Funnels are outdated for modern businesses. They focus on acquiring customers, treating them as endpoints, and require constant investment to keep running. Enter the flywheel: a circular model that prioritizes customer satisfaction, turning happy customers into advocates who drive referrals and growth. Unlike funnels, flywheels create a self-reinforcing cycle that builds momentum over time, making growth easier and more efficient.
Here’s why flywheels work better:
- Continuous Growth: Customers stay engaged, driving referrals and repeat business.
- Lower Costs: Advocacy reduces the need for expensive acquisition campaigns.
- Team Alignment: Marketing, sales, and customer success collaborate to delight customers.
- Exponential Results: Flywheels compound growth, unlike funnels’ linear gains.
For SaaS and AI businesses relying on recurring revenue, a flywheel is essential. Focus on delighting customers, reducing friction, and aligning teams to keep your flywheel spinning. Track metrics like customer retention, referral rates, and net revenue retention to measure success. Shift from a funnel to a flywheel and build a growth engine that sustains itself.
Brian Halligan: Grow Better By Moving From The Funnel To The Flywheel
Why Funnels Fall Short
Before diving into how flywheels can drive ongoing growth, it’s important to understand where traditional funnels stumble. While the sales funnel has been a go-to framework for decades, its design comes with major flaws that make it less effective for modern SaaS and AI businesses. These aren’t just small issues - they actively hinder the kind of sustainable, scalable growth that today’s companies need.
Funnels Treat Customers as Endpoints
One of the biggest problems with funnels is how they perceive customers. In the funnel model, the customer journey is seen as linear, ending the moment a prospect becomes a paying customer [1].
This approach reduces customers to a final output, rather than recognizing them as a foundation for future growth [3]. The emphasis stays on acquiring new leads, often ignoring what happens after the sale. As Jason Branin succinctly puts it:
"Once someone became a customer, the focus shifted to the next lead. Retention and loyalty were afterthoughts." [4]
This mindset is especially harmful for SaaS and AI businesses, which rely heavily on recurring revenue and long-term relationships. A customer’s value extends well beyond the initial deal, growing through renewals, upgrades, and expansions. Yet, the funnel’s design is laser-focused on closing deals, leaving little room for nurturing ongoing connections [2].
When customers are treated as endpoints, the entire organization tends to follow suit. Marketing focuses solely on generating leads, sales races to close them, and customer success often becomes secondary, with no system in place to maintain or deepen the relationship.
Funnels Require Constant Investment
Another major flaw of the funnel model is its insatiable need for resources [1]. To keep the funnel running, businesses must constantly spend on new campaigns, fresh ads, and additional outreach to bring prospects into the top of the funnel. This creates a never-ending cycle that drains budgets without building any lasting momentum.
Think about it this way: if you close a deal in January, you’ll need to start from scratch to hit your February goals. The effort and resources used to acquire that January customer don’t carry over to make future acquisitions easier. The funnel simply doesn’t generate any forward momentum once a deal is closed [3].
This creates a treadmill effect - always running just to keep up. Want to grow faster? That means spending even more. For bootstrapped founders or companies keeping a close eye on their burn rates, this inefficiency can be a huge burden. Beyond the financial strain, the constant focus on filling the funnel eats up your team’s time and energy, leaving little bandwidth for improving your product or turning customers into advocates. The result? High acquisition costs and missed opportunities to capitalize on the value of existing customers.
Funnels Ignore Existing Customers
Perhaps the most glaring issue with the funnel model is its disregard for the potential of existing customers [3]. Once a prospect converts, they’re essentially dropped from the growth equation. In reality, customer journeys are far from linear - they’re iterative and cyclical. Happy customers can promote your product, provide critical feedback, upgrade their subscriptions, and serve as powerful testimonials. But the traditional funnel doesn’t account for these ongoing interactions [2].
Jason Branin highlights this problem perfectly:
"In this environment, the funnel breaks down. It's not built for loops. It's not built for advocacy. It treats success stories as finish lines, not force multipliers." [4]
This short-term focus on acquisition makes the funnel poorly suited for retention and long-term growth strategies [2]. It fails to adapt to the cyclical nature of customer relationships, resulting in a narrow view of the overall experience and missed opportunities to grow through advocacy and referrals.
