When you can identify the buying patterns of your most loyal segment, you can craft marketing for them and guide other customers into longer term engagements. That’s the advice of Rob McGrorty, Director of Product and Operations Webgility, a leader of e-commerce software solutions for multi-channel enterprises.
On Monday, he shared the Key Performance Indicators that multi-channel merchants use to monitor the health of their business in part one of his guest series on ecommerce/retail metrics. Today, he looks at customer metrics to help sellers figure out what their data is telling them about buyers and exactly how that information can help sellers to keep things on track and grow their business. – Editor
Do You Know Your Customer Metrics?
By Rob McGrorty
As you may recall, the first part of our series on Key Performance Indicators (KPIs) covered multi-channel metrics. This time we take a look at customer metrics.
When you have a brick-and-mortar pet store, you know that the Feists, a local family, come by once a month with their son Charlie and their dog Otto. Charlie and Otto get the monthly supply of food and play with the new toys while you chat with Mr. and Mrs. Feist about the weather and how fast Charlie is growing. But in online retail there’s no weather to discuss and commenting on a customer’s child certainly wouldn’t go over well. So how can you replace this friendly chit-chat, get a sense of your most loyal customers, and keep them coming back?
To help get beyond the digital anonymity of online selling and fully submerged in your personal goals of earning, this primer of important ecommerce metrics spells out specific KPIs that relate to your customers. We’ll even cover why these indicators are important to the health – and growth – of your online retail business. And next time, in the final installation in the series, we’ll cover how to maximize your profit margins by paying attention to your product metrics.
As a simple matter of circumstance, there is often a disconnect between online sellers and their customers. For this reason, smart online sellers take special care of their customer relationships and, by doing so, they easily stand out from the competitive masses. And because it is often much easier to pick out the most valuable online customers, ecommerce sellers also have a leg up on their analog counterparts.
Returning vs New Customers
Do you have a healthy balance of returning vs new customers? Industry average for ecommerce SMBs is 40-60 percent, though it varies by the type of business and products sold.
Why is it important? It’s crucial to know how well you are maintaining customers over time. This metric can help you understand the value an average new customer brings your business over the lifetime of your relationship, spot the need for more interactions with repeat customers, and areas where you can comfortably spend more to acquire a new customers.
Look to see if you are maintaining a steady split over time or if the comparison varies – it can be an early indication of long term customer intentions. For a product that supports repeat customers more so than one-time buyers, this can be the difference between struggling and thriving. Hint: It’s also cheaper to market to current customers.
Contribution Amount by Customer
This KPI shows the amount after all the variable costs – shipping, payment processor, item inventory cost – that each customer generates toward your fixed costs or bottom line.
Why is it important? It allows you to find your most valuable customers. You’ll see how much your top customers actually contribute toward keeping the lights on, paying your team salaries, or putting useable cash back into the business. Tracking each customer as both a dollar-value and a percent of the total will provide important context and clarity as well.
Customer Lifetime (and Lifetime Value)
This is the average duration of a relationship with your customers. This means tracking the retention rate of current customers, the interval over which they typically purchase, and then averaging it across an individual sales channel or your entire business. It’s advisable to attach the total sales amount, contribution amount, or profit for each of those customer segments as well to get an understanding of the bottom-line value of an average customer.
Why is it important? Let me count the ways. First and foremost, when you can identify the buying patterns of your most loyal segment, you can craft marketing for them and guide other customers into longer term engagements. Add in the value of each relationship and you can accurately plan your marketing spend.
Imagine if you could outbid your competition on keywords because they calculate their ROI on a single purchase, but you know that your customers come back 4-5 times over the first six months. With this one single metric, you could double your marketing spend and end up with 3-5 times the results.
Top Customers by Lifetime Contribution or Profit
Simply put, rank your “whales” by their size. Identify the customers who drive the most profit for your business, rank them, and understand how impactful they are as individuals or as a group for your business.
Everyone’s heard of the 80/20 analysis, and this is the hallmark of Customer 80/20 analysis. Ranking customers from highest to lowest aggregate profit lets you see which individuals or groups drive an outsized portion of your business results (80% of your results from 20% of your customers, or some version of this ratio). When you can look at a single list and see the big “needle movers,” you have the power to find unique characteristics of this group and work hard to attract more.
Worthwhile customer analysis identifies your top customers and even segments out those who drive the bulk of your revenue and profit. Based on who they are, where they live, and what they buy, you can customize marketing to move more inventory more efficiently.
Is “free shipping” a worthy draw for your top customers, or do they care more about how fast you call them back? Knowing that answer can be more valuable than just making the sale. By bolstering your customer service, strategic marketing and promotions, and sales offers, customer metrics build the long-term value of your relationships and your brand. Call it your virtual red carpet.
Next up? Product metrics.
About the Guest Columnist:
Rob McGrorty is the Director of Product and Operations at Webgility, Inc.. You can find Part One – Do You Know Your Multi-Channel Metrics? – on this page, and stay tuned for the next installment of his guest series on ecommerce/retail metrics.