A Flashy Storefront Isn't the Key to Succeeding in E-Commerce

Congratulations, you're starting an e-commerce business! Perhaps you’ve decided to set up your own storefront vs. selling through a big marketplace like Amazon.com or Walmart. Or you’re looking to build your own to complement a presence on those channels. Either way, having your own site is a solid move. It lets you own the customer experience and, more importantly, the relationship and the data that accompanies it. This is why direct-to-consumer brands are valued at up to 10X premiums over their marketplace and wholesale counterparts.

And now, a word of caution. It will be easy to get caught up in all the flashy options for your virtual storefront. Augmented reality, virtual reality, voice search, ultra-personalization, artificial intelligence, 3D video, chatbots and more. All these things are interesting, and you should consider them. They’re also expensive to deploy, some much more so than others. Put these investment decisions on the back burner for later.

An e-commerce business built on marketing technology alone cannot stand. Without a solid foundation built on knowledge and understanding, growing your business will become unsustainable in the long run. Understanding your business dynamics and customer behavior requires data. And not just any data — the right insights for your unique situation that will tell you how to take action that results in growth.

Here are three tips for building your data ecosystem that delivers just that:

1. Determine your “North Star” KPIs — and don’t forget the most important one.

Every business is different, and each business is the same. Whatever you do, you’ll want to make sure you're capturing information that tells you not just what customers are buying today, but what they did in the past — and how that might foreshadow future purchasing. Which are the most profitable segments of your business? How effectively are you spending marketing dollars? Derive holistic metrics to look at each of these macro questions. Harvard Business Review advises finding statistics that reliably reveal cause and effect. With this information, you’ll be able to learn from various actions and adjust accordingly.

There’s an important metric that applies to every business, no matter the size. That’s the concept of customer lifetime value (CLV). This measure isn’t new, although the way we look at it has evolved in the internet age. Consider this a must-have key performance indicator for a successful consumer-direct business.

CLV is often misconstrued as a revenue metric, but is actually a measure of contribution margin (net of digital marketing, doorstep delivery, product costs and price discounts) over the life of a customer relationship. Yet, CLV is much more than just a measure of marketing. By viewing customer value in terms of contribution margin, it incents a holistic view of the value chain: from supplier purchase orders to product assortment and promotional strategy, from order flow to inventory location and fulfillment routing. In short, optimizing for CLV means optimizing for long-term profitable growth.

2. Design your technology stack to match, with the very best apps for you.

The number of SaaS applications available to e-commerce merchants today is both a blessing and a curse. Established businesses often run a combination of up to 30 or more distinct applications. Within each of these are valuable nuggets, but they're only useful if they can be collected to produce your North Star metrics. That means you'll need an added data layer to sit atop the software that runs your critical business functions. There are several ways of doing this, including the deployment of a customer data platform, which allows you to get a view of each customer from multiple sources. The problem with CDPs is that they only look at the front end, ignoring important back-end variables including demand and inventory planning, fulfillment operations, and overall supply chain factors.

You will doubtlessly be tempted (and heavily sold) by a SaaS platform that can “do it all.” A word of caution: having a platform doesn't equate to zero development effort on the part of your organization. A recent search for the role of “e-commerce SaaS developer” on indeed.com yielded close to 1,000 job openings.

E-commerce apps are plentiful today, which means more choice — and that’s a good thing. There has been a lot of hype about “headless” commerce, which is essentially decoupling the front and back end of the e-commerce stacks they run independently. But be warned. For growing businesses, these costly and often monolithic platforms don’t solve the data problem. To do this you'll need to choose the exact solutions to suit your business needs at each phase of the transaction process from the wide range of SaaS platforms available today. Thanks to APIs, or application programming interfaces, it’s possible to connect mainstream SaaS applications to one another seamlessly. Not only does this approach save time and money, it allows you to select the applications optimized for your unique business. Consider adding a lightweight decisioning layer that allows you the flexibility, time and cost savings delivered through SaaS.

3. Take advantage of the modern cloud, but not by yourself.

Whatever approach you take to select your platforms and unify your data, keep two things in mind. The first is that a cloud-based approach is hands down the way to go. As a startup, a cloud-first approach will yield savings on capital and IT expenses; moreover, it will allow your business to scale quickly. Building in the cloud also means you can pivot to respond to shifting customer buying habits. At no time has this been more apparent than in the past 18 months in light of the global pandemic. Gartner recently reported that social commerce is quickly evolving into mainstream shopping behavior, as consumers have had more time on their hands to engage with brands via social media. While no one can accurately predict the next trends in commerce, we can say for certain that new ways of buying will continue to emerge.

The mistake many make is choosing to build their data layer in the cloud from scratch. Not only does this cost millions of dollars, it takes years to build. Of course, mainstream cloud providers can help, though you may want to consider ones other than Amazon, such as Google Cloud or Microsoft Azure. And there are solutions today that do the heavy data lift for you. Look for insights platforms that integrate easily with a range of operational platforms to generate the North Star KPIs you seek. You’ll be up, running and growing before you know it.

Eric Best is the CEO of SoundCommerce, a data platform that drives profitable growth, customer experience, and CLV for brands and retailers.