eCommerce has become a mainstay of every consumer’s shopping experience. While the industry is seemingly full of growth, individual merchants and companies face stiff challenges. For starters, eCommerce is highly competitive.
A 2021 study by Forbes and HuffPost revealed that 90 percent of eCommerce companies fail within four months of launch. That is an astonishing failure rate. So what do the successful 10 percent do that the rest do not?
eCommerce success comes down to effective planning and tracking. If your processes do not keep tabs on your store’s health, you will likely find yourself out of cash and stock quickly. Here’s how you can evaluate your eCommerce store’s health.
Health assessment #1: Analyze unit-level profitability
eCommerce store owners have access to a range of analysis tools. However, they often misuse these tools by tracking wrong information. For instance, many store dashboards reveal product line profitability or overall revenues and margins. They pay little attention to unit-level economics.
When assessing a store’s growth, unit-level profitability helps eCommerce owners understand how sustainable their models are. By breaking down revenue and margins on a per product basis, store owners can more easily understand how their product lines are doing and assess their sales performance in relation to the business’s overall performance.
eCommerce planning and funding company 8fig believes unit economics is one of the best windows into an eCommerce business’s health and an essential metric to assess when considering scaling up. The company’s free planning tool organizes the various stages of a business’s supply chain into unit economics, helping store owners break down revenue and margins per product – including the costs of freight, logistics, and marketing – and zero in on unprofitable SKUs.
For instance, you might have two highly-profitable product lines with 10 SKUs within them. However, if 4 SKUs generate 90 percent of your profits, you’re wasting a lot of money on unprofitable unit sales. If you expand or scale your business based on these economics, the slightest disruption will send you into a cash flow hole.
Unit-level profitability offers a bottom-up approach to building a sustainable and scalable business. You can trim the fat, boost margins, and narrow down the most profitable items in your eCommerce store.
Health assessment #2: Conduct a technical audit
Your website is your lifeline in eCommerce. After all, nothing happens without it. While ensuring product images and videos are as slick-looking as possible is important, the technical, behind-the-scenes stuff powering your website is just as important.
Digital marketing begins and ends with your website. You can spend as many resources on paid advertising and great ad copy. However, if you’re backing these channels with a poorly performing website, you’re flushing money away.
Begin by conducting a technical audit. You can use tools like Semrush to identify broken links, missing image alt text, and incorrect URLs. Make sure you minimize 404 errors and 303 redirects. Tools like Screaming Frog simplify technical SEO auditing.
These tools will help you identify page structure issues and flag poorly performing pages. Google and search engines prioritize fast-loading pages, and you must ensure your website performs well. Google’s Search Console helps you identify potential issues with website indexing and page load speeds.
Get the under-the-hood stuff right, and your store will instantly receive a boost in SERPs, increasing sales.
Health assessment #3: Analyze LTV/CAC
eCommerce stores lend themselves well to data analysis, thanks to the nature of digital marketing. If your store has been live for more than a year, you must pay attention to customer lifetime value (LTV) and the cost of acquisition (CAC.)
The LTV/CAC ratio comes from the SaaS world where companies dive into revenue data to uncover potential inefficiencies. However, the ratio works well even in the eCommerce world. For starters, it captures your business’ ROI much better than the net margin does.
While net margin accounts for all costs, it doesn’t give you insights into the ROI you’re generating per customer for every dollar you spend attracting them to your store. The LTV/CAC is a direct snapshot of your marketing and sales efficiency, the 2 biggest drivers of business growth.
The eCommerce industry doesn’t have any benchmarks for this ratio since business types vary greatly. However, you can use a ratio of 3 as a starting point. Any higher than this and your commercial team’s efficiency is low. Any lower than this and you’re not maximizing revenue from your customers.
Alternatively, a low LTV to CAC might imply high costs of customer servicing. The ratio serves as a great starting point for further analysis. Make sure you organize all your data sources and sets to extract the most from such efforts.
For instance, organize your CRM data so that you can track customer journeys accurately if you’re in a B2B niche. B2C sellers must leverage Google Analytics data to analyze customer flow via the Treemaps feature.
The bottom line is: Track how effective your commercial efforts are. These processes will boost your ROI massively.
Tips to boost your eCommerce store’s health
Here are some tips you can easily implement to boost your online store’s health.
Automate and integrate
eCommerce stores come in all shapes and sizes. Some sell goods manufactured by a handful of suppliers, while others are platforms enabling other eCommerce sellers to earn revenue. No matter the type of store, automation and integration are the keys to success.
For instance, eCommerce marketplace stores must use tools such as CS-Cart to automate store creation, merchant back-end platforms, and grow their business. Automation tools like Oberlo help individual eCommerce merchants simplify their supply chains.
Integrating your eCommerce store with accounting and financial platforms will simplify your financial tasks at the end of the month. These integrations will also simplify growth planning and other financial projections.
Focus on the supply chain
Your eCommerce store’s supply chain is critical to its success. Plan every portion of it and vet every supplier and service provider. For instance, diversify your suppliers so that you’re not wedded to a single one. This way, you can overcome any disruptions.
While minimizing costs in the supply chain is critical, consider delivery and order fulfillment times when choosing a supplier. For instance, a supplier in China might offer cheap prices. However, locating a slightly more expensive supplier closer to your primary customer base might make more sense.
You can fulfill orders faster and grow quickly while maintaining a stable (short) supply chain.
Focus on boosting LTV
Most eCommerce firms focus on minimizing CAC. However, the best way to grow is to boost LTV. Cross and upsell your existing customer base as unobtrusively as possible. Invest in related product development so that you can offer your customers as much value as possible, giving your sales a boost.
Other ways of boosting LTV include running effective nurture campaigns, offering targeted discounts, and incentivizing referrals.
Create an ecosystem
Ecosystems are perhaps the best way of boosting your eCommerce store’s appeal. An ecosystem can be anything from a platform offering related products to a community of people following a common cause. For example, eCommerce stores selling vegan products must focus on creating a community that adheres to those principles.
Not only will the community increase brand engagement, but the store will grow organically (low CAC) and experience increased sales from existing customers (high LTV.)
Tough, but highly rewarding
eCommerce is a tough field, but unlocking long-term competitiveness and success is not as complex as it seems. The tips in this article and the health assessments will give you a good picture of where your store stands and how you can boost its growth.