In this blog post, we’ll debunk the CR myth that it’s the be-all and end-all of eCommerce metrics.
So, today, you can find new and more effective ways of making a way more profitable income from your eCommerce business than you ever thought possible, as we have some mind-blowing recommendations on new and effective ways to increase the overall health of your eCommerce store. Because there’s more to eCommerce than Conversion Rate.
Why CR Shouldn’t Be Your North Star Metric
Let’s address the elephant in the room — Conversion Rate. While it’s an essential metric of eCommerce, it’s not the holy grail. There, we said it. Ecommerce merchants can make the mistake of solely focusing on their CR, believing that an increase in the metric will automatically lead to increased sales and revenue.
But, to be honest, it’s a pretty narrow focus that can be detrimental to your business's success. For example, a high Conversion Rate doesn’t necessarily mean your customers are satisfied with your product or service or that they will stick around. It could just be great web design and copy, but the people buying your product are not happy after purchasing, which leads to a high Churn Rate, meaning customers are leaving just as quickly as they arrived.
And if your Conversion Rate is decreasing, there could be underlying reasons for that, too. Perhaps you’ve changed your targeting or created a new ad campaign resulting in lower-quality traffic than you deserve. But you’ll need to search deep to find the cause and not just focus on one area.
So, let’s confess that while a high Conversion Rate is undoubtedly a good thing, you need to remove the tunnel vision.
The Metrics You Know About But Don’t Think About
Now, what are other metrics you need to be paying more attention to? Here we’ll go into depth on six key metrics you should hone in on — Average Order Value, Customer Lifetime Value, Traffic, Gross Margin, Number of New Customers, and Purchase Frequency.
Average Order Value
Average Order Value (AOV) is an essential metric because it helps you understand how much revenue each customer is generating for your business at one time. The key is to have impactful upselling and cross-selling in all the right places to increase those numbers. An increased AOV means customers trust your business enough to put more money in at once.
Something as simple as highlighting appropriate upsells and cross-sells on-site, both below the main product on the product page as well as on the cart page, will likely increase AOV. You can also easily cross-sell your most popular products within your email marketing using Klaviyo’s Conditional Splits and information pulled from previous purchases on Shopify.
Customer Lifetime Value
Customer Lifetime Value (CLV) is an often overlooked metric that measures the total amount of money a customer is likely to spend with your business over time.
Ignoring this metric could have a devastating impact on your eCommerce store. It’s one of the main indicators of the success of your business. Why? Because it tells you exactly how profitable your business is and insights as to where to spend your budgets wisely.
For example, if a customer has a low CLV, you’ll likely want to spend money retaining this client but ensuring that you are maintaining your margins without overspending. A customer with a high CLV, however, is a customer who believes in your business, and you’ll want to focus on them and acquire more like them.
It’s vital because it helps you understand the long-term value of each customer. All customers come with a cost of acquisition. So, instead of focusing on what the customer is spending right now (or the fact that they are converting), these customers could be costing you more money to acquire than what they end up spending with your business over their lifetime.
For example, if it costs you £100 to acquire your customers, but they only spend £50 with you over their lifetime, that customer has cost you £50.
A customer’s spending involves many different aspects of the customer’s relationship with your business, including their buying habits, personal or professional life, and a shift in your industry’s trends. And you’ll need to take some smart actions to ensure CLV is a focus. Simple additions to your already booming store, like adding an on-site quiz, optimising a loyalty program, and customer segmentation, are excellent ways to boost CLV. And you can find out more here.
Traffic
Calculating how many people are visiting your website forms part of your Conversion Rate (CR) calculation to decide just how good your CR really is. Knowing where your customers are coming from and where their customer journey is taking them is also vital to understand.
Sending out paid ads that don’t perform well or are not targeted correctly can bring an influx of bad-quality traffic — leading your CR metric to tank even if your revenue is going up. This can happen simultaneously, so it’s important to target your marketing appropriately.
Like friends, it’s better to have quality over quantity with your traffic. Ensure to target customers existing customers with high Customer Lifetime Value, guiding them to where they need to be based on their customer journey.
Gross Margin
Gross Margin (GM) refers to the amount of revenue left over after you’ve subtracted the cost of goods sold from the total revenue as a percentage. Why is it important? Gross Margin helps to determine how profitable your products are. A low gross margin indicates that the business is making less profit, and huge changes need to take place.
Important things to remember when calculating this metric, however, is that it excludes other operating costs, and Gross Margin benchmarks (like most) will differ depending on the industry, so ensure to take this into account before you judge yourself too harshly.
Number of New Customers
The number of new customers coming to your business is important because it’s an indication of how good your current business model is. While your largest focus should be on retention and repeat purchases, if you aren’t acquiring new customers effectively, your business isn’t sustainable.
What we mean by acquiring new customers effectively is that your cost of acquisition plays a large role in the profitability and health of your business. Paid ads thrown into the abyss can often lead to bad quality traffic — bringing in customers who won’t go the long haul with your business.
Instead, using targeted marketing that’s personalised to the customer will bring in quality traffic who are looking for a new eCommerce home in your industry, leading to higher profitability and a higher Customer Lifetime Value.
Purchase Frequency
Purchase Frequency refers to how often customers will purchase from your business in a length of time. Why is it important? Customers have different driving forces behind their actions. It’s your job as an eCommerce leader to lead them to where they need and want to be.
Getting customers to buy sooner than they would organically increase their Customer Lifetime Value. Using Klaviyo combined with RFM Segmentation, you can communicate with customers exactly where they are in the customer journey and personalise their experience, increasing their trust in your brand and improving their Purchase Frequency.
Why These Metrics Are Important
Individually, while important, these metrics may not seem as big a deal as Conversion Rate, right? Well, altogether, they make up the formula for Customer Lifetime Value Growth Formula — one of the most important formulas that will calculate the health of your business.
This is a great tool you can use to help leverage areas for improvement in your metrics. Knowing the metrics that impact CLV means that you can work on these individual metrics to work towards a long-term goal of increasing your CLV.
Customer Value Optimisation (CVO) is a process that helps you maximise the value of each customer by optimising all the touch points that a customer has with your business, not just when they make a purchase. It consists of five metrics in total — Purchase Frequency, Gross Margin, Average Order Value, Customer Lifespan, and Number of New Customers.
By combining all five metrics, you’ll have a comprehensive view of your eCommerce business’s growth and be able to implement actions that really make a difference.
Blend & Maximising eCommerce Growth
While Conversion Rate is important, it’s not the heart of your business. By focusing on your Customer Lifetime Value (and the metrics that can impact your CLV), you will gain a powerful source of insight and a deeper understanding of your eCommerce health — allowing you to make informed decisions on your strategy going forward.
Additionally, you’ll be able to maximise the value of each customer and drive your business’s growth. The next time you’re feeling frustrated with your metrics, there’s only one place you can turn to that will boost the overall health of your business — Blend. Give us a call today, and let’s chat about the growth you deserve.
Published: March 27 2023
