Demystifying funnels and loops - why it’s time to use both in unlocking growth ♾️

Want to drive +20% improvements to conversion rates? Drop the either/or and move to both/and.

After spending a decade building growth mechanics in existing and new markets for Linktree, Slack, Optimizely, Nike and Braintree I noticed one thing in common with their success: they’ve mastered the art of using both funnels and loops to drive growth.

Let’s first define the buzz words:

• AAARRR - not a pirate as I originally thought, but standing for one of the well known funnels in awareness, acquisition, activation, retention, revenue and referral 

• Flywheel - also not a mechanical device, but the speed at which a company grows based on customers being the fuel for success 

If you’ve only heard of these in isolation, I’m there with you. For a long time I thought companies needed to choose one mechanism to focus and align their strategy around. 

After exploring a combination of the two across multiple companies, I’m here to bust down the assumptions that they’re binary and help us move from thinking either/or to both/and.

Myth #1: a funnel is the best way ensure the entire customer journey is connected

I’ve always thought of the funnel as a relay in athletics, with each team or team member playing their part to win the race. 

What that means is:

1. Each baton handoff needs to be crisp or you’re out of the race

2. You need to stay in your lane and not get distracted by competitors

3. You can’t speak to teammates during the race so you must set your strategy in advance 

What does this approach create for companies? Hello silos!

When funnels span multiple teams and companies scale, it becomes much more likely that the baton will be dropped from say acquisition to activation as an example.

Customers will fall out the bottom and you end up like this:

However when funnels are developed for a specific customer cohort or distribution channel, they act as the input or fuel for a growth loop. 

A successful example is developing a paid media funnel that focuses only on cohorts driving business outcomes as the north star for success. This is also known as unit economics, the combination of Customer Lifetime Value (LTV) and Customer Acquisition Costs (CAC). 

The gold standard of adopting this approach is Canva. They combine search strategies across paid and organic to target keywords they know have high intent for customers and therefore a strong LTV:CAC. This focus has become even more important given the scrutiny on media spend due to complexities of tracking success that have compounded over the last few years. 

What does that look like in practice? 

Let’s go through a funnel for a customer who’s looking for social media templates:

1. Funnel step 1: a potential customer searches and discovers multiple options

2. Funnel step 2: a customer visits the website but doesn’t sign up

3. Funnel step 3: the customer is targeted across platforms like Facebook/Instagram, TikTok and Search based on their visit and signs up to Canva

4. Optimisation of step 1-3: based on the attribution channel of the customer, review cohort retention to ensure the funnel is driving high quality customers in then tip more $$ in where it’s working

Why is a customer or channel specific funnel useful? It allows for streamlined accountability for outcomes and removes silos.

  

Myth #2: loops alone produce virality 

The elusive ‘viral growth’ that everyone chases has been clearly linked to loops as a growth mechanic.

Let’s start by defining a loop as a closed system where the input fuels the output over a series of pre-designed steps. 

One of Substack’s loops (which I’m very familiar with after building The Growth Box on here!) is a great example and can broken down by:

1. Input: Creator starts a Substack

2. Steps: 

   1. Creator develops content 

   2. Creator gains subscribers

3. Output: Subscribers prompted to start their own Substack 

This loop has been incredibly successful in getting creators to sign up to Substack and explore the possibilities of becoming a creator. But what’s missing from this view, and is fueling the virality of Substack alongside this loop, is a customer cohort funnel driven by the recommendations feature. 

What does a customer cohort funnel do?

1. Funnel step 1: activates a creator as they see net new traffic from visitors outside of their existing audience via other Substacks (for example Lenny’s Newsletter will see traffic from my Substack as he’s linked under my recommendations)

2. Funnel step 2: content getting traffic ongoing is the core value of Substack which means a creator is retained  

3. Funnel step 3: each creator recommending others drives referral between creators 

Why is this approach valuable? While a strong loop by itself of course drives immense value for a company, and you can find more great examples in Reforge here, the recommendation functionality is one example of a funnel that fuels the loop’s success even further by driving more ‘input’.

Myth #3: I need to hire a growth person ASAP to make this happen 

This is the biggest myth of them all. When you hire a growth person too early or the wrong set of skills in that growth person, they will not be set up for success.

So what should the team look like? Every team should look different depending on the growth mechanics of the company.

Elena Verna speaks about this at length here but from my experience building the growth org at Linktree I’d say there’s a specific team discipline composition that works well to unlock the combined strength of both funnels and loops. 

That is having product and marketing working together with the same KPIs. In the two examples shared above, having the marketing team working on their funnel with the knowledge of how the product team is optimizing their loop cuts corners to have outsized impact across both.

An example of what that looks like is below, but you should know and understand your mechanics before investing heavily in the structure that suits you:

So, why not both?

Here’s the two hypotheses I encourage you to have marketing, product and sales (depending if you’re B2B or B2C) play around with in your company:

1. If we add a focused customer or distribution funnel to our loop, we’ll improve conversions by X%

2. If we develop a loop to generate sustained growth from our existing funnel, we’ll improve conversions by X%

And if done right, this should be what happens:

I’ve seen the power of this in action where a distribution funnel met with a loop allowed for gaps to be closed in the customer journey, which then resulted in +20% improved conversion rate to revenue. Push yourselves to get that impact too.

Need help thinking through what’s possible? Always happy to chat and explore, drop me a line!