I am reliably told that successful baking is a lot like chemistry. All you need to do is follow the instructions, add in the right ingredients in the right order and you are all set to create the same successful outcome of your “experiment” every time. Somehow, it never seems to work the same way for me. Either I rush things and miss something out or, even worse, mistake one thing (think salt) for another (think sugar) and a disaster is on the way.
Nevertheless, get it right and what you see in the image at the top of the recipe page should be close to what you take out of the oven. And let’s face it, it’s that image we all want. Yep, a nice thick slab of carrot cake with a very non-healthy spread of cream cheese icing. Yum scrummy. The thought of munching through this makes all the hassle of creating it and cleaning up afterwards worthwhile.
E-commerce websites are nothing like carrot cake. That I know. I also know that their owners all have revenue and profit targets they want them to meet. And for me that’s the picture at the top of the recipe – the bit that gets them excited. However, for many, the bit below – the recipe they need to follow to make the image a reality – that bit is missing. What exactly do they need to do to “bake” their way towards these numbers?
All this came up during a recent customer planning session. We were working through the next 12-month target for a very successful e-commerce website. The target – or the yummy picture that got us all excited – was very enticing too. Double digit growth was expected in both top- and bottom-line numbers. But what was the recipe they were going to follow to make this a reality? There were a few blank looks around the room so I started with the carrot cake analogy and then as a group we worked through designing the recipe they would need.
Fortunately, an e-commerce website requires fewer ingredients than your average carrot cake. The four staples are: visitors, customers, purchases and costs. Of these, it’s the customer part that’s the most important to sort first. The outcomes of the work in this area drive the marketing costs you will need to afford and with it an understanding of the visitor counts this expense needs to generate to make it all work.
So how many customers did they need to achieve their goal? Was it, say, 5000 people spending $150 each or 1000 spending $750 each? And of these customers how many would they expect to buy more than once during the year? And of this group what would their average annual spend be? These are very simple questions that can be deceptive in the amount of work required to find credible answers for. In this case, the client had to go away and analyze their previous 12-month sales figures and then spend a few days drilling through this data to reveal the answers they required.
Fortunately for them they had a great business, selling a great product that customers purchased reasonably frequently during the year. And of these three wins it was probably the last one that was the most important. Repeat purchase e-commerce websites are so much easier to make work. Email marketing fits nicely into this space too. So does paid search. You can afford to enter this market and pay high click costs if you have the promise of a repeat purchase customer at the end of it all.
Conversely, businesses built on once-only purchase activity are a challenge. To make these work the margins need to be good, with strong and obvious points of differentiation to make them sustainable. Both of these are hard to create and even harder to protect.
But as I mentioned earlier, thankfully this wasn’t the case here so we mapped out expected sales from repeat purchasing, allowing for some increase. Some of the margin from this work would support our email marketing efforts – a solution ideal for customer retention. The gap we had left over was a new customer revenue line. This was spread over the months ahead – allowing for some demand fluctuations during the year based on seasonal changes that affected their industry.
Then we had traffic to sort. We had a good understanding of the site’s conversion rates for new customers based on the last 12 months so we could work out these figures and calculate the required visitor growth to make the conversions we wanted a reality. We then split this between SEO and paid search, based on the ability of specific keywords to reliably bring us new customers.
After a couple of relatively focused sessions and some deep analytical work at their end we had our recipe. And yes, it had some assumptions that needed validation as the year progressed. Things like “we expect existing customers to spend 15% more this year due to our improved email marketing” and “our product margins will remain the same”. But still, it was there ready to be worked through during the months ahead.
So are you an e-commerce website owner who just stares at that nice revenue and profit number hoping it will eventuate? Well, now’s the time to stop hoping and start creating the ideal recipe for you and your business. Let me know if you need any help with your ingredients.