Additionally, the handoffs between teams in a funnel model tend to be transactional rather than collaborative [4]. Marketing generates leads and passes them to sales, sales closes deals and moves on, and support only steps in when problems arise. There’s no ongoing care or alignment across teams to keep customers engaged and turn them into advocates. For SaaS and AI companies, where existing customers are often the biggest drivers of growth, this disjointed approach can be costly. It underscores the need for a more dynamic, customer-focused model to achieve sustainable success.
How Flywheels Create Compounding Growth
Funnels have their place, but they come with limitations. Flywheels, on the other hand, change the game entirely. Instead of constantly needing fresh input, a flywheel sets up a self-reinforcing cycle that keeps your business growing. Let’s break down how this works and why it’s so effective.
The Flywheel Mechanics
The flywheel revolves around three interconnected stages: attract, engage, and delight. What makes it different from a funnel? Instead of customers exiting the process after conversion, they remain part of a continuous loop, building momentum with every rotation.
- Attract: This stage focuses on pulling in prospects through content, marketing, and referrals from your current customers. Unlike with a funnel, you’re not starting from scratch every time. Your existing customers actively help bring in new ones.
- Engage: Here, the goal is to convert prospects into customers by offering value at every interaction. Personalized communication, helpful resources, and tailored solutions all work to build trust and show why your product is worth their time and money.
- Delight: This is where the magic happens. By exceeding customer expectations, you turn them into enthusiastic advocates. These advocates don’t just stick around - they actively promote your product through reviews, referrals, and sharing their success stories.
What’s powerful about the flywheel is how seamlessly these stages connect. Engaged customers are more likely to be delighted, and delighted customers feed back into the attract stage. The momentum builds with each satisfied customer, making the next cycle faster and more efficient. Unlike a funnel that ends when a deal closes, the flywheel accelerates at that point, setting the stage for the next big win.
Customer Advocacy Drives Growth
At the heart of the flywheel is customer advocacy, which acts as the engine that keeps the cycle turning. When customers are genuinely happy, they don’t stay quiet - they share their experiences, creating a ripple effect that reduces acquisition costs and boosts conversions.
- Referrals: A happy customer is your best salesperson. Referred leads already trust your product because they’ve heard about it from someone they know. This trust leads to higher conversion rates and better retention.
- Reviews and testimonials: Positive feedback amplifies your marketing efforts. A glowing review on platforms like G2 or Capterra can sway prospects who are on the fence. Case studies shared on LinkedIn or other platforms extend your reach without extra spending.
- Repeat purchases and expansions: Satisfied customers don’t just stick around - they grow with you. They renew subscriptions, upgrade plans, and expand their usage. For SaaS businesses, this kind of expansion revenue is a goldmine since there’s no acquisition cost involved.
When advocacy becomes a major driver of growth, your customer acquisition costs drop, and the lifetime value of each customer increases. This frees up resources to invest in areas like product development or customer success, which in turn feeds back into the flywheel, accelerating growth even more. You’re no longer stuck in the costly cycle of constantly chasing new leads.
Exponential vs. Linear Growth
The flywheel doesn’t just grow - it compounds. Funnels produce linear growth: put in a certain amount of effort, and you get a proportional return. Stop the effort, and the growth stops too. Flywheels, however, produce exponential growth by building on accumulated momentum.
Here’s how it plays out: Say you acquire 100 customers in your first month. With a funnel, you’d need to spend the same amount - or more - to acquire another 100 in month two. But with a flywheel, those initial 100 customers start generating referrals, reviews, and word-of-mouth buzz. By month six, you might be acquiring 150 customers with the same marketing spend because your existing customers are doing part of the work for you.
Over time, the efficiency gains stack up. A business running a flywheel for two years has built a strong foundation - thousands of happy customers advocating for the brand, a library of testimonials, and a solid reputation in the market. A competitor relying solely on a funnel would have to spend significantly more to match that kind of growth.
This approach is especially effective for SaaS and AI businesses with subscription models. These businesses thrive on long-term relationships, so using a growth model designed for one-time transactions doesn’t make sense. The flywheel aligns perfectly with this setup, creating a growth strategy that gets easier to sustain as your business scales.
Here’s the big takeaway: with a funnel, you’re constantly pushing uphill, working against gravity to bring in new leads. With a flywheel, you’re harnessing momentum - each success makes the next one easier, creating a growth engine that works in your favor.
