In this part of the course, we'll look at the product areas listed below. By examining these areas in depth, we can discuss the nature of what needs to be measured, and how to interpret these metrics:
eCommerce
Software-as-a-service (SaaS)
Two-sided platforms (where buyers and sellers find each other)
Mobile
Let's start with eCommerce!
eCommerce metrics
According to eMarketer, global eCommerce sales are estimated to exceed $27 trillion in 2020.
The eCommerce market is growing rapidly, and there is plenty of value in efficient product management of these products. Measuring performance is vital to any business, and the following types of metrics will all be essential to any eCommerce product:
Revenue metrics
Shopping cart metrics
Delivery metrics
Channel metrics
Loyalty metrics
Let's examine each in turn.
In order to understand a business, one must look at the number of monthly orders, the average value, and the total revenue. Some online businesses sell a high volume of products for a small price (i.e., a site selling shoelaces for $3). Other businesses sell products online for a high price. This means a high-profit margin. Even with relatively few sales, these businesses can be very profitable. This site selling Rolex watches offers watches from $10-150k (although they kindly offer free shipping on most: lol).
When thinking about revenue, another important question to consider is how much it costs to acquire a customer. If you are making five thousand dollars on each Rolex sold, you could consider spending one thousand dollars to acquire a customer! If you are selling shoelaces for $3, even paying $3 to acquire a customer is too much to leave any profit for the business. The cost per acquisition of a customer (or CPA) is often a key driver in the ability to grow an eCommerce business. Over time, as the business tries new ways of acquiring and converting customers, it may be able to reduce the CPA.
Another important concept is the lifetime value (or LTV) of a customer. If you paid $10 to acquire a customer, but they only spent $5, then this may still be attractive if it's likely they will spend money in the future. More specifically, if you know that over time, a customer spends an average of $100, then it might be fine if they only spend $5 on their first visit and you pay $10 to acquire them. You need to study customers over time in order to calculate the lifetime value.
In an eCommerce context, the customer typically adds products to a shopping cart as a primary step, and later goes through a payment process as a secondary step.
You've probably experienced both scenarios yourself! You have likely added some products to a shopping cart and then gone on to pay. And you've probably added some products to a shopping cart and then decided not to proceed at other times.
When a potential customer adds products to their shopping cart and does not begin the payment process, this is known as shopping cart abandonment. Some degree of this is inevitable. In fact, studies indicate that up to 68% of carts are abandoned. When the number is high, it often means that people like the products on your site but one of the following problems arose:
Shipping costs were too high.
The delivery date was too far in the future.
The delivery date was not clearly visible.
The ideal payment option was not available.
Sometimes shoppers start the payment process but quit partway through. This is called checkout abandonment. When this happens, it is often because shipping costs, delivery estimates, and payment options are shown too late in the process.
Delivery metrics are useful for physical rather than digital products.
For products that are physical in nature, delivery is a key factor in eCommerce success and customer satisfaction. You need to measure:
How long shipping takes.
How often shipping happens within your promised dates.
The percentage of returns.
The percentage of successful delivery.
If a product was returned, then you need to examine why. Was the product broken during delivery? Was the right product delivered? Did the customer simply avail themselves of the free returns policy? (in this case, they may order again soon!)
It is important to understand if there is a problem with delivery because it often involves a partner. When problems arise, the customer will blame your company and not the delivery company. It is your brand that suffers, and this requires careful monitoring of delivery metrics!
eCommerce sites often acquire customers through paid acquisition (Facebook or Google ads, for example), social media, content creation or affiliate partners (who are paid a small percentage of each sale as commission). Effective eCommerce marketing involves identifying the most profitable channels. A list of channels for an eCommerce site could include:
Google ads
Facebook ads
LinkedIn ads
Twitter ads
Search engines
Billboards
Magazine adverts
SMS
Your own mobile app
Your own website
Facebook page
YouTube channel
When evaluating channels, it's important to understand the behavior of customers. You can do this by analyzing the conversion percentage (% of users who make a purchase), typical order value, cost per acquisition (CPA) and lifetime value for each channel.
In this way, you can identify the most profitable channels and assign extra spending to those which produce the best results!
It is important to know what the return rate of customers is and to optimize it where possible. An effective way to measure this is to look at what percentage of customers that purchase make another one within a year.
When to target existing customers
Authors Alistair Croll and Ben Yoskowitz discuss various strategies for retaining customers in their book Lean Analytics. They suggest that if the rate of returning customers does not rise higher than 40%, then the business should not spend huge time and energy to persuade these customers to return and should focus on acquiring new customers. If the rate of returning customers is above 60%, then most of the company's efforts should focus on encouraging existing customers to purchase further. If the rate of returning customers is between 40 and 60%, then the company's efforts should be both to acquire new customers and encourage existing customers to buy further!
Virality
Another important metric is that of virality. Virality is a coefficient that explains how many of your customers attract other (paying) customers by referring the product to them. For example, if I buy a pair of shoes on Zappos.com, and post it on Facebook where my friend clicks on the link to buy the same pair, then I have referred this customer based on my recommendation.
Virality is calculated using the k-factor ratio:
k-factor = i*c, where i is an average number of referrals sent by one user, c is an average conversion from the received invitation into registration.
Let’s assume that each user sends a referral to one friend on average (i = 1). And let's say that every fourth person who receives a referral will buy the product. Therefore, the k-factor is 1 * 1/4 = 25%.
Virality is important because it amplifies the impact of your marketing spend. If you spend $1000 on digital ads that bring in 100 new customers, a k-factor of 25% will mean that you actually get 125 new customers for that $1000. Thus, it is advisable to optimize virality before spending on large scale marketing.
Summary
eCommerce refers to commercial transactions conducted electronically on the Internet.
In order to measure the performance of an eCommerce product, you should look at:
Revenue metrics
Shopping cart metrics
Delivery metrics
Channel metrics
Loyalty metrics
Additional resources
eMarketer's eCommerce study
Practical tips to reduce shopping cart abandonment.
Five types of virality.
