How to Build a $24 Million Ecommerce Company in 2 Years
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This document discusses the three key drivers of ecommerce growth: product/market fit, efficient customer acquisition, and customer retention. It provides examples of indicators to measure product/market fit like revenue, new customers, number of orders, and customer lifetime value. For customer acquisition, it discusses best practices from Facebook advertising and the importance of testing. For retention, it emphasizes great customer service, staying relevant to customers over time, and using remarketing and personalized experiences. It stresses tracking cohorts and customer lifetime value as the key performance indicator.
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How to Build a $24 Million Ecommerce Company in 2 Years
- 2. #ecommgrowth What you’re going to learn 1 The 3 things you can’t afford to get wrong (even on day one) How to identify breakout success in the first 6 months of your business The 3 drivers that fuel growth at top companies ...and much more! 2 3
- 3. #ecommgrowth Ecommerce as a whole is growing
- 4. #ecommgrowth Some companies are growing MUCH faster than the rest
- 5. #ecommgrowth The 3 Growth Drivers 1 2 3 Product/Market Fit Efficient Acquisition Customer Retention
- 6. What conventional wisdom about CRO won’t tell you GROWTH DRIVER #1: Product/Market Fit
- 8. #ecommgrowth Indicator #2: New Customers
- 9. #ecommgrowth Indicator #3: Number of Orders
- 11. #ecommgrowth What works for Thrillist Find some Thrillist examples that illustrate the points in his notesWhat You Can’t Get Wrong! (Even on day 1) Create a product and brand experience customers love.
- 12. What conventional wisdom about CRO won’t tell you GROWTH DRIVER #2: Efficient Acquisition
- 14. #ecommgrowth Ad platforms becoming more valuable FBX launched in 2012 Callout extensions launched in 2014 Geotargeting launched in 2014
- 15. #ecommgrowth Facebook 1 2 Make the picture worth a 1000 words Test and Learn
- 16. Make the Picture Worth a 1000 Words
- 17. Test & Learn Images TargetingCustom Audiences
- 18. Get your policies right
- 19. Warby Parker
- 20. #ecommgrowth What works for Thrillist Find some Thrillist examples that illustrate the points in his notesWhat You Can’t Get Wrong! (Even on day 1) Get your policies right.
- 21. What conventional wisdom about CRO won’t tell you GROWTH DRIVER #3: Retention
- 23. #ecommgrowth Start niche and maintain the core
- 24. It gets harder to grow fast
- 25. #ecommgrowth Stay relevant and surprising
- 26. Stay relevant and surprising
- 27. #ecommgrowth Customer Service 1 2 Get your policies right Invest in customer service tools
- 28. #ecommgrowth What works for Thrillist Find some Thrillist examples that illustrate the points in his notesWhat You Can’t Get Wrong! (Even on day 1) Make amazing customer service the standard.
- 31. #ecommgrowth Create personalized online experience
- 32. What conventional wisdom about CRO won’t tell you THE ONE KPI Customer Lifetime Value
- 33. #ecommgrowth 365-Day Orders per Customer
- 35. Mr Porter “I need a coat.” “I need something for an event.” “I want to buy what’s cool.”
- 37. #ecommgrowth 1 2 Track your cohorts! Make invest-or-kill decisions 2 ways to use CLV
- 38. Cohort Analysis
- 39. Marketing ROI
- 40. JackThreads
- 41. #CRO2015 Thank you for joining us!
Notes de l'éditeur
- As a whole, the ecommerce industry is growing, it’s expected to be a $2.5 trillion industry by 2018 and comprise close to 9% of total retail sales. This is impressive industry-wide growth, but what I’ve seen in my years as an adviser at Lerer and also just working in ecommerce at Thrillist, is that some companies grow at a rate that dramatically outpaces industry growth. I’m going to hand it over to Bob to talk a little about what their research found about this.
- Exactly. What we found in our data is that the top quartile of companies is growing dramatically faster. I’m going to talk in a little more detail about this chart, but for now I want you to notice that top performers aren’t just slightly better, they’re exponentially better.