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Building Your Flywheel Strategy
Understanding the flywheel is one thing, but putting it into action for your business is a whole different challenge. You can build your flywheel step by step by focusing on its main components, aligning your teams, and using tools that keep everything on track.
Core Flywheel Components
A strong flywheel revolves around three key elements: delighting customers, removing friction, and aligning your teams. When these work together, momentum builds naturally.
Customer delight is about exceeding expectations and creating experiences that make customers want to share their enthusiasm. It’s not just about solving problems - it’s about doing so in a way that feels seamless and rewarding. Think about the impact of quick, helpful responses or a product that saves someone hours of work. These moments turn customers into advocates who promote your business without being asked.
Friction reduction focuses on eliminating barriers that slow things down. Whether it’s a clunky sign-up process, a confusing interface, or delayed responses, these pain points can derail momentum. Take a close look at your customer’s journey - from onboarding to renewal - and identify where they might be dropping off. Simplifying forms or using automated onboarding emails to guide new users can make a big difference.
Cross-team alignment ensures everyone in your company is working toward the same goal: helping customers succeed. Instead of marketing, sales, and customer success operating in silos, aligning these teams creates a unified experience. When your messaging is consistent from the first touchpoint to renewal, you’re more likely to turn prospects into loyal advocates.
When these elements come together, they feed off each other. Happy customers generate positive reviews and referrals, which naturally reduce friction for new users. Lower friction makes it easier to create more delighted customers, while aligned teams can quickly address challenges and find new ways to add value. This approach strengthens customer relationships and avoids the pitfalls of traditional funnels.
Aligning Your Teams
For your flywheel to work, team alignment is essential. One of the biggest obstacles is when departments operate independently. Marketing might focus on generating leads, sales might prioritize closing deals, and customer success might be left to handle retention on its own. This disjointed approach can stall your flywheel before it even gets moving.
To fix this, start by setting shared goals and metrics that all teams care about. For example, instead of celebrating lead volume while ignoring retention, focus on broader measures like customer lifetime value or net promoter score. Regular check-ins - like a quick weekly meeting - can also help teams collaborate. Marketing can share insights on messaging, sales can highlight common objections, and customer success can point out which features are driving the most value. These discussions help everyone fine-tune their strategies to attract better prospects, address concerns early, and focus on what matters most.
Centralizing data is another game-changer. When every team has access to the full customer journey, decisions improve. Marketing can see which campaigns bring in the happiest customers, sales can follow up at the right time, and customer success can catch at-risk accounts before they churn.
Finally, ditch the "handoff" mentality. Instead of passing leads or responsibilities from one team to the next, think of it as a relay race where everyone stays involved. Marketing can continue gathering insights after conversion, sales can nurture relationships post-close, and customer success can loop feedback back to marketing and sales. This ongoing collaboration keeps the flywheel spinning.
Tools and Metrics to Track
Once your teams are aligned, the right tools and metrics will keep your flywheel running smoothly. These tools help you track progress, spot friction points, and show stakeholders the value of your efforts.
Platforms like HubSpot and Salesforce are great options. HubSpot connects marketing, sales, and customer service, offering insights into customer lifetime value, referral sources, and engagement metrics - all in one place. Salesforce is ideal for businesses with more complex sales processes, providing advanced analytics to identify behavior patterns, flag churn risks, and highlight expansion opportunities.
When it comes to metrics, focus on the ones that matter most for flywheel growth:
- Customer lifetime value (CLV) shows whether you’re building stronger, more valuable relationships over time.
- Referral rate measures how often your customers are bringing in new ones. Look at both the number of referrals and the quality of those leads.
- Churn rate reveals where friction exists. Break it down by customer segment, acquisition channel, or feature usage to uncover patterns. For instance, you might find that customers who adopt certain features early are less likely to churn.
- Net Promoter Score (NPS) gauges customer loyalty and advocacy. By asking, “How likely are you to recommend us to a friend or colleague?” you can identify promoters, passives, and detractors. Following up with promoters to encourage referrals and addressing detractors’ concerns can help reduce friction and build momentum.
