Jumpstart Your Momentum
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RJMetrics teams up with Bounce Exchange to give you research, best practices, and actionable advice that you can implement today. 1. Take a high level dive through the data of a landmark e-commerce study 2. Discuss what your primary growth-goals should be for 2016 3. Give you an honest look at the state of the e-commerce industry
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Jumpstart Your Momentum
- 1. The event will begin at 2 PM (EST) sharp. The recording will be emailed to all attendees afterwards. Peter The Growth Drivers of Best-in-Class Ecommerce Companies
- 2. What you’re going to learn: 1 The 3 things you can’t afford to get wrong (even on day one) How to identify breakout success in the first 6 months of your business The 3 drivers that fuel growth at top companies ...and much more! 2 3
- 3. 15-second commercial: RJMetrics Our mission is to inspire and empower data-driven people. RJMetrics CloudBI
- 4. What’s new?
- 5. Ecommerce as a whole is growing:
- 6. Some companies are growing MUCH faster than the rest:
- 7. The 3 growth drivers 1 2 3 Product/Market Fit Efficient Acquisition Customer Retention
- 10. Indicator #2: new customers
- 11. Indicator #3: number of orders
- 13. SO WHAT DOES THIS ALL MEAN?
- 14. GROWTH DRIVER #2: Efficient Acquisition
- 16. CUSTOMER ACQUISITION IS ALL ABOUT MOMENTUM
- 17. EITHER CREATE CONVERSATIONS OR CAPITALIZE ON RELATED ONES
- 18. CONTENT IS A LOT OF EFFORT WHAT CAN I DO NOW?
- 21. BOOSTING RETENTION IS KEY BUT REALLY HARD
- 22. BUILD YOUR SITE TO WIN AT RETENTION: GUIDE PROSPECTS TO LPs THAT MAKE THE BEST CUSTOMERS
- 23. THE ONE KPI: Customer Lifetime Value
- 24. 365-day orders per customer
- 26. A HIGHER AOV HELPS WITH LTV SO HERE ARE SOME TIPS:
- 27. 365-day CLV
- 28. LTV BOTTOM LINE: CUSTOMERS ARE BETTER THAN TRANSACTORS
- 29. AOV + retention
- 30. 1 2 Track your cohorts! Make invest-or-kill decisions 2 ways to use CLV
- 31. Cohort analysis
- 32. Marketing ROI
- 33. Why this is so important
- 34. QUICK POLL:
Notas do Editor
- In this slide: -Principal speaker: Peter 3-4 minute introduction/ housekeeping [Peter] will lead Q&A at the end of the presentation We’re recording the show We’ll send an email follow up to everyone with the recording & slides. If you want them a little sooner, email peter@bouncexchange.com Ask your questions via gotowebinar (Robert okay with interruptions, or save all Q’s for Q&A
- RJMetrics CloudBI is an analytics platform for online businesses. Our platform connects to data sources you already use (Salesforce, MongoDB, Facebook Ads, Zendesk, etc.), and consolidates it into a central data warehouse where you analyze it using our chart-building interface.
- We're really lucky here at RJMetrics that we get to work with hundreds and hundreds of really interesting e-commerce companies from all over the world in all different industries, and a side effect of that is that we have the ability to learn things about the e-commerce ecosystem that are far greater than just one company. So we've been able to pull together anonymized data from a very large universe of e-commerce businesses and really look at the profile of companies that stand out and that grow the fastest. Today, I’m going to share some of what we’ve learned over the past year of analyzing the ecommerce industry.
- Before I jump into that, I’d like to give you some big picture perspective on the state of the ecommerce industry. As a whole, the ecommerce industry is growing, it’s expected to be a $2.5 trillion industry by 2018 and comprise close to 9% of total retail sales. This is impressive industry-wide growth, but what we saw in our data is that some companies are capturing this growth at a much higher rate than others.
