Analysing how your business performed each year can be a nerve-wracking experience, especially if the month-to-month performance hasn’t been outstanding. You’re spending thousands on paid ads for customer acquisition, sending email campaigns daily, and measuring your Click Rate with no change. But measuring your site performance correctly probably isn’t the way you’re doing it right now. 

As we always say, at Blend, we aim to give the highest service to people like you. This often means looking at the big picture before zooming in to see where to start. Our Ecommerce Growth Formula takes a new angle at your standard performance report and zeroes in on the source of the illness — an illness you may not know you have.

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Conversion Rate is Not Enough

Most companies will often focus on their conversion rate to analyse whether or not their business performed well throughout the year. But here’s the thing, that shouldn’t be the only thing to consider. There are questions you’ll need to ask yourself while doing a deep analysis because the money coming into the bank isn’t the only thing that matters. 

Ask yourself:

  • How much are we spending on customer acquisition?
  • What is our traffic percentage?
  • What is our purchase frequency (PF)?
  • How many new customers have we acquired?
  • Are we retaining these customers?
  • What is our customer retention rate (CRR)?

These, along with some others, placed into Blend’s Ecommerce Growth Formula, will outline what is going wrong. You need to ensure that your business is thriving, not surviving. You need to focus on the CLV to push your business to the next level. 

There are many ways to measure the success of your business, and one of them is the common growth formula. While it considers traffic, conversion rate, and average order value to calculate your growth, it doesn’t include profit, among others.

The Common Growth Formula

With Blend’s CLV Ecommerce Growth Formula, we consider purchase frequency, gross margin, customer lifespan, and even the number of new customers you’ve welcomed.

The CLV Growth Formula

This formula embraces the three pillars of CVO, namely acquisition, conversion, and retention. While many businesses focus on the acquisition part, they stop after conversion and return to acquisition. This brings short-term happiness and long-term disaster. There are only three things your business can do to improve your CLV:

  • What you say
  • What you sell
  • What you do

What you say is marketing. It’s how you communicate the value of your product, how you decide to market the product, and what you tell customers pre and post-purchase. What you say is your product assortment and merchandising. What you do means the customer experience — what experience you provide for the customers when they view your products, visit your store, and engage with your brand.

Customer Value Optimisation

Testing the CVO Theory

Blend has been running various tests where the Conversion Rate is down while other key metrics are increasing. This means more revenue is generated from fewer customers. Shocking, right? Completing a cohort analysis also showed customers who purchased at specific times are proving to be more “sticky” (as Peter puts it). In the end, to attract better customers, focus on what you’re selling and the value it provides your customers over the tricks you have up your sleeve causing impulse buys. Short-term money in your pocket means your business is dying. A discount hunter will always be a discount hunter and (ironically) throw you to the pack of wolves for the next one in a heartbeat. An impulse buyer will be fooled only once before strolling to your competitor the next time. 

Focusing on CLV will increase the likelihood of long-term success. As CRO Agency of the year, we must say that CRO plays a significant role in this, but it’s not a metric on which you can base the health of your business. Traffic spikes, sales, seasonality, and more will distort the results.

What is CLV?

CLV stands for Customer Lifetime Value and is the metric by which we measure the worth of a customer to your business over your entire relationship with that customer. Why would you need to know this? Sustainable growth. Looking at the big picture, wouldn’t you want your customers to keep returning with unbridled loyalty? Of course. Calculating your CLV and combining it with CVO (Customer Value Optimisation) is the key to long-term success.

Building a Strategy

Once you’ve analysed how your business has performed this year, it’s time to focus on what you need to change. No situation exists in any company where there is nothing to improve. The reality is that CVO is a constant task that needs to be focused on when creating a sustainable business. 

For something like preparing for BFCM this year, companies should complete a cohort analysis of any new customers their business has acquired last BFCM. Calculate the CAC (Customer Acquisition Cost) and the CLV of these customers throughout the previous year. 

Then ask yourself if the CLV:CAC ratio of these customers versus your usual CLV:CAC ratio was worth cheapening your brand, adding stress on your fulfilment, and increasing your customer service/support. While customers enjoy discounts, specifically over BFCM, they will be just as happy with early access or incentivised referrals. We completed this specific study for a few of our clients, and you can guess what they’re not doing this year: discounting at BFCM.

Take your complete analysis into consideration when planning not only next year but next week, and discover the change it can make to the long-term success of your business.

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We Know It’s Overwhelming

As a business owner, we know you don’t necessarily enjoy getting into the nitty gritty numbers of the business. And while it’s a necessity, it doesn’t always have to be a challenge. You can take your eCommerce store the next step up above the competition while you make your customers happier than they’ve ever been. If you’re interested in knowing more, book a call with us today.

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