Real-time dashboards make these metrics visible and actionable for all teams. If data shows that certain tactics improve retention, teams can adjust their strategies quickly. The goal isn’t to track every possible metric but to focus on the ones that show whether your flywheel is gaining momentum. Watch for trends in customer value, referrals, churn, and satisfaction. If one area lags while others improve, that imbalance can point to where friction still exists.
Tracking Flywheel Performance
Once your flywheel is up and running, keeping tabs on its performance becomes essential. Unlike the traditional funnel model, which focuses on conversion rates at each stage, the flywheel approach emphasizes momentum. You’re looking for signs that each cycle is making the next one smoother and more effective.
Core Flywheel Metrics
The key metrics for assessing your flywheel revolve around what happens after a customer comes on board and how that relationship fuels growth.
Customer retention rate acts as your baseline. It shows the percentage of customers who stick around over a specific period. To calculate retention, take the number of customers at the end of the period, subtract new customers acquired during that time, and divide by the number of customers at the start. For instance, if January begins with 1,000 customers, gains 200 new ones, and ends with 1,150, your retention rate is 95%. High retention indicates less friction in your flywheel - customers are staying engaged as it spins.
Net Promoter Score (NPS) gauges how likely customers are to recommend your business. After asking customers to rate their likelihood of recommending you (on a scale of 0-10), subtract the percentage of detractors (scores 0-6) from the percentage of promoters (scores 9-10). A positive NPS shows your customers are actively contributing to your growth through word-of-mouth.
Referral rate measures how many new customers come from existing ones. Track both the number of referrals and their conversion rates. For example, if 10% of your customers refer someone but only 5% of those referrals convert, you may need to address friction in the referral process. A high referral rate signals that your flywheel is generating its own energy.
Net revenue retention (NRR) reveals whether your existing customer base is increasing in value. To calculate it, add expansion revenue, subtract downgrades and churn, and divide by starting revenue. An NRR above 100% means your existing customers are contributing more revenue over time. For example, an NRR of 120% means that even without adding new customers, your revenue would grow by 20% year-over-year - a clear sign of momentum.
Analyzing these metrics together can uncover friction points. For instance, high retention but a low NPS might indicate customers are staying out of necessity rather than satisfaction. Conversely, high referral rates but low retention could mean you’re attracting customers who don’t stick around.
Beyond these core metrics, it’s also critical to measure the speed and compounding effects of your flywheel.
Measuring Velocity and Momentum
Velocity tracks how quickly customers move from awareness to advocacy, while momentum measures how each cycle builds on the last. Both are key to understanding whether your flywheel is gaining speed or stalling.
Start by tracking time to value - the period between a customer signing up and experiencing their first meaningful win with your product. If this timeframe is shrinking, it’s a sign your flywheel is accelerating because you’re helping customers achieve success faster.
Expansion velocity measures the time it takes for customers to upgrade or expand their usage. For example, if customers who joined in Q3 2025 upgraded in 45 days on average, but Q4 customers upgraded in just 30 days, your flywheel is clearly picking up speed.
Advocacy timeline looks at how long it takes for customers to become promoters. This includes leaving positive reviews, making referrals, or participating in case studies. As your flywheel gains momentum, this timeline should shorten because you’re applying lessons from previous cycles to improve the customer experience.
Another sign of momentum is a shrinking customer acquisition cost (CAC) payback period. As your flywheel spins faster, more customers come from referrals and word-of-mouth, reducing your acquisition costs. If your CAC payback period decreases while maintaining customer quality, it’s evidence that your flywheel is working efficiently.
Look for patterns in your data. Are referrals increasing month over month? Is NRR trending upward? Are customers reaching key milestones more quickly? These trends indicate that your flywheel is gaining traction. On the other hand, if these metrics plateau or decline, it’s a sign of friction that needs to be addressed.
