Funnels vs Flywheels: The Secret to Driving Exponential Growth
When you compare the funnel and flywheel model, you’ll notice a major difference.
The marketing and sales funnel aims to convert leads into paying customers, while the flywheel focuses on converting and retaining them.
Essentially, the flywheel approach is a more customer-centric marketing strategy. The ideal flywheel should increase customer retention and turn your loyal customers into promoters.
In the past, traditional sales funnels formed the basis for the standard customer journey. But things have changed. A flywheel business model has proven to be much more lucrative for modern businesses.
Why? Because the flywheel sustains itself.
Let’s take a closer look at how the funnel and flywheel work.
What are funnels and flywheels?
Funnels and flywheels are ways to visualise and understand your customer journey. In some cases, funnels and flywheels are there without your business consciously putting them into practice.
Once you thoroughly understand the two approaches and their benefits, you can use them to scale your own business.
What’s a funnel?
A funnel is a system that focuses primarily on sales and marketing. It helps you picture each customer’s journey.
There are typically three parts of a sales and marketing funnel: the top, middle and bottom.
The further down a customer gets in your funnel, the closer they are to making a purchase.
Let’s look into the different sales and marketing funnel stages.
Top of the funnel (TOFU)
People at the top of the funnel (TOFU) are new to your business.
They may have heard of you, visited your website or perhaps engaged in your social media posts, but they haven’t yet made a purchase from you.
Top-funnel customers may have a problem or something missing in their lives, and they’re looking for ways to fix or fill it. The solutions your business provides may be exactly what they’re looking for.
But before they make a purchase from you, they need to go through the conversion funnel. The conversion funnel leads them to the middle funnel and then the bottom funnel. At the bottom funnel, they purchase.
Here are some conversion types you can optimise to move people from your top funnel to the middle or bottom funnel:
1. Completing a registration process.
2. Subscribing to your newsletter.
3. Booking a call.
4. Downloading software applications or gated content from your website.
Middle of the funnel (MOFU)
The middle of the funnel (MOFU) is where you’ll find your qualified leads. These leads might have subscribed to your newsletter, downloaded a piece of content, or signed up/registered for an account via your website.
While you have basic information about them, such as their email address, name and product interests, you need to dig deeper. When you learn more, you can push them through the conversion funnel into your bottom funnel.
Here are some conversion methods you can use for customers in your middle funnel:
1. Engagement. Increase the number of opened emails, social engagements and viewed content posts.
2. Segmentation. Separate leads into different categories based on their behaviours, and take next steps tailored to each category.
3. Activation. Foster a responsible and positive relationship between your business and your customer leads. You could invite them to attend an event, or offer them an additional piece of free content to encourage engagement.
Bottom of the funnel (BOFU)
While the bottom of the funnel (BOFU) holds the smallest pool of potential customers, it’s by far the most rewarding field when it comes to turning leads into customers.
BOFU leads need a little bit of a nudge to make a purchase. Here are some incentives to consider to push BOFU leads through the customer conversion funnel:
1. A special time-restricted offer.
2. A small discount for making a first purchase.
3. Sharing reviews from delighted customers.
4. Talking to a customer directly and offering product reassurance.
What’s a flywheel?
In the marketing funnel model, you make efforts to attract customer prospects and then convert them to purchasing customers. However, in the flywheel business model, you put ongoing effort into the customer journey by making initial and repeat purchases easier and more satisfying.
A key aspect of the flywheel is that it keeps spinning. Compared to a funnel, where customers pour in and come out, the flywheel keeps customers circling.
The flywheel business model is more effective and leads to greater profits because it prioritises the customer — they’re the centre of focus.
Limitations of the classic sales and marketing funnel
The classic sales funnel is limited by design.
A marketing team will do their job and attract qualified leads. Then, a sales team will work to convert those leads into paying customers. The customer then falls out of the funnel, and the customer journey is over.
This constant downward push is flawed because the end goal is a purchase rather than ongoing customer success.
A significant amount of money usually goes into attracting new leads. Then, more money goes into converting a customer through sales.
