When we talk about metrics for Ecommerce, we often stop at the obvious features offered by Google Analytics, such as conversion rate, average receipt, and number of orders.
In reality, if we really want to know the nature of an online shop and its consumers, we must go deeper.
This will allow us to set up a marketing system based on science rather than on our intuition (which, as we know, works as long as things go well, then they become problems).
Here are 4 of the most valuable metrics that can help us understand if the direction taken is the right one.
Table of Contents
Customer Lifetime Value (CLV)
This metric should be the core of any Ecommerce marketing program and printed monthly on all office walls and even in the bathroom as a reminder.
Why is it so important?
Because it tells us how much your customers spend on average over time.
As I have explained in this article, the cost of acquiring a single customer is becoming unaffordable in many industries.
This means that calculator in hand if you subtract margins and costs, an advertising campaign ends up costing more than the sale generated, even if it is properly optimized.
The secret is, therefore, to get the customer to buy again, thus allowing you to amortize the initial investment.
To calculate the CLV, you just need to do
CLV = TOTAL TURNOVER / TOTAL NUMBER OF CUSTOMERS
Problem: you cannot do this calculation on Google Analytics, as as you know, the “user” dimensions are limited in time to 90 days.
However, you can do a data export from your CRM annually and quickly get hold of this information.
Instead, in Analytics, you can calculate the CLV of each traffic source using a correct attribution model and see which campaigns are the most profitable.
Customer retention rate (CRR)
How many of your customers have placed more than one order? This data is important as it shows your business’s degree of “Retention” and the ability to generate recurring customers.
You calculate it like this:
CRR = (CUSTOMERS WHO PLACED MORE THAN 1 ORDER / TOTAL CUSTOMERS) X 100
If the value you get is below 10%, it is generally not good: you need to work more on email marketing and retargeting to re-engage your “1-time customers”.
Obviously, the nature of an online business heavily influences this percentage; for example, a wardrobe will sell less frequently than a box of contact lenses!
But beyond the diversity, take last year’s CRR as a reference and think about improving it by a further 10%.
The percentage growth of the CRR is directly proportional to the increase in the CLV.
Purchase frequency (f)
Directly related to the previous metric, Purchase Frequency indicates the average time between one purchase and another.
This data is really valuable and allows you to set up follow-up sequences on solid data rather than opinions.
So, for example, if you see that in your e-commerce, people buy an average of 1 time every two months, you could start a series of emails, a retargeting campaign, or a targeted push notification about ten days before to accompany them toward a statistically plausible decision.
To calculate the purchase frequency, you will need to do the following:
F (PURCHASE FREQUENCY) = NUMBER OF ORDERS (YEAR) / NUMBER OF UNIQUE CUSTOMERS (YEAR)
Remember to carry out this calculation only on some users but only on users who have made at least 2 purchases.
This allows you to skim a part of occasional customers that would alter the statistics.
Once you get the f- value, you’ll need to do
365 / F
to know the average time between one purchase and another.
If you have very different product categories, you could also go deeper and calculate the purchase frequency by type of product.
Customer Acquisition Cost (CAC)
It’s not a dirty word, but it indicates how much you spend to acquire a customer and represents that thin line between success and bankruptcy.
It is calculated like this:
Total Costs Associated With The Acquisition / Total New Customers
Seen about the Customer Lifetime Value (CLV), the CAC allows you to do a complete check-up of your marketing campaigns and find those traffic sources that only make you lose money.
What you need to do is:
- calculate the CAC => how much it costs you to acquire a customer for each traffic source
- calculate the CLV => how much turnover per customer is generated by those sources
- intervene by blocking the campaign or modifying it where the CAC is above 30% compared to the CLV
It’s a bit like a gardener’s job when he cuts the dry branches of a tree to make it grow better.
Consider 30% indicatively; here, too, the difference in margins defines the concept of “good return on investment” differently.
Now that you have these metrics, you can finally know the current state of your online business, but to improve, you need to have good marketing automation software, a knife between your teeth, and a plan.
Also Read : Guide To Creating A/B Testing With Optimizely
