Creating a business and running it successfully is a complex, multifaceted task, and many entrepreneurs find themselves being tugged in every direction by the assault of responsibilities the influx of data and the weight of decision making to the point at which they lose sight of the forest because they are focused on all the trees. In many cases, in fact, businesses can be pulled under or swarmed over by competitors because the principals involved are too busy treading water to move forward with the eCommerce strategies that may save them. To help fledgling e-tailers the brain trust at Practical eCommerce has distilled the entrepreneurial experience down to 4 key metrics upon which every business must focus to ensure continued success, those metrics are:
1. Understanding the lifetime value of a customer;
2. Monitoring customer satisfaction;
3. Measuring your sales funnel;
4. Determining marketing ROI.
The Four Key Metrics of eCommerce Strategy
Understanding the lifetime value of a customer:
Experts suggest that instead of calculating ROI based on single sales store owners would be better served by focusing on the ROI over the life of a customer. This metric is significant because the cost of getting a new customer far outweighs those of retaining present customers. The formula recommended for this calculation is rather simple CLV = Present Value (Average profit per year x Number of years) – acquisition costs. Remember, be precise when calculating your average profits and acquisition costs or the value of the metric will quickly be diminished. Additionally, e-tailers may find value in adding some customer experience metric, like NPS, to accurately assess and predict customer retention. Once you’ve gained a deeper understanding into your customer satisfaction levels you be more able to interpret the CLV’s you’ve calculated.
Monitoring Customer Satisfaction:
There are many tools available to help you understand your customers – analytics software that tracks demographics and traffic statistics, for instance – but the best option may just be to actually talk to your customers. In fact, studies of failed businesses often revealed that those businesses left customer service as an afterthought in favor of more business oriented strategies, or simply had entire department outsourced. Once you’ve gotten a feel for who your customers are it is a good idea to implement some satisfaction metrics. Survey and feedback requests are a good starting point but eventually you’ll want something more robust, again NPS may be your best bet.
Measuring Your Sales Funnel:
Use readily available tools, the advanced segments on Google Analytics, for example, to measure the size of your sales funnel. Tracking assets like landing pages, conversion rates, and site traffic can tell you a lot about how successfully your marketing efforts have turned into actual sales. Once you’ve determined your successes and failures you’ll be able to make better decisions about which tactics to continue, which to ramp up, and which to abandon altogether. In addition, make use of tools like A/B testing to really dial into what makes you most successful.
Determine the Marketing ROI:
To determine the return on your marketing investment it is a good idea to chart your average acquisition cost; the formula to use is AAC = Acquisition spending/ number of customers acquired. Once you’ve generated a number that represents how much each customer has cost you simply compare that value with your calculated CLV and adjust your marketing spending until the numbers lie where you’d like them.
Opening a business IS hard, that’s why so many of them fail so rapidly. But by studying successful businesses and mastering the shortcuts and heuristics they employ anyone can run a successful e-business.
To find out more about how the experts at Hara Partners can assist you with eCommerce Strategy please contact us.