenge for the entrepreneur to explore new approaches to product management
in digital markets. including business description in unit-economy metrics.

II. THE DIGITAL PRODUCT SALES FUNNEL MANAGEMENT

The concept of “Consumer funnel” was coined by E. St. Elmo Lewis in 1898, and today it
has become the norm for an entrepreneur to think in terms of a sales funnel. Using a funnel any
journey, customer, user, opponent, reader, etc., can be visualized if it involves a multistage pro-

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cess: from his acquaintance with the service, the terms of talks (first contact with the product) to
the final stages of achieving results and finding the balance of interests of buyer and seller. In the
form of a funnel, thus, visually you can imagine almost any model of the efficiency of the busi-
ness system. Sales funnel (other names-purchase funnel, sales pipeline) – a model of distribution
of buyers by stages of the process of selling a product or service from attracting the attention of a
potential consumer to the proposal until the completion of the transaction (purchase).
Sales management is the process of transferring the status of the buyer from “potential” to
“buyer who paid money”. If the definition of the equilibrium market price is the concept of find-
ing a balance between the interests of the conflicting parties, the funnel, as a tool of analysis, can
also be used not only in sales. This process consists of a series of steps that can be graphically
represented as an inverted pyramid, with a wide edge at the top, where the interest of the poten-
tial buyer is represented, and a narrow neck at the bottom, where the number of purchases of the
proposed product is shown. The customer is passed through the sales funnel from familiarization
with the product to its purchase. The result of the passage of a particular level of the funnel, the
transformation (conversion) of visitors into buyers, etc., expressed through conversion (eng. con-
vertion rate is the “speed conversion”). The analogue of conversion in traditional approaches to
assessing the efficiency of production is the efficiency coefficient.
A typical site has many conversion points, from tags and subscription widgets to pop-up and
chatbots. Measurements of the number of visitors at each level of the funnel allow you to track
analytical tools such as: “Yandex.Metric”, Google Analytics, MixPanel and other Resources of
Google Analytics and Google Adwords track conversion in the contextual advertising system.
Also, statistics of the addresses and requests which have come to mail, calls is collected. To get a
complete picture of the success of sales, management statistics analysis is carried out by week and
month. This allows you to determine at what stage of the funnel customer losses occur.
Speaking about Internet-store, it is logical to distinguish three levels: passer-by, visitor, buyer.
However, you can visualize the funnel in more detail in the following example (Fig. 1).

Fig. 1. Shop sales funnel

The company's banner was seen by 1,000 people (stage I funnel). Of those who saw 100
people came to the site (II stage funnel conversion banner advertising 10 %). Of these, 10 people
made the order (10 % conversion). But only two paid (made a purchase) – the IV stage of the fun-
nel with a conversion of 20 %.
Funnel performance is useful to compare with the overall performance of the market and
competitors. The data obtained on conversion and other funnel metrics (for example, the average
check or the average number of sales for the period) are compared with the average in the market
segment, but this can only give an approximate assessment of the success of the business, since it
is not reasonable to compare the characteristics of a unique enterprise with the figures of statistics,
mostly obtained from untested and often dubious sources.
The results of the funnel level evaluation can be compared with the performance of previous
periods or another point of sale of your network. If the conversion is regularly measured and ex-
amined in the dynamics, it allows you to assess the effectiveness of certain measures to improve

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the processes at each stage of the funnel or to determine the “bottlenecks” of the sales process. In
this case, conversion becomes one of the main characteristics of management.

III. SALESFUNNELMANAGEMENTSTRATEGIES
Continuous analysis of the funnel provides a clear picture of the strengths and weakness-
es of doing business. The purpose of building a funnel is to give an idea of the correctness
of the chosen strategy for the main tasks: to attract, retain and grow physical channels. We
emphasize the usefulness of the funnel and its analysis: funnel allows you to evaluate the be-
havior of the target audience (website, Internet platform, point of sale); allows you to compe-
tently build the entire process of interaction with a potential buyer; provides an opportunity
to present for analysis the conversion of a certain level, and in General; helps to identify the
“weak link” in the sales chain; helps to model different sales strategies and predict overall
business performance.
The peculiarity of funnel management is the complexity of comparing the various activities
that are necessary to promote the visitor of the site through the funnel to the level of “purchase”.
At the entrance of the funnel is the number of potential buyers, to attract which are the main costs
of the company (advertising, bonus system, etc.), but the financial results (income, profit of the
company) are provided by visitors who make a purchase, located at the bottom of the funnel. And
at the same time at each level of the funnel for the successful completion of the transaction (sale),
various optimization options are possible:
A). the cost of creating an interesting offer and attracting visitors to the company's page
(marketing);
B). the attractiveness and convenience of the web page to increase the interest of the vis-
itor and promotion to pay (SEO);
C). sales processes, including ease of cart management and ease of payment and delivery.
Funnel construction divides the entire process into separate clusters. Each of them has its
own local goal, different from the global goal – “to sell the goods”. For example, the purpose of
contextual advertising is to sell a click, the transition to the site. The purpose of the advertising
design is to sell a store visit. All of these targets sell a key level. When the business is presented as
a narrow cluster, efficiency increases. That is why it is so important to carry out various measures
to improve the processes of each stage of the funnel passage by a potential buyer, to increase the
conversion of each level in order to get more interested in the offer at the entrance, and then not
to lose them, but to bring them to the purchase (transaction).
Among the ways to control the funnel are the following.
1. Proportional funnel expansion: increasing traffic at the entrance of the funnel, getting
a large conversion, the seller expands the funnel in the following stages and increases
the result at the exit.
2. Stretching involves increasing conversion at each level, not just at the top.
3. Key level. The funnel level, which is the limit of the entire sales system, is determined,
and then actions are performed to increase the conversion rates of this level (increase
the number of people who have reached this level).
In practice, the number of visitors can be increased through competent research of the target
audience, promotion of information to it, contextual advertising, banners, affiliate links, targeted
advertising in social networks, personalization of the offer. And at each level of the funnel it is neces-
sary to pay attention to the motivation and remuneration system of people responsible for this level.

