Hello. Scott Austin here. I own JadePuma, a one-person Shopify agency located in San Diego. As I record this, California is on week four of social distancing. I hope everyone listening is safe and using this time to grow their eCommerce business.
I believe that building a successful e-commerce business is a never-ending process of improving the business metrics. The business grows and improves with each day's efforts. And the cumulative effect of all those days of efforts is a healthy eCommerce business. So in this podcast episode, I want to give you some tools to help you decide what should be the next area of focus for your Shopify store. With so much advice out there on the internet, it's easy to caught up in the latest fad or trick of e-commerce improvement. But is that fad or trick really relevant to where your business stands today? I'll walk you through a way to evaluate the current position of your business and to prioritize your to-do list.
I'm going to bucketize the work into the three common buckets in marketing of Attract, Monetize and Retain. But we're going to change the order of them to Monetize, Attract and Retain. While there is a catch-22 between trying to monetize users before attracting them, there is some logic to it. And that is because you don't want to spend a lot of time and money attracting customers to your store if it is not converting well. Because that money and effort will have been wasted on a poorly performing store.
Before we dig in, let me first mention that there are table stakes that need to be in place with your business before the methodology that I'm going to go through will work. The table stakes include:
So now let's move into the decision making process.
Area #1 - Monetize.
This area focuses on your store's shopping experience and how it converts traffic into sales. The metric we'll use to measure progress is the store's conversion rate. Shopify calls this the online store conversion rate. Google Analytics calls it Ecommerce Conversion Rate. Essentially the conversion rate is the percentage of visitors to the site that make a purchase. In the show notes, I'll share a link to a Google Analytics dashboard you can use to measure your conversion rate. Most ecommerce stores think of conversion purely as a function of online sales. But your business may have other site goals which you would also include in the conversion rate. For example, if you have a strong retail presence, a user looking up a store location in your store locator app may be something you consider a conversion. Now the big question is what should your conversion rate be. And the answer is that it depends on your business. In some situations, 3% is a good conversion rate. While in other situations, 1/2 a percent is good. So don't think of conversion rate improvement as being something that you finish. Its something that you want to constantly see improving. That all said, most healthy stores have a conversion rate between 2 and 4%. I've seen stats that say the average conversion rate across the industry is 2.9%. A reason why a lower rate might be acceptable is that your store has high ticket price items. If you are selling jewelry with an average ticket price of $5,000, then your conversion is going to be lower. Another reason could be that you have a lot of traffic to your blog and it takes a long time to convert that traffic. Regardless of where your conversion is today, the goal is to see it improve.
So here are the top areas that I recommend you look at in your store to help improve the conversion rate. And this list is prioritized with the more important or impactful items at the top.
So that covers the top ideas for improving the conversion rate, let's move onto the second Area - Attracting visitors to your store, which I'll also refer to as acquisition.
Most of this work takes place off of your Shopify store. Its about working with other channels, platforms or sites and leveraging them to drive traffic to your store.
There are two key metrics keep in mind. And these metrics should be viewed per channel.
The first metric is Site visitors.
Shopify calls this online store sessions. Now, one thing to note is that sessions is not the same thing as visitors. A single person can visit your store more than once. Users is a better way to measure this for a number of reasons. But Shopify doesn't give us that metric. Google Analytics does give us visitors in a metric they call Users.
The second metric is Return on Investment or ROI.
This won't be measured in Shopify but you can measure it in your ad engines. Or you can create a spreadsheet tool to measure it for channels other than ads like social or SEO. This metric is very important for acquisition as its easy to spend $10 on acquisition and have it generate $1 in revenue. But that's a recipe for losing money and many Shopify stores have gone out of business because they weren't tracking ROI.
So here are the top areas that I recommend you look at for customer acquisition. And this list is prioritized with the more important or impactful items at the top.
Let's move onto the third bucket. Now that your store is attracting visitors to your site and converting a percentage of them to sales, let's talk about retaining customers.
The metric we'll use here is Repeat purchasers. Shopify calls this Returning Customer Rate. Google doesn't have a way to measure this. Google can show you revenue from Returning Visitors, but that includes people that have been on your site before but did not make a purchase. Now your optimal return customer rate is going to vary based on your business. For example, the return customer rate for engagement rings will be much lower than it is for coffee as engagement rings are a once in a lifetime, or at least very few in a lifetime, purchases while coffee is an everyday staple. That said, many established stores can expect one-third of their sales to come from repeat customers. And repeat tend to have higher average order values.
So here are the top areas that I recommend you look at for customer retention. As usual, the more impactful items are first.
So, I've now bucketized our marketing efforts into 3 groups - Monetize, Attract and Retain and given you suggestions for the most impactful projects in each group. The next step is to determine what to work on for your business. The first group - Monetize - is about improving the site's conversion rate. When you first get started, you'll probably see some big improvements, like taking the conversion from 2.5% to 3.0% which is 20% improvement. As long as you are seeing noticeable improvement in the conversion rate, you should continue investing in those projects. But relatively quickly, you'll start seeing diminishing returns on those efforts. Its not like a store can go from a 2.5% conversion to 10%. While it may have happened once, the chances are similar to the chances of winning the lottery.
So when your conversion optimization is seeing diminishing returns, then its time to focus on the Attract group and bring more visitors to your store. And of the 3 groups, Attract is the one that will usually take the most time, energy and money. I believe that customer acquisition is the hardest part of an e-commerce business and the most essential to success. And as such, business owners should be intimately involved in it. While its okay to use agencies and contractors for this work, in fact it’s the only way you'll be able to scale. Still, my recommendation is that you fully understand your customer channels and the metrics behind each one. Which is another way of saying that you should really know your customers. Most efforts for attract involve offsite efforts - working with ad platforms, affiliates, and other partners. I've seen too many store owners focus too much energy in on-site efforts like conversion improvements or loyalty apps. When they would see much greater return in attracting new customers with offsite efforts. Let me illustrate with some math. Let's say a store is getting 5,000 visits a month and has a conversion rate of 3.8%. That means they are getting 190 sales per month. If they've been focused on conversion for a while, they're probably not going to move the needle much on conversion. Maybe they are looking at getting from 3.8% to 3.9%. Well, that's only 5 more sales per month. If instead they focused on offsite efforts and doubled their traffic, which at 5,000 visits per month should be possible, then they would double their sales. And once they double it, they should try to double it again. And again. And again.
Now you should keep investing in attracting new customers as long as you are doing it profitably, which is why ROI is such an important metric. Along your customer growth curve, there are going to be times that you'll get more bang for the buck by investing in retention over acquisition. And at that point, you'll probably alternate between working on acquisition and retention as they'll both be providing returns.
You should work on as few new initiatives as possible to maintain focus and be able to measure the impact of the effort. So one project at a time is ideal. But the realities of the world will force some overlap.
I've just dropped a lot of information and ideas on you. By now you should understand that there is no silver bullet. Growing your business will involve investments in many areas over a great deal of time. And there is also no one recipe that works for all businesses. You, the business owner are going to have to evaluate the uniqueness of your business and understand your metrics to determine where you are today and what actions you can take to move the needle forward. If you use the framework I've outlined here, you should be able to maintain focus on the investments that will provide you the best return and avoid going down the common rabbit holes. Remember eCommerce is a marathon. Those that show up every day over the long-haul and use their business sense will succeed.
Thanks for listening.