- We segmented the performance of ecommerce companies by quartile, the top 25% are quartile 1, the next 25% are quartile 2 and so on. What you see immediately in this chart is how much better the great companies are. Already in month two of being in business, they’re starting to pull ahead of the pack, and this trend compounds over time. And it’s that top quartile that we’re going to spend our time talking about today, digging into what’s going on in these businesses and how you can apply some of what they know to your own business.
- What we found is that these top quartile companies have 3 growth drivers working to their advantage. 1. They have product/market fit 2.) they’re incredibly good at customer acquisition 3.) They keep their customers coming back and. Let’s start with the first item on this list. What you’ll see in the data I’m about to show you, is that the accelerated growth of top performers is so much faster than other companies that we have to assume there is something else happening here other than just efficient acquisition and good retention.. Smart acquisition and good retention practices will get you far, but first, you have to first have a great product and large customer base that wants it.
- Ryan is going to talk quite a bit more about best-in-class acquisition and retention strategies, but for the purposes of describing product/market fit, new customers and repeat purchases are metrics for identifying if your store is on the path toward product/market fit. When we analyzed the data, we found 4 indicators of product/market fit that show up very early on in a company’s lifecycle.
- The first indicator that a company has achieved product/market fit is revenue. This is the same chart that I just showed a moment ago, but really, out of the gate, just to talk about some of the actual numbers here, top-performing companies are just growing much faster. Not just in month 36, but if you were to zoom in even just up until that six month mark, in month six the top performing companies have already generated over $2 million in total revenue while the others are averaging just about half a million. So by the end of that six month period you're talking about a four X gap and that gap continues as time goes on. by the time you're at the end of year two these companies have accumulated over $26 million in revenue and are still about four X the size of the next largest ones.
- The other indicator here is just around new customers, so this graph is slightly bumpier, but the same trend really applies where you can start to see that the absolute volume of brand new people who have never made a purchase before is just driving the growth in a really meaningful way that is not happening at the other companies at the same scale. By the end of year two top performers have about two and a half times the number of customers as those that are in the second quartile, and it's really pretty amazing.
- And obviously the other input here, you can talk about the number of people and you can talk about the number of dollars, the number of orders is obviously the other input. And all of these kind of feed into each other in a way that actually adds up or kind of multiplies against one another to create this giant gap between the first and second quartile. In month 10 top performers process over 10,000 orders and 10,000 orders isn't even a line that gets crossed ever by people, at least in the first three years, who are in any of the other quartiles. This is where there's really just some runaway growth in terms of how those numbers are moving.
- Now, obviously all of these things we're talking about are related to one another. If you have more new customers they're probably placing more orders, and the one stat that we really love to look at to understand the whole picture here is just customer lifetime value. I mean, this is really your true indicator of product market fit. This is a reflection of your ability to sell a customer, acquire them efficiently, and actually have them come back and buy more and buy a lot. And you can really see that there is a pretty clear breakdown from a C.L.V. perspective as well as all these other metrics that we've just been talking about, where that first quartile really, really stands out. The top performing customers have a one year spending in that top quartile of $249 where for other companies a single customer is only worth about $167, and that gap means you can spend more to acquire and it means that you can grow your business faster by selling back into the people that you've already got.
- SLIDE 14 These indicators of product/market fit are awesome and they are daunting benchmarks to strive for. But how do 4th, 3rd and 2nd quartile companies nail down their product/ market fit? Well, you’ve already got a product (hopefully) so it’s time to expand the market for it. You’re going to hear this a lot today--but we like to focus on microconversions here. Find the small spaces where you’re getting lift and analyze WHY its happening. Those small lifts are the breadcrumbs that will make a path to a better customer acquisition and retention strategy. For example: if any one PPC term is leading to more customers returning to your site--that term should be your major focus for expanding your brand. Do not be afraid of short-term revenue losses for long term LTV gains. As we talk about customer acquisition and retention--we’re going to make the point that focusing on LTV is the key metric that boosts ALL of your aspects.
- With that, we’re going to move into talking about the second driver -- efficient acquisition.
- We already talked about this just a bit in the earlier slide. Top performers acquire customers much faster. You can see this difference even more clearly when you look at the number of customers. Ryan, can you talk to us about some of the acquisition strategies you see best-in-class companies adopting?
