It’s surprising to some, especially younger generations, to learn that ecommerce still only counts for about 15% of total retail sales.
But the percentage is expected to take a pretty large jump in the coming decade. Physical stores will likely always be a fixture in our lives, but as younger generations that are comfortable with ecommerce reach their peak spender years, ecommerce will continue to grow.
That includes for small businesses.
If you’re considering taking your small business to ecommerce in the coming years, here are a few important metrics to learn…
#1. Lifetime Profit Value
When I got my first job out of college it was in the catalog industry. It seemed that one of the first things I learned about was lifetime value. It was a metric used to determine how much profit a customer would bring to the company.
It was measured in total. It was measured by acquisition channel. It determined where the good channels were, where the great channels were and those that weren’t so good.
In retail, merchandise is always the most important thing. You can lift customer lifetime profile value by finding the best merchandise. You can increase dollar per customer. You can increase number of purchases per customer. You can increase the lifetime that they continue purchasing.
This metric can help with a whole lot of things with an ecommerce business.
#2. Budget To Acquire
From the lifetime profit number you can start to get a good idea of what you can spend to acquire a customer. A typical number is 30-35%.
So say a customer will bring you $1,000 profit over their lifetime as a customer with you. That means you can spend about $300 to $350 to acquire a new customer.
It depends on the channel. All channels will be different, but this gives you a great starting point for experimenting with new channels. And if the prospects look good you can start investing more and more.
It also means that if you can find better products (not saying you have poor ones now) that you can increase the amount you can spend on acquiring new customers.
#3. Website Traffic
In general, the gross amount of traffic to your ecommerce website directly correlates with your gross sales. Obviously there are a lot of details that go into it, but that’s typically what you’ll find.
Traffic is traffic is traffic.
You don’t want to look for sources of bad traffic, but don’t let the perfectionism of traffic creep into things either. You want to experiment with ways to acquire new traffic.
Traffic is often the first signal of a healthy or hurting ecommerce business.
#4. Acquisition Channel Mix
With most businesses, it’s good to have diversification. For ecommerce products that might mean diversified products. But it could also mean diversification in number of customers. Where you have 1,000 customers buying one thing instead of 100 customers buying 10 things.
Or it could mean a good mix of new traffic acquisition. You don’t want to come to depend on any one source of traffic too much. And in relation, you don’t want to rely too much on any one source of new customer acquisition.
Sure, it’s fine when one channel starts doing really well. You can ride that wave. But keep an eye on experimenting with new channels. You never know when your golden goose will stop laying and you’ll want to have some ideas of where you go next.
#5. Growth Minimum, Growth Maximum
In his books, including Great By Choice, Jim Collins and his team found that the most successful businesses often had a floor and ceiling on their growth. He referred to it as the 20 Mile March. This was based on a successful team that went to the South Pole in 1911. The team would do all they could to go 20 miles every day. On bad days, but also on good days.
In business, there are times when you’ll be pushed to try to make your minimums. Those really help you build your skills. But it’s also important to be aware that when things are going really well that you are also at risk for overcommitting and setting yourself up for failure.
If you run on razor-thin cash flows during peak times, for example, you’re at an incredible risk if things take a turn even a little. One slight downturn and suddenly you’re out of cash and struggling.
Successful companies build cash during high times. They often cut back on growth. Then they have the reserves to push extra hard during the downtimes.
Look at your small business and identify the minimum you need to hit no matter what. Then also look at the maximum you need to stay under in order to avoid spreading yourself too thin.
Conclusion
There are more metrics that are important to ecommerce success. But these are some that are often a little overlooked. They’re especially important for small ecommerce businesses. They lead to some really good insight to the current and future health of the company.
