Measuring the success of your e-commerce company
Life is a juggling act; it seems as though we always have a few balls up in the air. And considering what's on the line, we want to ensure that the right balls are in motion. If even just one of those balls starts to lose momentum, it can cause all of the others to crash to the floor.
So how can you tell if your e-commerce company is going to stay in the air or fall flat? Inc.com gives us the measuring stick to gauge what kind of levity we’re working with.
1. Traffic
“Not all traffic is created equal,” says Rudina Seseri, editor at Inc.com. “Any old eyeballs will no longer do. You need visitor engagement that can translate into sales.”
She says that in today’s competitive market, getting the right visitor engagement is much more involved than just spending money, and for a start-up, it can’t be as easy as pulling cross-over traffic from an already established brand. She doesn’t consider paid traffic generation as the final answer, considering that the market is already bursting at the seams with it. But, giving it the old college try might be more fruitful than one would think.
“So, how do you effectively generate traffic for your site?” she asks. “First, no matter what tactics or channels you choose, you must measure, track and manage your ROI. Invariably, some channels will work better than others, and the amount you spend will vary as you figure out what works best for any one of your customer profiles. Once you’ve determined your target customer profile, and you understand where they go online and off, spend the initial phase of your program testing and experimenting until you find the magic trigger.”
She recommends spending the net present value of your customer lifetime value (CLTV), which is basically the gross profit generated by a customer across different periods in time, discounted to the present. In the case of a start-up that doesn’t know their customer lifetime value, she suggests making the assumption that your customer will purchase only once and to use that value. And to acquire that customer, she says to spend no more than the CLTV.
2. Conversion
“Your conversion metrics show how well you’re able to convert your site visitors into customers,” Seseri explains. “Some visitors are coming to your site ready to buy from you. Others may be coming to your site because some third party partner of yours offers them a reward for doing so. They have no intention of buying. These two kinds of traffic will have very different conversion rates.”
Making blanketed statements about conversion rates is sticky business, so try not to make predictions for your company based on others rates. Seseri says that for high-end luxury e-commerce sites, conversion rates could be around 0.03% while purveyors of mass-market goods could achieve several percentage points.
3. Sales
As with conversion rates, there are a whole slew of different variables that come into play with sales. Product mix, sales incentives and up-sells are merely the tip of the iceberg.
“Broadly, there are two categories of e-commerce sites: those carrying their own products, and those selling others’ goods,” says Seseri. “So be careful how you compare your sales to those of your so-called peers. If you’re selling your own goods, your gross sales figure is really the face price of the good. Net sales figures account for any discounts.”
If you’re selling others’ goods, “gross sales” refers to the value of the merchandise, but not the amount of money that goes to the ecommerce site. “So, if you are running an ecommerce business with your own product, don't be disheartened if your top dollar value does not match those of the flash sites,” she says. “Before accusing yourself of growing sales too slowly, make sure that you are comparing apples to apples.”
Seseri’s advice, too, is just the tip of the iceberg. There is much to measure in the world of e-commerce. The important thing, however, is to truly keep an eye on the big three – sales, conversions and traffic – to make sure that your juggling act will have longevity.