- We’re finding that great customer acquisition is more about building momentum before big pushes. Don’t spend too much before you’ve already built word-of-mouth around your brand. If a person is willing to stake their repuation on your product, they’re the best customer you’ll ever have. Building CA goes hand-in-hand with LTV. We’re going to say this a lot: focusing on charming and keeping high-quality customers who are willing to put their word on the line for you. They’ll bring in more customers and they’ll generate a lot of LTV on their own. 3. Hypertargeted micro-acquisitions. -Look through your google ads and especially your bing ads to determine which terms are performing the best for email capture. Double down on those so you can build relationships with potential customers. Find the content your potential customers consume and insert yourself into their routines. -How you know where to find your future best customers? -Gather as much data on your current best customers and use that to predict where your next best ones will come from. dont be afraid to invest in new keywords/ social media outlets that these customers respond to. Experimentation is key as you build momentum. Once you are firmly a part of the zeitgeist and people are talking about you--that’s when you make the key investments in broad advertisements like taxi ads. Dont waste your energy before. Building relationships like this also helps your customer LTV down the line. Oh, speaking of which:
- In Summary: our best practice for customer acquisition is to either create great conversations (via social and content) or capitalize on the conversations that are already happening. You’ve got to build that momentum. It either requires a lot of time or a great deal of nimbleness. But...
- But Hey, those are all really ideal examples. If you can build a product persona with content, that’s awesome 3. Hypertargeted micro-acquisitions. -Look through your google ads and especially your bing ads to determine which terms are performing the best for email capture. Double down on those so you can build relationships with potential customers. Find the content your potential customers consume and insert yourself into their routines. -How you know where to find your future best customers? -Gather as much data on your current best customers and use that to predict where your next best ones will come from. dont be afraid to invest in new keywords/ social media outlets that these customers respond to. Experimentation is key as you build momentum. Once you are firmly a part of the zeitgeist and people are talking about you--that’s when you make the key investments in broad advertisements like taxi ads. Dont waste your energy before. Building relationships like this also helps your customer LTV down the line. Oh, speaking of which:
- We already talked about customer lifetime just a bit, let’s go a little deeper on the role of retention in driving growth.
- Now we start to get into some really interesting data here. So this is a new chart that really tells us something about these best in class companies, which is that they are much better at getting customers to come back. Check out what happens just in the first few months of the business for these companies. Now, on the left here you're seeing the new versus repeat revenue for the top quartile of performers, and then on the right you are seeing the new versus repeat revenue for everybody else. And what you see, even in the very first few time periods there for the top quartile, is that people are already coming back. Now, naturally when you are a new business and you're selling your very first customers they are by definition new customers, but the question is how quickly do you start maturing a base of people that are coming back and buying loyally? Even in the very first month top performing companies are generating a nice chunk of revenue from repeats, about 25%, whereas the other companies are only getting about 10% of their revenue from repeats in those early days. This is really just another sign that these companies have something really special going on from day one and customers are coming back and purchasing again. And this trend really maintains over time. You can see for the bottom three quartiles, the chart on the right, it's almost amazing how the new and repeat revenue converge on one another right at 50%. So you kind of, within the time period of about a year and a half, get into this spot where half of your revenue is coming from new customers, half of your revenue is coming from your existing base. And the thing that we see happening with the top quartile of performers is the data is a little bit noisier but by the time a few years have gone by you really start to see some noteworthy divergence where the majority of revenue is actually coming from these repeat purchasers. And you remember from the earlier charts we are talking about companies that are often growing at north of 100% a year, so it means that that existing base is really contributing a really meaningful percentage and a meaningful absolute dollar amount in terms of new value. So based on that we can talk about some of the companies that are really doing well in this regard, and Ryan's going to talk about them a bit.
