You want to build and grow your online store profitably. You want to be successful.
But what’s the best way to do it? How to make sure you’re making the right decisions and not wasting precious time on trial and error?
Although building any business is a process, some processes are more effective than others.
Gut feeling and testing things till they work out is great if you have that kind of time and resources. If not – data-driven marketing is for you.
This is a follow-up on our recent webinar – watch the recording here:
What is data-driven marketing?
It’s basically making every marketing decision on the basis of data you get. It’s an objective, efficient and solid approach to move forward and can always be explained and justified with the concrete metrics and numbers. It removes subjectivity from your marketing, clearly shows what’s working and sets your priorities straight.
So, if you want to go ahead and adopt the data-backed approach to marketing, here are the main points to keep in mind.
You shouldn’t be going after revenue alone. Maximizing revenue doesn’t guarantee you walk away with much in the end.
Your costs could be so high that billions in sales is still not enough to break even.
If you’re building a business to make a living, you probably want that business to last. If it doesn’t cover its own costs, how long can you sustain it?
Look at One Kings Lane or Trunk Club, for example, both of which tanked badly after being the darlings of the industry. Never turned profit and now going down in valuation.
That’s why profit should be your main goal.
Finding the right balance of revenue and cost is the name of the game.
Profit = revenue – costs
It’s easy to slip up and say revenue is equal to items sold times the price, but that’s not exactly true in ecommerce.
You can quickly calculate how much went into your bank account today that way, but you can’t evaluate your business performance with the same formula for revenue.
Revenue in ecommerce is a more of a long-term thing and the formula reflects that:
Revenue = AOV * Orders per customer * Number of customers
This formula shows the connection between your customer base, their actions, the product lifecycle and marketing efforts over time. It can be used to predict future growth and evaluate the business performance. It gives you the real insight.
The next step in adopting a more data-driven approach to your ecom marketing is looking past the short term and strategizing for the long term.
Getting sales today is great, but you also have to think about how those sales will develop over time.
All of the metrics in the formula are long-term and can go up or down greatly. That’s why optimizing them for the long run will bring you the continuous stream of revenue and profit you want.
Because if you only care about today’s sales, you’ll be willing to compromise quality and service, give away more discounts, pay for aggressive client acquisition and so on.
Yes, it’ll likely result in more sales than usual today. But it’ll certainly hurt your business in the long run:
See, a few tricks might do the trick driving sales day-to-day. But the same tricks backfire on your brand image and profitability in the long run.
So acquisition today should go hand in hand with retention so you build a stable business and a good brand.
To be able to work with the revenue formula from above and create a long-term strategy for success, you need to focus on the metrics that matter.
The number of items you sell is not that important for your overall success. The number of orders you’re able to get from each customer and the value of these orders is.
In order to influence the key metrics in the formula, we suggest you break them down into the smaller parts that make them up.
Well, this one is self-explanatory and simple. The bigger the orders, the better.
This metric depends on the following:
Time between orders – the reorder time, how long it takes to place the next order
Second order conversion – what share of customers place a second order
Third order conversion – what share of customers place a third order
The benefit of having more orders per customer is that it’s easier to increase it that get new customers for your third multiplier in the formula, number of customers.
This is directly connected both with acquisition of new customers and the retention of old ones.
Growth rate – how much you grow in new customers monthly
Retention rate – what share you’re able to keep for more than 1 order
See, if you grow with new customers only but don’t keep them, each customer = 1 order, which is not financially sound. See why CLV matters here. Your revenue won’t get much of an impact.
On the other hand, if you don’t get any new customers, even in the best-case scenario where you manage to keep your customers consistently buying (practically impossible), you’ll just stay at a fixed revenue level and never move.
That’s why growth comes from balancing both new and old customers. The net number of customers with wins and losses should be positive.
Ok, now that you‘re convinced you need a good grip on those metrics, how do you find them?
Google Analytics is always an option. You’ll need the additional ecommerce reports though.
Here a few resources to help you set it up properly:
Or you could save yourself the trouble and get an analytics tool for ecommerce especially which has all metrics, goals and setups, and tracks everything automatically.
If you’ve gotten that far, you understand that data takes time to accumulate and show meaningful insights.
That’s why a little patience will get you far in ecommerce. Instead of rushing to execute, step back a bit and wait for numbers to point you in the right direction to your goals.
Before making a decision,
Data-driven marketing is based on what’s proven to be working. Again, long-term success doesn’t come if you hustle without focus and guidance.
All this said, it’s time to get practical. Data is not just to look at and forget right after. It’s to guide your marketing activities towards your goals.
It’s actually a lot easier to act on data than it is to act without it because data shows what needs improvement and what works well already.
Acting on data is straightforward – you take actions to improve the current metrics and performance with your long-term vision and goal in mind.
Let’s explore how data can be turned into growth.
Here are some tips how to improve the orders per customer parameter in the revenue formula.
Post-purchase experience – if you want more than 1 order from a buyer, you’re not done working after the first sale. Active engagement is key. Data will show you how often to send emails, which ones work for driving second orders, how your loyal customers shop and so on.
Split up your newsletter – your customer base most likely exhibits different kinds of shopping behavior so your messaging cannot be the same. A data-based approach to email marketing would be to segment your customers and tailor special newsletters.
Win-back emails – when you track customer behavior, you’ll know when’s the last time they ordered something. An automated email reminder after certain time mark is an awesome way to reactivate those idle customers on autopilot.
Get better customers – by looking at how your best clients behave – how they find you, what the buy, how often and so on – you can learn to attract more like them. This will improve your overall retention success because those people are a better fit for your brand.
A few ways of boosting your number of customers.
Listen to feedback – when you know what people love and hate about your store, it’s easy to improve and turn it all into an advantage. Using positive feedback in your marketing will get you the people looking for just what you’re good at.
Wire for high LTV – your data will show some products stimulate loyalty better than others. Program your store for higher LTV by promoting these loyalty-inducing products heavily so more customers get hooked from the beginning.
Acquire the right people – in the long term, not all customers are equal. You can create a very precise lookalike audience with behavior insights about your most valuable shoppers and attract more qualified traffic.
These are examples of what to do if your AOV in the revenue formula is underperforming.
Converting product bundles – product performance data will show you which products are bought together so you don’t have to try combinations, your customers already tell you what they want bundled together with their buying behavior.
Meaningful cross-sells – don’t jump to conclusions about product relatedness. Look at customer browsing behavior and products purchased together, and you might be surprised what your shoppers put in one basket.
Smart discounting – monitoring campaign performance will save your margins. Start your campaigns without a discount and only follow up with a price cut for those who didn’t buy. You get sales at full price and convert some hesitant shoppers. Win-win.
Want to know how you’re doing in these 3 areas?
Compare your store’s performance with our benchmarks.
Learn to use the power of data and turn it into sales. If you want to grow your ecommerce business with data-driven decisions, subscribe for our email newsletter and you’ll be the first to get our content + exclusive examples you can’t read anywhere else.