The Definitive Guide to Growth Hacking by Neil Patel & Bronson Taylor

The Definitive Guide to Growth Hacking Download PDF

The Growth Hacker Funnel

If you’ve ever put oil in a car then you know what a funnel is. A funnel has a wide opening at the top and as oil runs down it (sticking with our car analogy) the opening becomes smaller and smaller until the oil reaches the engine, which is the ultimate goal. A funnel is a way to guide something which is usually unwieldy and uncooperative, like liquid.

If you are building a product then your task is to guide people towards a particular goal (signup, checkout, etc.). The problem is that people are unpredictable and full of free-will. If you are going to get people to do what you wish, en masse, then you must employ a funnel. When you think about growth hacking the image of this funnel should dominate your understanding:

Defining the three levels of the funnel

The first goal in the funnel is to get visitors. This is the act of getting anyone to visit your website or app for the first time. They are called visitors at this stage because they don’t belong to you yet. They haven’t opted in to anything. They aren’t members, or users, because that would imply that they have some sort of relationship to you, and they don’t. They are just strangers that just happen to be on your site. They are visitors. There are three, and only three, ways to get someone to visit your website or app. You can pull them in, push them in, or use the product to bring them in. The three P’s will be the topic of the next chapter.

  • Getting a visitor is like going on a blind date.

    After a visitor lands on a site, this is when rookies think they’ve done their job as a growth hacker. Not even close. Now you have to activate them and turn them into members. An activation happens when they have taken an action, large or small, that creates a relationship with you. This might be joining an email list, or creating an account, or even making a purchase. You could even have multiple activations that you track. Now, they are not just visitors, but they are members. They have joined what you are doing in some way. Chapter 8 will outline various tactics that growth hackers use to activate a member.

  • Activating a member is like
    being in a relationship with someone.

    It’s hard to turn a visitor into a member, but it’s even harder to turn a member into a user. A user is someone who, as the name implies, uses your product regularly. This is someone that you’ve retained. You’ve kept them around for a period of time. If you create retained users then you’ve reached the holy grail of growth hacking. Chapter 9 will outline some of the best practices that growth hackers have discovered to retain users.

  • Retaining a user is like getting married.

What are good conversion rates for this funnel?

One of the great difficulties of utilizing this funnel for your company is knowing what good conversion rates actually are. As you move down the funnel, less and less people stick around. In a given month, you might get 100k visitors, but only 1k members (1% conversion), and only 700 retained users (70% conversion). Are these numbers good? It’s almost impossible to know for a number of reasons:

  • Is your traffic from a source that would identify with your product, or are they people that should bounce as soon as they read your first headline. Certain traffic sources will always convert to members at higher rates.
  • Does your activation goal include a purchase or are you simply trying to get an email address on file? The more you ask for the lower the conversion rate will be.
  • In terms of retention, does your market usually experience high retention rates, or would it be an anomaly to have repeat users? Likewise, is your product a consumer web product that should expect to have incredibly high retention if it’s going to survive?

Given all the variables that go into knowing whether you have good conversion ratios through the funnel, here are some tips to keep in mind:

  • Your numbers should always be improving, or you’re doing it wrong. Despite all the unknowns, you should at least be improving month over month relative to your own historical performance.
  • Some companies publish their conversion ratios for certain aspects of this funnel. If you compile enough of them then you can begin to benchmark your performance against their metrics. There is a good study of the conversion rates of over 100 SaaS companies at: http://www.totango.com/wp-content/uploads/2012/11/2012-SaaS-Conversions-Benchmark2.pdf

  • The buddy system works well as you think about your funnel. If you can find another growth hacker that has a similar (but non-competing) product, then you can both agree to open up your numbers for the other person. This is one of the best benchmarking tactics for understanding the success or failure of your funnel conversions rates.
  • Ratios throughout the funnel are not siloed. You might do something that drives up visitors by 1,000%, but by doing so it drives down retention by .05%. If you make this change and then dwell on the fact that your retention dropped then you’d be missing the point. The retention ratio is going down, but the number or retained users is actually going up. Your goal is to create conversion rates throughout all the stages of the funnel that work together to create the largest overall impact. Don’t miss the forest for the trees.

Let the funnel set your growth hacking priorities

As you consider where to place your energy, the funnel can sometimes make this decision for you. If you are converting 50% of all visitors to members, and 50% of all members to users, but you are only getting 200 new unique visitors a day then you should obviously spend your time getting visitors. In other situations you might want to wait on getting visitors until you are more successful at moving people through other aspects of the funnel.

On a related note, Sean Ellis has popularized the idea of product-market fit, which has a lot of value as you decide your priorities using this funnel. Sean has often said that if at least 40% of your existing users wouldn’t be “very disappointed” if your product disappeared then you don’t yet have product-market fit. This basically means that your product doesn’t solve enough of a pain. It isn’t adequately loved by the users, and the team needs to focus on product more than growth. His overall point is that you shouldn’t try to find new visitors, or optimize the funnel for them, until you have a product that people actually want.

This creates a little bit of a catch 22. If you don’t have any traffic then you won’t have users to poll as you try to find out how disappointed they would be in your absence. However, focusing solely on growth would be a bad move, as you’d be optimizing in vain if your core offering is lacking.

Therefore, here is what I recommend. Use this funnel, use the process from the previous chapter, and use the tactics in the following chapters, to get an adequate user base. Then, circle back to them to find out how well your product fits their needs before taking things to the next level. You have to grow some to know if you’re even on the right path to grow more. Just don’t put yourself in a situation where you are expending massive energy in an attempt to growth hack a product that people don’t love. It’s that simple.

It all began with pirates

I need to give Dave McClure some credit. A few years ago he started presenting a slide deck that he called Startup Metrics for Pirates. What did these metrics have to do with pirates? Well, the acronym he used to present his material was A.A.R.R.R. which stood for Acquisition, Activation, Retention, Referral, and Revenue. This framework has been celebrated and for good reason. I would be lying if I said that it didn’t deeply influence my thought processes. Therefore, the framework that I use is similar (get visitors, activate members, retain users). Here are the reasons that I prefer this simplified funnel as opposed to Dave’s funnel:

  • It uses the words visitor, member, and user, which actually corresponds to a person’s state at different parts of the funnel.
  • Referral (the first R in Dave’s framework) is really just another way of getting traffic. Therefore, I simply the funnel by including product referral mechanisms as a subset of getting visitors, not it’s own category. Also, referral is only one way to use the product to gain new visitors, as we’ll see.
  • Revenue (the second R in Dave’s framework) is really just a kind of activation. If you choose your activation step to be a purchase of some kind then it doesn’t need to be another step in the process. This will help us think about activation tactics in reference to revenue more easily.
  • It’s simpler, but doesn’t lose any of the organizational power or depth of insight.

Chapter 4 Summary

  • Funnels help guide things which are hard to control, like liquid or people.
  • The growth hacker’s funnel has 3 phases:

    • Get Visitors - finding ways for people to land on your product
    • Activate Members - helping people take predefined actions in your product
    • Retain Users - helping people become habitual users of your product
  • It’s hard to know what good conversion rates are for your product, but the following things help:

    • Always be improving relative to yourself
    • Find companies online who have published their conversion rates
    • Find allies that will let you see their numbers (and vice-versa).
    • Conversion rates affect each other within the funnel, so view the funnel as a whole.
  • You should place your energy into places where you have weak conversion ratios.
  • You need to grow some in order to find product-market fit, but you shouldn’t focus on growth exclusively until you find product-market fit.
  • This funnel is a simplified version of Dave McClure’s framework.