As an ecommerce entrepreneur, what are the most important things for you to focus on? Symon Edmonds from MonkeyData gives you the low-down on the most significant metrics to watch in your online store and strategies to optimize them.
Customer retention and churn are two sides of the same coin. Customer retention is the rate at which customers make repeat purchases store. For an online store, it would make the most sense to calculate this on a monthly, quarterly or yearly basis. What percentage of customers return to make a purchase every month, every quarter, every year?
Churn is the opposite. Simply put, the churn rate is the percentage of customers who make one purchase but never return. You can also set churn rates monthly, quarterly, annually or by whatever timeframe you want, much like with retention rates.
Calculating your customer retention rate can be a bit tricky. As discussed above, you will need to choose a retention period. Let’s say you are going to go with yearly retention. Take the number of new customers that you acquired in that year. Look at this group’s purchases during months 13-24 (year 2), 25-36 (year 3) and so on. The percentage of customers who purchased in months 13-24 will be your 2nd year retention, the percentage that purchased in months 25-36 will represent your 3rd year retention and so on.
When calculating this metric, it is important to take the number of months relative to when each user made their first purchase. For example, for someone who first bought something in your store on December 7, 2014, their first year would last until December 7, 2015. This will be much different than someone who made their first purchase on January 5, 2014.
It is also important to note that some customers who are retained in the third year may not have been retained in the second year, and they can switch out between being retained and churned in different years (i.e. - someone may have made a purchase in 2013 and 2015, but not 2014).
Actually sorting this data is also difficult. While this can be done manually in Excel, we suggest using a tool like Mixpanel in order to help you calculate this. It will do all of the heavy lifting for you.
There are several things that you can do to improve your customer retention rates. Loyalty programs, such as points programs or loyalty discounts can give customers a reason to come back to your store. As mentioned above, retention offers made to people who have not visited your site in awhile can help. Email is an effective channel for this. Other important strategies to note include providing personalization with your website - giving them personal offers that appeal to them and their needs specifically. Having great customer support will also keep people interested in your products, as they will come back to you as a merchant that they can trust.
Investing in your product lines and your business itself will also benefit your customer retention rates. People will keep coming back to your store if you have great products, great customer service and a great website. In other words, if you take care of your business, customer retention will largely take care of itself!
Average order value
Average order value is exactly what it sounds like - the average dollar amount that customers purchase in each order. This is calculated by dividing the total dollar amount of purchases by the total number of unique purchases. Like with all other metrics, this can be monitored by channel, campaigns (whatever splitter you want, really). Average order value can be tracked in Google Analytics, but can also be done more conveniently in an ecommerce analytics tool such as MonkeyData.
Increasing your average order value is an easy way to improve the profitability of your online store. There are several strategies that you can use to accomplish this.
Create a dollar threshold for free shipping or a discount
Set a threshold for free shipping at 10-15% above your current average order value. This will encourage people to add another item to their cart so that they can get the free shipping. You can also provide a discount at a certain dollar amount to incentivize people to spend a bit more in your store (say, 10% off if someone spends $50 or more on your website).
Cross-sell and up-sell your customers with product recommendations
Cross-selling and up-selling are two different things that can help increase your average order value.
Cross-selling is done when you are offering complementary products in addition to what your customer is already buying. For instance, if you sell printers, your customers will likely be interested in purchasing toner as well. Amazon does a great job with its “customers who bought this item also bought” section on its product pages.
Up-selling is suggesting an improved version of the product that a customer currently has in their cart. For example, if you sell guitar amplifiers, you can offer a better version of the product for just X dollars more.
To implement cross-selling and up-selling, there are several applications that you can use. If you have a Shopify store, check out Recommendify and Product Upsell.
Cart abandonment rate
Your cart abandonment rate is the percentage of people who put a product in their shopping cart but never make a purchase. According to some studies, 70% of customers abandon their shopping carts. This is a huge killer for ecommerce businesses and is something that you need to optimize as an online store owner.
Your cart abandonment rate can be calculated by setting up a funnel in Google Analytics. Set goal funnels with every page throughout your purchase process. Let’s say your conversion funnel looks like this:
In this case, your cart abandonment rate would be 50%. Essentially the cart abandonment rate is (1-n), where n is the percentage of customers who added a product to their cart and made a purchase.
So, why do people abandon their carts? There are a variety of reasons. These include issues with pricing, finding a better price elsewhere, website navigation issues, lack of good delivery options. However, by far the most common reason why people abandon their carts is that they receive unexpected costs when getting to checkout. Suddenly adding on some sort of arbitrary service fee is a surefire way to anger your customers in the checkout process. People don’t like to be tricked. It’s always best to be up-front with your customers regarding the full cost of your product.
There are many tactics that you can use to reduce cart abandonment rates. Firstly, do not surprise your customers with unexpected costs in the checkout process. One effective thing you can do is to offer an option for free shipping. A Deloitte study found that 69% of people are more likely to shop with a store that has free shipping.
Keep your checkout process short and simple. Less clicks and less unnecessary fields to fill out will reduce friction in the payment process and surely lead to an decrease in cart abandonment.
Also, do not redirect your customer to some third party website for payment. They had just spent so much time getting attached to your store, and you spent so much time building that trust with them, that it is absolutely nonsensical to send them to another site just so they can make a payment.
Finally, make it easy for users to go back and fix their cart. Make it so that customers can come back without having to fill out all of their information again. This will also help to decrease friction in the process.
Another great strategy to employ is email recovery plans. If someone has added a product to their cart, they have already shown a high level of interest in your products, so this is a great opportunity to target them. These emails should include pictures of their item, customer reviews of the product, return policy information and a strong call to action to get them back on your website. We suggest sending out three emails over the period of a week with the first email coming within 24 hours of cart abandonment. One caveat with this though, is that you will have to be sure that you have an email of collecting customer emails early in the conversion process so that you can reach out to them later.
And that’s everything we have for you today. Of course, there are so many things for you to take care of in your online store. However, today we wanted to keep it simple and point out the most important big-picture metrics for your business. We also wanted to give you some tips on how to optimize these. So, go out and try some of the tactics that we suggested. Applied properly, they will provide a strong boost to your ecommerce business.