Funnel vs. Flywheel Metrics Comparison
Flywheel metrics differ fundamentally from traditional funnel metrics. Funnels focus on guiding prospects toward a single conversion event, while flywheels emphasize long-term relationships and sustained growth.
| Funnel Metrics | Flywheel Metrics | Why It Matters |
|---|---|---|
| Lead conversion rate | Customer retention rate | Funnels prioritize the initial sale; flywheels focus on whether customers stay and grow. |
| Cost per acquisition (CPA) | Customer lifetime value (CLV) | Funnels aim for cost-effective acquisition; flywheels optimize for long-term value. |
| Sales cycle length | Time to advocacy | Funnels end at purchase; flywheels track when customers become promoters. |
| Marketing qualified leads (MQLs) | Net revenue retention (NRR) | Funnels count potential customers; flywheels measure growth from existing ones. |
| Pipeline velocity | Referral rate | Funnels monitor deal flow; flywheels track customer-driven growth. |
| Win rate | Net Promoter Score (NPS) | Funnels measure sales success; flywheels measure satisfaction and advocacy. |
This doesn’t mean funnel metrics are irrelevant - they still provide useful insights into your initial conversion process. However, they become secondary to flywheel metrics. For instance, a company might boast a 30% lead-to-customer conversion rate but suffer from a 40% annual churn rate. While the funnel metric looks strong, the flywheel metric reveals underlying issues.
The real value comes from tracking both sets of metrics and understanding their relationship. If your CAC is rising while your referral rate is falling, your flywheel is losing momentum, and you’re relying too heavily on expensive acquisition tactics. Conversely, if your NRR is climbing while your CPA is dropping, your flywheel is driving growth through existing customers.
To ensure alignment, make flywheel metrics visible across teams - not just customer success. Dashboards showing retention, NPS, referrals, and NRR in real-time help everyone make better decisions about where to focus their efforts. The goal is to create a culture where these metrics guide strategy, rather than just serving as after-the-fact reports.
Conclusion
The flywheel approach reshapes growth strategies by putting customer success at the core. Unlike the traditional funnel, which treats customers as the final step in a process, the flywheel sees them as the driving force behind continuous progress. When customers thrive, they generate momentum that’s tough for competitors to replicate.
Key Takeaways
The essence of the flywheel model lies in aligning your entire organization around the customer’s ongoing experience. Instead of pouring all resources into acquiring new leads, the focus shifts to nurturing relationships and delivering exceptional results. Satisfied customers become advocates, bringing in referrals and amplifying the value of your product.
This method not only reduces dependency on expensive acquisition channels but also establishes a more sustainable and self-perpetuating growth model.
Next Steps
Take a close look at how your resources are allocated. If acquisition efforts overshadow customer success, it’s time to recalibrate. Reevaluate team alignment and ensure your metrics track what truly matters - customer satisfaction and advocacy.
FAQs
What’s the best way for founders to shift their business model from a funnel to a flywheel?
To shift effectively from a funnel approach to a flywheel model, make customer retention the centerpiece of your growth strategy. Begin by ensuring smooth onboarding processes, actively collecting user feedback, and taking steps to address their needs. Investing in customer success efforts is key to keeping your customers satisfied over the long haul.
On top of that, promote organic growth by introducing a referral program and nurturing strong connections with your customers. When you consistently enhance the value you provide, you create the kind of momentum that fuels steady, compounding growth for your business.
What key metrics should businesses monitor to measure the success of their flywheel strategy?
To determine how well a flywheel strategy is working, it's essential to focus on metrics that highlight customer happiness and long-term growth. Two key metrics to keep an eye on are Net Dollar Retention (NDR) and Net Promoter Score (NPS).
- Net Dollar Retention (NDR) shows how much revenue is growing from your existing customer base, a clear sign of whether customers are sticking around and spending more.
- Net Promoter Score (NPS) measures customer loyalty and how likely they are to recommend your product or service, which can indicate how well you're meeting their needs.
By regularly tracking and analyzing these numbers, businesses can ensure their flywheel strategy is not only retaining customers but also increasing their value over time and encouraging them to spread the word. This data-driven approach helps pinpoint areas for improvement, keeping the growth engine running smoothly.
How does the flywheel model lower customer acquisition costs compared to the traditional sales funnel?
The flywheel model works to reduce customer acquisition costs by harnessing the energy generated by satisfied customers. Unlike the traditional sales funnel, which pushes prospects through a one-directional journey, the flywheel focuses on maintaining ongoing engagement and delivering satisfaction. This approach transforms customers into enthusiastic advocates for your brand.
These advocates play a key role in driving organic growth by sharing their positive experiences, which lessens the reliance on costly marketing and sales efforts. Over time, this creates a compounding effect - a self-sustaining cycle that boosts efficiency and maximizes your business's long-term value.
