Funnel analysis is a method of measuring and optimizing a consecutive set of customer activities that lead toward a desired outcome, such as registering for a service or completing a purchase.
By doing funnel analysis, a business can see where it loses customers and assess different ways to reduce churn at those points. It also helps a business have a more comprehensive approach to new customer acquisition.
E-commerce sites are among the most common users of funnel analysis. They will look at how many people who view an online advertisement click over to their site, how many of these visitors add an item to their cart and then how many actually purchase that item. By measuring each step along the way and doing A/B testing on alternative advertisements or page designs, the e-commerce site can optimize the performance of specific customer interactions and increase the number of customers who move along the sales funnel to the ultimate goal of making a purchase.
Funnel analysis is also used by media companies to increase the number of people who go from seeing an advertisement or reading an article to subscribing, by mobile apps designers to boost the number of people who go from downloading the app to regular users and by online game designers to encourage more players to go from casual gamers to more engaged users.