Does any money go into retaining customers? With a classic sales and marketing funnel, the answer is no.
The funnel’s biggest limitation is that resources go to waste. You spend both time and money moving a customer from prospect to purchase, but you ultimately waste those resources if you fail to generate repeat sales.
Turning new customers into repeat customers is one of the most effective ways to increase your profits. And the best way to do that is following the flywheel business model. The classic sales funnel no longer meets modern customers’ needs nor promotes team collaboration.
With a classic sales and marketing funnel, your marketing team’s efforts are very much separate from your sales team’s efforts. With a flywheel, collaboration is vital to increase the chances of customer success.
How to build a successful flywheel
Before you build a successful flywheel, start thinking of it as FUN (focused on user needs).
Your flywheel should provide specific actions for the different steps in a customer’s journey. This key aspect is similar to a funnel, but funnels and flywheels have different steps.
The steps in a sales funnel are to attract, engage and convert. But the steps in a flywheel are to attract, engage and delight.
Delighting customers is what sets a flywheel business model apart from a funnel. Because customer satisfaction is of top priority in a flywheel, customers are likely to return and make repeat purchases. Funnels focus on conversion rather than customer success, which leads to fewer repeat purchases.
What’s more, happy customers usually multiply.
Customers who enjoy their shopping and purchase experience often notify others about it via word of mouth. They’re also more likely to leave reviews, and when prospective customers read those positive reviews, they’re more likely to make a first purchase or come back as a repeat customer.
So, to build a successful flywheel, you should encourage customers to leave positive reviews after making a purchase. Try sending out emails or creating review submission options after customers check out (or a certain period of time after a purchase is made).
You should also focus on ways to remove friction from your internal processes. This will make your flywheel spin faster. The amount of momentum in your flywheel depends on three factors:
How big it is.
How fast it spins.
How much friction it has.
The most successful businesses will address each factor when developing their flywheel business model. Your flywheel’s speed will increase when you add force to the areas that influence your business most.
Adding force could mean implementing certain strategies or programmes to those large-impact areas. Here some examples to improve your flywheel effect in business:
Customer referral program.
Investment in your customer service team.
Easier payment checkouts.
💡Top tip: According to research from PPRO, 20% of global cart abandonments are due to a lack of local payment methods on merchant checkouts.
You can solve this problem by plugging Airwallex into your online store. With Airwallex Online Payments, you can accept payment in multiple currencies via 60+ local payment methods, and create a frictionless checkout experience for your global customers.
Examples of flywheels in business
One of the most successful companies to use the flywheel business model is Amazon. In fact, it was Jeff Bezos who first pioneered the flywheel model on the advice of former Stanford professor Jim Collins.
When it comes to the flywheel, Amazon has the method down pat. Here’s how the Amazon flywheel works:
The number-one principle for all Amazon employees is customer experience.
A superb customer experience drives further traffic to Amazon.com, more sales and more reviews.
Due to increased site traffic, sellers are encouraged to list products on Amazon.com.
More sellers listing their products leads to greater selection for customers.
Using this approach, Amazon experienced (and continues to experience) major growth. The company uses the flywheel principle for all its go-to-market projects to accelerate growth.
In recent years, the flywheel model has resurfaced and gained traction amongst marketing professionals, due in part to its adoption and promotion by Hubspot under the direction of CEO Brian Halligan.
Grow your business with Airwallex
Plug our Online Payments software into your eCommerce store to reduce friction at your checkout and attract more customers globally.
Our simple plug-and-play solution integrates with leading platforms including Shopify, Magento and WooCommerce, allowing your global customers to pay you in their preferred currency via their favourite payment method - whether that’s Visa, Mastercard, Apple Pay, Alipay, WeChat Pay or any of our 60+ options.
Plus, our market-beating foreign exchange (FX) rates mean you can pass savings onto your customers and beat your competitors on price.
Less friction, more global sales, more repeat purchases.
Sign up today to get started.
10 key business metrics every startup founder needs to know
How to calculate burn rate (the right way!)
How to hire for success when you’re an unknown startup