- When we dug into this analysis what we found is that top performers have three distinct advantage. 1.) they’re incredibly good at customer acquisition 2.) They keep their customers coming back and 3.) they have achieved product/market fit. What you’ll see in the data I’m about to show you, is that the accelerated growth of top performers is so much faster than other companies that we have to assume there is something else happening here. Smart acquisition and good retention practices will get you far, but first, you have to first have a great product and large customer base that wants it. Product/market fit tends to be a nebulous term, so let’s define what that looks like. We found four signs in our research that indicate a company has it.
- Let’s take another look at this chart,out of the gate, top performing companies are growing much faster. In month 6, top companies have already generated over $2 million in total revenue, the others are averaging about half a million. By the end of year two, these companies have accumulated over $26 million in revenue and are 4x the size of the 2nd quartile companies.
- The second sign is that top performers acquire new customers dramatically faster. In their very first month in business, top performers acquire 2x the number of customers, 1200 vs. the 600 or less of the others. By the end of year two top performers have 2.5 times the number of customers as the 2nd quartile.
- In month 10 top performers process over 10,000 orders. This is a line the others don’t cross, even after three years in business.
- The final indicator of product/market fit is customer loyalty. When a company is making a great product that customers love, those customers keep coming back. Top performing customers have a 365-day CLV of $249, for other companies, a single customer is worth about $167. This ability to extract greater value from every customer becomes an enormous competitive advantage -- and we’re going to touch on this more later one.
- The importance of product/market fit cannot be overestimated. You can build a solid ecommerce company, but without a product and brand experience that customers love, you’ll never get to this kind of breakout success. It’s the only way to avoid being crushed by Amazon. You can do this in a variety of ways, for example: Casper differentiates itself with a great product combined with a frictionless buying experience Barkbox is building a passionate community of dog lovers At Thrillist and Jackthreads we’ve bet big on differentiating on the content and commerce blend Companies like Warby Parker and Birchbox built a try before you buy experience that customers love
- With that, we’re going to move in to talking about the second driver -- efficient acquisition.
- We already talked about this just a bit in the earlier slide. Top performers acquire customers much faster. You can see this difference even more clearly when you look at the number of customers. Ryan, can you talk to us about some of the acquisition strategies you see best-in-class companies adopting?
- The big trend to note around customer acquisition is that the tools to do it efficiently are becoming so much better. All of the advertising channels available to ecommerce marketers, from Facebook to Google, have become more valuable. Facebook has changed the game so much that it’s worth going deeper on this topic.
- There are two things that Facebook allows ecommerce companies to do today that they couldn’t do a few years ago: Tell 1000 words with your image Test and learn really quickly
- The new feeds ads are such a large format on web and mobile, the best way to grab someone’s attention is with a compelling image as the scroll through their newsfeed at 100mph. Through this you can tell a larger lifestyle story while still making the ad product centric). One company whose nailing the lifestyle advantage is Chubbies. They lead with images and copy that don’t just push a single product, they promote the Chubbies lifestyle. This kind of advertising has traditionally been incredibly expensive, but Facebook makes it affordable for new ecommerce companies to start carving out a brand niche for themselves.
- The bottom line is that FB has leveled the playing field between big brands and ecommerce. With FB ecomm advertisers don’t need to spend millions figuring out what works for their audience. Spend $1k, test, learn, iterate. And you can really test anything: images, custom audiences, targeting. Facebook is a goldmine of information on your customers.
- Another important thing to remember about acquisition is the role of your policies. Policies have major impact on customer acquisition, but I seem companies overlooking this because it’s not that glamorous. Modcloth does a great job at this -- keep this stuff front and center. It’s the kind of thing that will cause people to abandon their cart later on.
- Another super interesting example of this from a policy standpoint is Warby Parker. They knew customers would purchase multiple pairs and return what they didn’t want so they built this into their brand experience. Result? removes friction
- This is one of those things that you can’t afford to get wrong. Don’t put off offering free shipping, figure out your stance on returns. This will have a big impact on how people view your brand in the future.
- We already talked about customer lifetime just a bit, let’s go a little deeper on the role of retention in driving growth.
