We’ve spoken with dozens of ecommerce companies over the years and although the products sold range wildly (from custom kitchen aprons to DNA polymerase re-agents), success for these companies comes down to answering the same four questions:
1. How do I get more people to my website?
2. How do I get more website visitors to make a purchase?
3. How do I efficiently deliver products to my customers?
4. How do I get customers to make repeat purchases?
It’s easy to see how these questions relate to the most important metrics behind a successful ecommerce strategy: number of unique visitors, conversion rate, gross margin, and percentage of repeat buyers. Above all of these metrics, however, is the one number we’ve seen as the “holy grail” in determining marketing spend and customer value: Gross Profit per Visitor.
From these four questions we developed a ‘framework’ to help companies establish successful ecommerce strategies and calculate Gross Profit per Visitor. This framework, which we call the Ecommerce Customer Lifecycle (ECL), spans four distinct phases of how customers interact with ecommerce companies and the underlying role of analytics:
Acquisition focuses on tactics that drive visitors to your website. Popular tactics include: search engine optimization, paid-search, social media, and affiliate marketing. Successful companies pay close attention to the cost associated with each of these tactics/channels and to the conversion rate produced by each.
Conversion focuses on getting the visitors to your website to purchase products. This step is where user experience design, branding, content, and your on-site strategy are crucial. Success is measured by conversion rate.
Fulfillment focuses on getting products into the hands of customers as quickly and efficiently as possible. Technology has become an important element in coordinating shipping from multiple vendors/warehouses, managing inventory across multiple channels, and calculating shipping effectively. The proper operations system can save companies huge margins on fulfillment.
Retention focuses on getting customers to continue to return to purchase products. Relationship management is essential and driven by marketing automation platforms, loyalty programs, and referral incentives.
Gross Profit per Visitor — The One Number Above All
What we feel is the REAL differentiator with this framework, however, is the underlying, unifying concept of Gross Profit/Visitor (GP/V). GP/V is a metric ecommerce companies can use to understand the profitability of each visitor and visitor segment (i.e. geographic target, demographic target, specific traffic source, etc.). In turn, this metric can also be utilized to calculate the “drivers” behind the profitability of their business. If we see higher GP/V for certain segments, such as customers coming to the site via social media vs. SEO, we can then modify our Acquisition strategy to further leverage social media.
For companies interested in reviewing their ecommerce strategy with this sort of model, we’ve put together a short “audit.” Answer the questions below to help guide you through the process of optimizing your ECL:
Average Unique Visitors per Month:
Average Total Orders per Month:
Average Order Revenue:
Estimated Gross Margin Percentage:
Ross Beyeler co-founded For Art's Sake Media, Inc., a technology company servicing the art industry, and Growth Spark, a design and technology consultancy focused on helping eCommerce and B2B service companies excel. (Growth Spark has completed over 225 projects and led Ross to a 2010 nomination as one of BusinessWeek's Top 25 Entrepreneurs under 25).