- Retention in today’s e commerce industry is tricky and nuanced. We like when e commerce companies use email to remind customers why we shopped with them in the first place. Shopping with you is fun, you should drop in on your customers every now and again and give them reason to shop with you. Use targeted email to drive upsells, hype new products, whatever you need to establish the character of you and your products. Friends are better than customers. way to get retention highest ltv produc lines stop carrying lower LTV product lines retention -result of product / service wuality retention = your reputation Proprietary better quality any thing below average--kill it USE RJMetrics to figure this stuff out. LTV first How do you extrapolate Product quality when launching a new line We know everything we put out is not gold--lots of things flop How do you figure out Look at repeat rates good indicator of LTV is repeat rates High AOV = Or Subscription (ARTIFICIAL LTV) An exceptional business 60%-70% of repeat buyers in a three year period 35-50% 3 year 60-75% repeat rate 3 year cohort new product line/ new customer channel? 3 months/ one month How do you apply nielsen techniques. Data cannot be subjective gotta look at the REAL data.
- This is your quick and dirty strategy for boosting retention. You already have customers who’ve been sticking with your brand. What caused them to convert in the first place? Go into your analytics and find the Ps that lead to the most great customers and start pointing your prospects in that direction.
- So we covered the three growth drivers -- product market fit, efficient acquisition, and customer retention. The final question here is how do you measure your performance on all of these -- across the board. I touched on CLV at the beginning as being an indicator of product/market fit. Now I’m going to go a little deeper on how to use this metric to measure and improve the performance of your business.
- We talked about how top performers generate more total orders, but they also generate more orders per customer.
- These orders are also higher in value. Top performers have an AOV of $102, the bottom quartile has an AOV of $74. Together these two metrics equate to higher customer lifetime value, but first, Ryan, can you tell us a little about what you see companies doing to boost AOV?
- Boosting AOV can be tricky. strategic upsells and drastic coupons work--but we are concerned that AOV might be a minor distraction. Best-in-class e commerce companies clearly nail AOV--but you can boost AOV by focusing on retention and LTV. So we’re not going to delve too deep into AOV. Focus on acquiring and retaining good customers, and your AOV will rise with that tide. LTV is the major thing we’re after here We want to talk about it in terms of: -LTV by product line -change how merchandise order on category pages -what you do in general DIFFICULT TO ADD CHEAP STUFF UR NOT A SUPERMARKET online shopping is a lot of more focused. more expensive and more premium quality/ margin
- And when we pull that data together when we're looking at the people coming back and buying again, the people spending more and more, you can really multiply those together and start to get a sense of this metric that we call customer lifetime value. Now, everybody's got a definition of customer lifetime value that's best for their business. In a lot of e-commerce companies customer lifetime value is an extrapolation that estimates throughout the entire life of a customer how much will they spend. In a lot of e-commerce companies they chose to remove gross margin from this number or chose to remove acquisition spending from this number. A lot of different iterations on C.L.V. exist and all of them are helpful in their own ways. Now, this one that we're looking at here is probably one of the most simple but also one of the most powerful and striking visually, which is just looking at the median 365 day C.L.V. that's purely on a spending basis without expenses taken out. You can see, really, the leadership position that the top quartile is in, but interestingly also, just how far down that fourth quartile is. It's less than half the performance of the top quartile and it's really this C.L.V. where everything gets bundled up together and you get to clearly see the people who stand out and how they end up separated.
