Every ecommerce retailer needs to know where their business is headed. Whether it’s for investors or bank loans or planning future marketing initiatives, knowing what levers to pull to grow your business is key information that every retailer should have.
Of course there are always curveballs that you can’t predict, external events that you cannot control – political instability in your overseas markets, for example, or a recession at home. But for those business drivers that you do control, it’s critical that management can track the metrics that can tell them where they are going – not just where they have been.
Revenue, orders, average order value, visits – these are metrics that track what has happened. They are no predictor of what will happen next year, beyond simple trend forecasting.
Tracking customers – both those you are acquiring and those who are repeating – however, as well as what they are (really) worth, tells you a lot about where your business is headed.
So here are 6 key metrics that every retailer should have at their fingertips, on a weekly if not daily basis, as well as 3 more worth considering.
We’ll begin with the simplest – how many new customers have you acquired this week?
Although the simplest, this is the most important, as it’s the driver for all the other metrics, the one lever you have the most control over.
Increase this in your model, and all the other metrics will work like cogs in a machine to regenerate your revenue target 12 months later.
The second most important metric – how many customers are becoming repeaters, or loyal customers?
Or in other words, how many, on a weekly basis, are making their second order? This shows you how successful you are being at creating loyalty. In fact some retailers don’t consider you a customer until you have made at least two purchases from their store.
‘It depends on how we define active’, I hear you say – well yes, and that’s important.
Here at Ometria we run an order gap analysis to understand how we should define ‘active’ for each retailer – which means analysing the gaps between first and second orders, as well as between subsequent orders, of all your customers, and drawing a line before which 80% of your customers will have repeated if they are going to.
For many fashion retailers it tends to be around the 25 week mark, while for consumables it will be shorter, and big ticket items, such as large items of furniture, much longer. So your active customer number will be the total number of customers who have shopped in the last X weeks or months – X being that 80% line.
It’s surprising how few retailers will be able to tell you this with any confidence.
The crudest way to work this out is to take all your customers and work out how many of them have shopped at least twice, and divide that number into the total. However, the problem with this number is that it can get skewed by customer growth.
For example, it will be lower for those retailers acquiring customers fastest, as it will include customers who have arrived in the past few weeks and won’t have had a chance to repeat.
The most accurate way to work this out is by running some cohort analysis. Split your customers into months by month of acquisition, and then calculate how many FROM EACH COHORT have ordered more than once, 12 months later. Then average out at least 12 cohorts to find your average repeat rate.
This one comes up all the time, and very few retailers know the answer. But this metric is CRUCIAL in understanding how much you can afford to acquire a customer in the first place.
Ideally you should calculate this over 2 or 3 years, but if you don’t have enough data, a 12 month CLV value will do. For this, you use the same method as 4 above – split your customers into monthly cohorts, then work out what each cohort has spent, in total, after 24, 36 or 12 months, then average them out.
The reason you average them out, of course, is to smooth out any seasonal variations – for example customers acquired in November and December, as well as in sale times, are often of a lower value, with a lower repeat rate, than at other times of the year.
Uhh? You mean my repeat rate? Nooooo – these two are completely different.
While your repeat rate will give you a good average of how many customer are repeating overall, it won’t take into account recency. For example many of your customers will repeat within the first four weeks of their life with you, and never come back.
Your retention rate measures what proportion of customers acquired at some point in the past are still active today. How you define that past period is up to you – but at Ometria we recommend taking customers acquired 12-24 months ago, and working out what % have been shopping again in your ‘active’ period.
Don’t be surprised, or worried, if this gives you quite a low number. While repeat rates will vary between 20% and 50% for most retailers, the retention rate will hover between 5 and 20%. (If you are outside this range, call me! If you are below, you need help, if you are above, can I invest please?).
The six above are the core customer metrics you should be tracking, and which you need at your fingertips. Here are three more that are ‘nice to have’:
The more successful you are at creating repeat customers, the shorter this should get. Key strategies for shortening this gap are addressed elsewhere, but will include post-first-purchase email and social media marketing.
AOV is a notoriously difficult metric to move, but it is one that can have the greatest influence on your profitability. However, it’s a pretty blunt metric when taken as a customer-wide average – far better to split it between new customers, and repeat, as well as, ultimately, by traffic source.
Each is directly driven by your two types of marketing activity – acquisition, and retention – so this way you will have far better visibility of how effective each strategy is in contributing to this metric.
I hope the above is helpful. If you have any difficulty about how to calculate any of these metrics from the data you have, feel free to get in touch, and if there are other customer metrics not listed here that you track on a regular basis, we’d love to hear from you!