5 Tips to Build an E-Commerce Revenue Loop
E-commerce startups need funding. To get it, they need to impress VCs with robust user acquisition numbers.
Understandably, many founders obsess about how many users they can bring in. Too much focus on acquisition, however, can actually hurt the company in the long run. While it's necessary to prioritize acquisition in the early days, e-commerce companies should think just as much (if not more) about their current customers to accelerate growth.
The path to sustainable e-commerce success relies as much on repeat business as it does on new users. By prioritizing long-term retention over short-term acquisition, e-commerce companies can avoid common industry pitfalls and improve the health of their businesses.
Move Beyond Acquisition
Think of your customer base like a bucket. If the bucket is leaky, it doesn't matter how much new water you pour into it — eventually it will dry up. Similarly, acquisition-focused strategies drain budgets quickly.
Depending on the industry, it costs between five and 25 times more to acquire new customers than it does to retain existing ones. Current customers also become more valuable the longer they stay, which is why it's important that companies on tight budgets show appreciation to their existing fan bases.
Healthy customer behavior isn't a line from point A to point B; it's a loop. The loop consists of six stages, starting with your first series of interactions with consumers to entice them to visit your site, whether through social media or advertising. If all goes well, consumers will visit your site, which is the second stage of our loop (i.e., acquisition). Then comes consideration, when consumers weigh various factors to decide whether to buy. Next is conversion — everyone’s favorite step — when consumers actually make a purchase and become customers. The next stage is delight, when your customers interact with your product. The last stage is recommendation, when customers tell their social networks about the business.
However, the revenue generation loop doesn't end, of course; it circles back to the next visit. To keep profiting, companies must continue to impress customers who have been through the process before to return and bring additional people to the site. This process fuels exponential growth.
E-commerce companies cannot dump all their money into the first visit and expect to achieve the growth rates that investors demand. Acquisition is great for attracting investors, but to reach your long-term goal — whether that means an initial public offering, an exit, or something else — you'll need to show sustainable profitability. Revenue generation loops are the key.
How to Build a Revenue Generation Loop
To build your own revenue generation loop, follow these five tips:
- Track sales at the SKU level. Whether you use Google Sheets, Excel or a database, track which products people buy and what they buy them with. Keep tabs on which payment methods customers use and which products they buy next … you can use this information in step two.
- Analyze historical sales data. Use the data that you've gathered to create predictive models and make specialized offers. If two or more products often sell together, could you bundle them to offer a better value and sell more units? What kind of products do customers typically purchase on their second and third visits? And you shouldn't stop there. Set goals for your web traffic and sales, and build dashboards to help you manage your growth. Use UTM codes to track the effectiveness of different campaigns. The more you know about the customer journey, the stronger your loop will be.
- Plan the customer experience. Even if it's not yet feasible, set a comprehensive plan to bring customers back. Involve both the product and marketing teams to create an ideal experience from start to finish. With this foundation, the company can build the ideal customer experience and treat each target segment differently through personalization.
- Talk quarterly about strategy. You shouldn't leave marketing in a silo. Bring your marketing, product and finance teams together at least once per quarter to talk about referral programs, customer experience checkpoints, trends in metrics, and anything else that matters to your overall strategy.
- Use the best technology. Lean on best-in-class technology to optimize your operations. When it's time to grow, you can't afford to wait on homegrown tech to scale at the pace of your business. Your technology resources should focus on your market differentiators, and your best-in-technology partners should do the same.
Acquisition alone is expensive. Follow these tips to create a revenue generation loop that improves the return on your investment, generates new customers, and creates more sustainable growth.
Related story: The Evolving Factors Driving Customer Loyalty
Christine Alemany is the CEO at Trailblaze Growth Advisors. She has a passion for helping early- to midstage companies grow and scale. Christine has more than 18 years of experience reinvigorating brands, building demand generation programs, and launching products for startups and Fortune 500 companies. In addition to her work at TBGA, she advises startups through Columbia Business School's Summer Startup program and is a teaching fellow at the NASDAQ Entrepreneurial Center.