- What we found is that best-in-class companies are much better at getting customers to come back. Check out what happens in the first few months of the business. It’s not surprising that a huge chunk of all revenue, regardless of quartile, is coming from new customers. But even in the very first month, to performing companies are generating a nice chunk of revenue from repeats, about 25%, whereas the other companies are only getting about 10% from repeats. This is another sign that these companies have something really special going on when from day 1 they have customers who want to purchase again. And this trend maintains. While bottom performers rarely generate more than 50% of their revenue from repeats, top performers generate up to 59% of their revenue from repeats. Ryan, outside of just having a product that customers want to buy again within 30 days, what are some strategies companies are using to get customers back? (Ryan Notes: stay relevant and surprising….need to work on this one a bit more)
- Companies like Nasty Gal, BarkBox and MeUndies started out targeting a very specific niche, and this is a strategy a lot of ecommerce companies use. The problem you run into with this approach is that you’ll quickly gobble up the core your market. If you’re unable to retain those central customers, expansion into broader categories becomes almost impossible.
- To support that point, Ryan. Another thing we found in our research -- and this is news to no one who is trying to scale a business -- is that growth rates slow as a company grows. So in the early days you might be thrilled with your 223% growth, you’re acquiring customers so quickly that you feel like you can afford to lose a few. Don’t be fooled. This growth will slow down and when it does, you need that core group of loyal customers to sustain your growth.
- (Ryan Notes: stay relevant and surprising….need to work on this one a bit more)
- another example from Jack Threads...
- The big one here is customer service, and this goes back to the piece about getting your policies right. Set policies around how quickly you respond to customers, invest in tools like help.com or zendesk greatly improve ticket management -- use them.
- Customer service is another one of those things that you can’t afford to get wrong, even on day 1. Customer service is critical to your long term success. Don’t wait until you scale to get this right.
- Remarketing is huge for retention. Its no longer for acquisition only. Use ad platforms to retarget and push notifications, custom audiences on Facebook
- Another thing that supports retention is to create multiple touchpoints. Thrillist found that when customer engaged on all touchpoints: desktop, mobile, mobile web -- LTV increased by 64%
- Another really important aspect of retention is to create personalized online experiences, this is especially important for high-value purchase. One company that does this really well is Backcountry, they offer: Personalized shopper Curator on the curation Consultants on outdoor activities (expert climber, skier) All of these make someone feel comfortable buying skis online and that trust allows Backcountry to compare with physical stores like EMS.
- So we covered the three growth drivers -- product market fit, efficient acquisition, and customer retention. The final question here is how do you measure your performance on all of these -- across the board. I touched on CLV at the beginning as being an indicator of product/market fit. Now I’m going to go a little deeper on how to use this metric to measure and improve the performance of your business.
- We talked about how top performers generate more total orders, but they also generate more orders per customer.
- These orders are also higher in value. Top performers have an AOV of $102, the bottom quartile has an AOV of $74. Together these two metrics equate to higher customer lifetime value, but first, Ryan, can you tell us a little about what you see companies doing to boost AOV?
- Pay attention to what drives your AOV. AOV is the output of AUR (avg unit retail) and UPT (units per transaction). You can only take your AUR so high without alienating your existing customer base, but you can drive huge efficiencies in your average basket size by increasing UPT through navigation and in-funnel product recommendations. Driving AOV through UPT makes for a more efficient site. Mr. Porter does a great job at this, their site offers multiple ways to find the items you’re looking for.
- So together, AOV + lifetime number of orders gets you to CLV. This metric can be used to optimize your business in a variety of ways, but there are two big ones.
- Cohort analysis: what was the state of the biz when they came in? Are your policy changes/site changes improving LTV
- Marketing ROI There will be differences in LTV by source Facebook vs. member-get-member Need to tie this all back to acquisition
- We rely on CLV to make quick invest-or-kill marketing decisions. We found that that day 1 has stable relationship w/ % of cohorts that will purchase in month 1,3, etc. This allows us to tweak and tune quickly. If we see indications in first 7 days that channels is bringing in low-value customers, we quit it.