IV. UNIT-ECONOMICS IN SALES FUNNEL ANALYSIS

Work with funnel levels and analysis of financial performance indicators of the sales process
is carried out with the help of unit-economy. Unit Economics is a method of economic modeling
used to determine the effectiveness of a digital business model by evaluating the profitability of
a unit of goods or a single customer. This is the economy of a single transaction. The author term

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and set of rules – D. Skok [5; 6]. This is a new scientific discipline, the main positions of which
are still being studied and tested in practice.
The key principle of the analysis of the sales funnel in the unit-economy metrics is that the
business can be successful only if each individual unit of goods or services will be profitable.
Analysis of the effectiveness of the work personally with each of our clients based on metrics,
unit economy, of course, the priority is more for B2B sales than B2C. In B2C not each buyer and
the number of sales that is important, butthe mass buyer. This is the sector of large grocery stores,
most online stores. The main metrics of the unit-economy: revenue per period per customer and
in terms of one visitor attracted to the site, the average check, the cost of attraction, etc. The B2B
sector, as a rule, works under personal (“manual”) sales to order. It is characterized by individ-
ual development, high average check and good margins, as several customers provide the main
revenue of the company.
The unit-economy model is well suited for making mathematically correct balanced decisions.
It analyzes only 5 basic metrics, for each of which there are clear and understandable development
tools that allow you to find points of rapid profit growth. The task of the analysis is to compare
different growth strategies, test them in practice over a period of time (for example, a week), eval-
uate the results and focus on the best. Even in a seemingly successful business, there will be at
least one bottleneck in the sales funnel. This can be a conversion from one level of the funnel to
the next, or a place that does not allow you to scale the business.
Problems of most Internet projects occur when launching a new strategy in the market, changing
all the parameters of the advertising campaign trying to improve the conversion rate at each level
of the funnel and increase traffic, while simultaneously reducing the cost per click, raise prices,
change the site interface, etc. In the end, there are difficulties in understanding what events had a
stronger impact on financial results. According to the Theory of Constraints [7; 8], it is necessary
to find the bottleneck of the process that restricts the entire business system, and then maximize
its performance. This limitation is precisely the parameter that, with the least effort, will give the
maximum growth, or those who most restrain it. A bottleneck in the sales process means that
you cannot, while maintaining profitability, increase the number of customers going through this
limitation in the funnel because you have exceeded your production or marketing capabilities.
The easiest way of finding bottlenecks in the sales funnel is a consistent estimate of the effect
on profit of each of the metrics of funnel: number of visitors to the top of the funnel; their con-
version to orders and customers, etc. the loss of conversion can influence the usability of the site,
the terms and conditions of the purchase process, incorrect value offer or discount, ill-conceived
user path from the time of selection of goods in the basket before payment method, and then the
delivery options and the provision of after-sales service.
Therefore, they formulate possible development scenarios, determine which parameter change
has affected the increase in profits to a greater extent, and depending on this, prioritize the imple-
mentation of each of the scenarios. Then, in turn, test each of the scenarios in practice, comparing
the predicted and real results. The Internet environment, on the one hand, allows you to immedi-
ately conduct an experiment and collect data for further study and selection of the best scenario.
But, on the other hand, the speed of reaction of buyers, competitors and responses of the whole
environment of the strategy implementation forces to conduct the experiment in a short time and
make decisions quickly, making adjustments to the business model. Also, keep in mind that when
you find a way to remove one constraint, a new constraint usually occurs in the next funnel steps.
Therefore, the process of optimizing the sales process is iterative and regular.
Now, when thanks to the global network, any product, information about which is published
on the Internet, will find its buyers sooner or later anywhere in the world, the key to sales lies in
a deep study of the needs and pains of the target consumer, finding their motives for buying. The
creation of a profile of the target customer-developed innovation helps to understand the needs
of the prospective customer, client, service user, to trace specific aspects of his character, iden-
tify his priorities in life that will allow you to identify the most relevant values in your solution.

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Creating a portrait of a potential user will help tools Design Thinking. Works [9‑15] are devoted
to this approach.

V. CONCLUSION
Before starting any business, including on the Internet, it is necessary to set a clear goal, con-
sider ways to achieve it, calculate all the risks and generally form a concept for the development
of the future organization. That is why the approach to drawing up a digital transformation strat-
egy based on the sales funnel is so relevant today. The digital environment gives a lot of chances,
but also requires new knowledge and competencies from the entrepreneur to be able to build a
sustainable business in a world of uncertainty, speed and risk.

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