Growing your ecommerce business can be difficult, especially in the beginning when you don’t have much to go on.
From generating traffic by hand by convincing bloggers to review or mention your product, to blowing thousands of dollars on ads that still aren’t converting.
Fake it until you… break it?
A lot of ecommerce stores are just making up their marketing as they go.
Which can work for a while, but then when your core marketing stops working it becomes a scramble to find something else that works.
Ideally you’d have a couple of strategies that you’re executing that always work. Day-in and day-out they’re generating the sales you need and you can recognize problems early on.
New customers vs repeat customers
One common problem I notice with stores is that they focus all of their attention on getting new customers. Inbound, new customer acquisition, demand generation… whatever you call it.
They spend 80-90% of their time and resources persuading new customers to buy from them.
Then they neglect the people who have already bought from them. Customers who have already had a good experience with the store. Customers who you can directly interact with. Customers who you already know are in your target market.
Marketing to repeat customers is hard
One difficultly with marketing to previous customers is that you’re never quite sure how to do it. With new customers, you can be pretty aggressive because they’ve never bought from you before.
Previous customers on the other hand might be happy with your company but don’t need what you’re selling at the moment. Maybe in six months they’ll be ready to make another purchase.
Focusing on the data all customers create
One way to solve this problem is to focus on the data that your previous customers have created.
By collecting and analyzing this data, you can start to learn how they are behaving. Once you understand their behavior, you can easily build marketing and customer retention systems to encourage and improve this behavior.
When you’re looking at your data, there are three key metrics you should focus on.
- Average Order Value
- Repeat Purchase Rate
When combined, these three metrics will show you how loyal your customers are and how much value you’re getting from repeat customers. Several studies have shown how much more value you get from every single repeat customer versus one-time customers. By using metrics centered around repeat customers, you’re store will be setting itself up for long-term success.
Average Order Value
Average Order Value represents the simple average amount of your orders. It’s an easy metric to calculate.
Repeat Purchase Rate
Repeat Purchase Rate tells you how often your customers make a repeat purchase. 25% means that every 100 orders will have 25 of them from repeat customers.
Similar to your store’s conversion rate, even small improvements here can have a dramatic impact on your revenue. A boost from 10% RPR to 15% RPR adds an additional 7% revenue. Going from 25% to 50% adds 67% more revenue.
Customer Purchase Latency
The third metric that makes up your repeat customers is purchase latency, also called customer purchase latency. This is the average delay between purchases.
For example, if your latency is 14 days then on average a customer is placing their next order 14 days after the last one.
While useful as a single number, latency really shines when you break it out into the full order sequence. For example:
- First order to second order: 21 days
- Second order to third order: 14 days
- Third order to fourth order: 7 days
This example above still has an average latency of 14 days but it’s much more useful and clear when you see the sequence. Getting the second order takes awhile but then the third and four orders happen much faster.
Though it’s just an example, this is a common case of the customer increasing their trust in your store.
Using your store metrics to drive decisions
You’ve learned about Average Order Value, Repeat Purchase Rate, and Purchase Latency. While they are all powerful metrics alone, putting them togeather can really enhance your decision making.
If you have a high AOV, low RPR, and low Purchase Latency then you’re probably selling products that are high cost one-time sales, you have dissatisfied customers who aren’t returning, or you’re not marketing to past customers enough.
A low AOV, high RPR, and low Purchase Latency would mean that your customers are coming back frequently to order low priced products. If your fufilment costs are high, then your margins are probably hurting. If you have high margin (e.g. digital products) then you’re growing a rabid fanbase and might want to consider adding some higher priced products to the mix.
A low AOV on early purchases with a high AOV on later purchases with a high RPR probably means that you need to do more trust building upfront. Your customer retention and loyalty programs are working well but something about your store is confusing people at first.
Now that you have your metrics and can see what they are telling you, you’re in a better place to make actual decisions on them. Maybe you need stronger marketing to bring in more top of the funnel customers. Maybe you need to work on keeping the customers you already have.
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