- We’ve been hinting at this for a long time--but LTV is all about relationship building. We can’t say it enough: Friends are Better than customers. But...what does that mean? Some strategies: Don’t be afraid to Traffic Shape. Your brand keywords are performing well--but perhaps use bolder titles on nearby SERP results to drive curious prospects to more specific LPs that convert at a higher rate than your homepage. Don’t be afraid of making large webs of highly specific landing pages. Giving your prospects plenty of places to interact with your brand and your products only gives you more chances and more data on how to convert them. CPA can sometimes be an enormous distraction from optimizing your LTV. Customers are LEAGUES better than transactors. If people are willing to stake their reputation on you and your products--thats worth a high CPA. Don’t get a bunch of people to buy your product once--focus on the customers who will keep coming back. Don’t be afraid of CPA numbers so high that you lose in the short term. For example: During Ryan’s days at Bonobos, there was a lot of pressure on nailing a $40CPA objective. CPA objectives are wrong. Bonobos still won when good customers were acquired for as much as $200CPA. It sounds counterintuitive--but if you find the right kind of customers who will stick with your products, they’re worth a MUCH higher-than-average CPA. They will by LTV AND Acquisition machines. This kind of LTV strategy requires a lot of Analysis (like the kind you get From RJMetrics!) But it is essential. All the strategies we’ve discussed so far for acquisition and retention go into LTV as well. It’s all about building those relationships
- And just to back up what Ryan is saying, boosting AOV in and of itself is not going to make or break your business. What we’ve started seeing in our more recent research is that top quartile companies achiever higher LTV by outperforming on both AOV and repeat purchases.
- So there are a couple of ways that you can actually use this C.L.V. proactively and take action as a result of it, and I'm going to go through those. Number one is to track your cohorts through a cohort analysis, and number two is to make these big invest or kill decisions in terms of where you are investing your actual dollars and your opportunity costs in the customer acquisition channels that your business pursues.
- So, talking about cohort analysis first, I have always been a huge fan of cohort analysis. Prior to R.J. Metrics I actually worked at a venture capital firm where this was probably one of the most fundamental driving metrics that influenced whether or not we would make an investment decision in an e-commerce company, was looking at the cohort analysis for that business. And if you're not familiar with cohort analysis, each one of the lines here represents a population of customers where, in this case, the populations are separated based on when they made their first purchase, and then over time you look at the cumulative spending that was made by the average member of that cohort. What you can see in a cohort analysis is two things. Number one, you can generally look at, effectively, the C.L.V. value evolving and growing over time, and the slope of these lines, whether it is something that decays over time, increases over time or remains relatively linear is a really, really big indicator as to what's going on with repeat purchases, what's going on with customers spending more in average order value over time, etc., and actually is a very, very rich picture of what's going on inside of a business all wrapped up in one chart. Now the other thing that you can extract from here is, since we've separated these out by the month in which the customer made their first purchase, you can actually compare these lines to one another and get a sense for whether the health of your C.L.V. evolution is actually getting better or worse over time. So one of the things that we always...the newer cohort lines sitting on top of or sitting below the older cohort lines. And if you see consistency in a trending downward or upward it can tell you a little bit about the quality of those incremental customers that are being added, and that is a very, very powerful thing for understanding not just how the business is performing today, but how it might perform tomorrow as a result of the behavior that we're seeing as early indicators from these customers.
- Now, I talked a little bit before about the idea that customer lifetime value often incorporates the concept of how much money was spent to acquire the customer, and obviously, naturally, it should. People who spend $1,000 in their lifetime with your business aren't worth it if you have to spend $2,000 in order to acquire them, and that's where marketing R.O.I. really starts to come into play. There will be differences in lifetime value by the source that you acquire customers from. We often see very, very stark differences, in fact, by channel. There is a need to tie all this back to acquisition, and this is just a sample chart, this is not benchmark data, it's just an example of what an analysis might look like, but it's not uncommon to see marketing R.O.I.'s from particular channels that outperform R.O.I.'s from other channels. And to be honest, it really depends a lot on your business, what you are selling and where your ideal customer lives, but by combining your spending data with your data on the transactions that are happening and what people are buying you can get this really beautiful picture of, what is my marketing R.O.I. by channel. And you can even break that out even further and do it by campaign, etc. When our customers are using R.J. Metrics it's very, very common that this is a thing that they're looking at on a very regular basis, because it's really driving those invest or kill decisions. Where should we be putting our money?
- And to bring into perspective just how important CLV is as a metrics to optimize your acquisition, check out this chart. Again, this is from our recent rounds of research. What you’re seeing here is that the top 10% of customers is worth 6x more than the $154 industry average, and the top 1% is worth almost 18% more. If you’re not optimizing your marketing (and retention) strategies to find and keep these customers, you’re missing out on an enormous growth driver of your business.
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