When we consider ways to grow our ecommerce businesses, we often look purely at methods we can use to increase our customer base. It seems for many online stores, 90-100% of their marketing budget goes to trying to attract new people to purchase their product.
But is this really the best way to increase your revenue…? Let’s take a look at how we do things at Andzen.
The 3 Growth Multipliers of Ecommerce
There’s a basic formula for your expected revenue in ecommerce:
Average Order Value x Frequency of Purchase x Number of Customers.
Let’s break this down.
Average Order Value
Let’s say you sell widgets. Each one costs $5, and people generally buy between one and five at a time – so we’ll say your average order is 3 widgets, valued at $15.
Frequency of Purchase
Some of your customers go through widgets like hot dinners. Others only get a widget or two on special occasions. But generally, customers put in an order once every two months.
Number of Customers
Now we know the size and frequency of our average widget orders, there’s just one last multiplier left. That is, of course, how many customers you have. For the sake of this example, let’s say it’s 100 regular widget purchasers.
Growing Your Business
Now here’s where things get interesting.
Let’s take a look at our formula with those new values:
$15 x 6 purchases a year x 100 = $9000 a year.
Not bad. But what happens if we focus all our marketing efforts on simply building up our customer base?
Let’s say we spend our full years marketing budget purely on outbound advertising, and manage to double our customer base. That’s a 100% increase in clients. Amazing, hey? Suddenly our revenue looks like this:
$15 x 6 purchases a year x 200 = $18,000 a year!
These numbers are great – we’ve doubled our revenue – but is that really the best possible outcome? What if, instead, we put aside a third of our budget for improving our average order value? And a third for increasing our frequency of purchase?
Sure, we might not gain as many customers. Instead of a 100% customer increase, we’d be looking at a roughly 30% increase. But let’s see what happens to our revenue…
- $15 + 30% = a $20 Average Order Value
- 6 purchases a year + 30% = a Frequency of Purchase of 9
- 100 customers + 30% = 130 customers.
Now let’s run these numbers in our revenue formula:
$20 x 9 purchases a year x 130 = $23,400
That’s $5,400 more! (Plus 10% of your marketing budget to spare so you can buy some Moet to celebrate). So let’s take a look at the ways ecommerce vendors can pump up their Average Order Value and Frequency Of Purchase…
Lifecycle Marketing – The Full Spectrum
If you’re a regular Andzen reader, you’ll have heard us talk about Lifecycle Marketing before. It’s the art of not only attracting new customers, but nurturing them into repeat clients, and ultimately, brand advocates.
Not only does this help out your brand image – but it makes you more money. So how might a Lifecycle Marketer boost your Average Order Value and Frequency of Purchase?
Frequency of Purchase
For this example, let’s say you’re a clothing retailer. Someone comes to your store and buys a pair of black jeans.
When they checked out on your online store, they left their email address. Now you have a surefire way to follow them up. Let’s put it to use.
First things first – you’re going to want to use an email marketing automation platform. These allow you to set up automated flows, so you don’t have to spend half your day in Outlook, and you can ensure emails are going to the right people at exactly the right time.
So let’s set up an automated flow that sends an email off to all your new customers. After waiting a week or so (to allow for shipping time), we might want to thank them for their business, and offer a small discount or other incentive to return and shop again.
Boom! You’re making more sales without lifting a finger.
Average Order Value
But how to increase the average order size?
Intelligent email marketing platforms don’t just let you time your campaigns to fire off when they’re most effective. You can even tailor the very content of your emails to change dynamically to suit the customer.
For example, a Lifecycle Marketer might set up some dynamic content that looked at the customer’s last product purchase, and then recommend them items that compliment it. Ergo, adding value to their service for the customer, and, hopefully, generating more sales.
For example, after a purchase of a pair of black jeans, we have a better understanding of that customer’s style. So it might be effective to cross sell a jacket and a white t-shirt to match. The more relevant the advertising, the higher the likelihood of conversion. And, if they complete the outfit, their second purchase might be two products – ergo, we’ve not only boosted the Frequency of Sale, but the Average Order Value too.
Wrapping it all up
The main takeaway from this is that businesses – especially those in ecommerce – really need to keep their focus not just on attracting new customers, but on engaging with their existing ones. Raising the coefficient of any of your three main multipliers will boost revenue – but increasing all three is the real recipe for success.
The best way to raise all three at once? Lifecycle Marketing; attracting new customers, then nurturing them into repeat purchasers, and ultimately, brand advocates.
Author: Jackson Hills