Two of the most common questions I get asked by online retailers I work with are:
“What customer metrics should I be tracking?”
“Which ones should I be looking to influence?”
Typically most ecommerce managers and digital marketing managers will be tracking top line metrics like revenue per marketing channel and conversion rate, but it is surprising that the ones who are tracking metrics such as repeat rate, new customer revenue and time to second purchase are still in a minority.
These are all crucial metrics to be looking at, and if you can optimise them the long term health of your business can be greatly enhanced.
So let’s break them down.
This is one of the most important retention metrics of all (alongside customer lifetime value), but one which can be very misleading if not calculated properly.
The simplest way to calculate this is by taking all your customers and working out what percentage have purchased more than once. The problem with this is that many of them may not have purchased for many years, and it can also be negatively influenced by spikes in acquisition activity (because customers you have acquired in the recent past may not have had a chance to repeat).
A more accurate way to look at it is through cohort analysis; take a cohort of customers acquired during month X and look at the repeat rate of that group of customers six months later (month X+6) and compare it to that same month for the cohort of the previous year (e.g. comparing customers acquired in June 2016 vs customers acquired in June 2017).
You will get seasonal variations (typically customers acquired over Christmas will have a lower repeat rate than customers acquired in June), but averaged out over a 12 month period this gives you a pretty accurate view of your ‘12 month rolling repeat rate’, and how it is moving over time. A variation of this is you might want to work it out after 12 months, and not six months.
Finally, you should consider working out your retention rate – a refinement of your repeat rate that takes into account loyalty. To calculate your retention rate, look at all your customers who shopped for the first time 12 to 24 months ago and how many of out those shopped again in the last six months. This timeline is just an example, but you get the idea on how to see if customers acquired a while ago still come back and shop with your brand.
How to increase this metric:
In addition to pushing up your repeat and retention rates, all of the above campaigns can also have the effect of decreasing your time to second order. This is another important metric to track on a monthly basis, to measure the effectiveness of your retention activity: how effective are your marketing efforts to get your one- time shoppers to come back and buy again
It’s very common to see repeat percentages steadily rising after the second order—so, for example, if 30 per cent make a second order, of those, 40 per cent might make a third order, and 50 per cent a fourth order. So tracking these metrics and trying to push them up further will have a material effect on your business.
One metric to track is your total number of loyal customers and how effective you are at turning any customer into a loyal shopper, your ultimate goal being to turn every customer in your database into one (i.e. 100% share of loyal shoppers in your database). There are multiple ways you might define this, but as a suggestion, we often recommend looking at customers who have shopped at least twice before a certain date (e.g. six months ago) and at least once in the past six months. They may not all be VIPs in terms of spend amounts, but they have certainly demonstrated loyalty, and are currently still active.
Campaigns to influence loyalty and create VIPs
“Number of new customers” is a metric that everyone will be covering, but what are the best ways to increase it , especially for ‘leads’ for whom you have an email address but they are not customers yet?
The subscriber activation is the percentage of email subscribers turned into customers. Similar to repeat rate, you can calculate it across your database or using cohorts (cohort based on the month they signed up).
Strategies for turning subscribers into customers:
Beware of incentives.
It is very tempting to offer incentives to increase customer growth, but also dangerous, as you may find you attract customers who are barely profitable, and they may only repurchase when a promotion is on.
Here are a few strategies you can use to boost your AOV.
But there are two other metrics you should be checking on a regular basis to see how effective your lifecycle marketing strategy is.
The first is the balance between new customer and repeat customer revenue, and is effectively a check on your acquisition and retention activity to make sure you are still driving down the road in a straight direction.
For example, we typically see the percentage for new revenue to be somewhere between 30 per cent and 65 per cent of all revenues generated on a monthly basis. If it is below 30 per cent, this can be a sign that you are relying too heavily on your existing customers, and not acquiring enough new ones. If it is above 65 per cent, this can be a sign that your retention strategy is not quite working properly, and that you are not seeing enough of your customers coming back.
You should also check what new customers are buying, and what sources are driving them, as this will give you valuable intelligence to power your acquisition strategy.
This metric is the ultimate indicator of the health of your customer database. It measures how many customers you are acquiring (the top of the funnel) against the number you are losing (the bottom of the funnel). To check the current health of your customer database:
This number should be healthily positive over a three month period (looking at it monthly can be overly skewed by seasonal variations and anomalies). If it is a less than 20 per cent difference, you are in danger of stagnating. If it is even, you are losing as many customers as you are acquiring, and your business may be in trouble, so do some investigating. If it is negative, you most likely will need to take drastic remedial action!