Snowdevil to Shopify: Define your eCommerce goals & metrics from early to expansion stage
Okay, let's see if this sounds familiar to you.
No demand. Too much inventory. Greater demand. Busy packing boxes nonstop. Too little (or wrong) inventory. Not enough capital to support innovation. Manufacturing slows. Stockouts and backorders. Shipments getting delayed. Customers get increasingly dissatisfied. Demand plateaus.
Coffee, coffee, and more coffee.
Every successful business begins with a simple but essential concept: To reach your destination, brands must know where they are. Therefore, as part of crafting your eCommerce growth strategy, brands must understand where they are in terms of their growth journey. Having clarity about where you stand will help you make the right decision on which direction you want to head out and what your priorities should be.
Following our in-depth research and discourse with product leads, managers, and founders of eCommerce companies, we have identified four stages of the eCommerce growth cycle. Early-stage($0-1 million), Scale stage($1-5 million), Consolidation stage ($5-25 million) and Expansion stage ($25+ million). Each stage has a different set of goals and therefore, different tactics are effective.
Stage 1: Early Stage ($0-1 million revenue)
The first stage, or the early stage, is usually the toughest. It's riddled with several challenges, including product building, inventory constraints, creation of the brand playbook, and tech stack selection, among others. Companies backed by venture capital are working hard to meet these expectations. On the other hand, Bootstrapped owners are fighting unique battles.
Build a defensible product and get your first set of customers
Most companies in this stage will have to overcome the challenge of market acceptance and pursue one niche opportunity. Do not spread money and time resources too thin.
Raise money if your thesis supports returns
If you're raising money, monitor your payback on media spend.Too often, firms spend more than necessary to advance their KPIs. If your Cost Per Acquisition (CPA) or Return On Advertising Spend (ROAS) is not where it needs to be, slow down to sort that out first.
Track and conserve cash flow; focus on customer acquisition
While paid marketing is the main growth driver in this stage, it is important and conservative to set up channels that will enable organic traffic, provided you create some valuable content for your potential customers.
The key focus should be establishing a loyal customer base and market presence at this stage. Some businesses have a propensity to tackle business problems via marketing. Remember that sponsored media is your brand's megaphone. Your megaphone will struggle to attract consumers if the brand's voice is fractured.
Channel mix in Stage 1 usually is just Facebook, Pay-Per-Click (PPC), and email marketing. Besides Cost of goods sold (COGS), ad spend is the largest expense on the Profit and Loss Statement (P&L). In order to generate demand, Facebook and Instagram are expected to account for 80% of the media mix. In performance marketing, the most important lever to pull is creativity.So, don't hesitate to allocate a percentage of your media spend to content and design creation.
"Creatives are the silent brand ambassadors of your company."
If you're just starting out and don't want to raise money for your business, you can build an e-commerce brand by following these six easy steps. Even brands that have capital can use these steps to improve their organic reach.
Start with content—leverage organic traffic as much as possible. Social platforms possess many opportunities for this.
Create a community centered on your content.
Create an online shop. Shopify facilitates do-it-yourself operations.
Utilize points 1 and 2 to increase income at point 3
Leverage advertisements to drive further growth. Concentrate on effectiveness and efficiency.
Focus on retention and track your cohorts. The only way to achieve long-term success is for customers to repeatedly shop at your store.
As a general rule, your payback on paid media should follow the below guidelines:
Great Zone (0-3 months): You're doing fine. Go faster as you get closer to the end of the month. Slow down as you get closer to 3 months.
Safe Zone (3-6 months): You have to be careful.
Danger Zone (6+ months): It's a warning sign. The founders will be continually raising funds.
As you proceed through stages 2 and 3, these indicators become increasingly important. Because most DTC brands trade on EBITDA, laying a strong foundation in the $0-1M revenue stage can help produce considerable value in the subsequent phases.
Scale stage: $1-5 million revenue
Congratulations, you've made it through the most difficult part of the process and are now ready to tackle the next step: growing your brand. By now, you would have achieved a product-market fit. This means that there will be upward figures in terms of new customers, recurring customers, and revenue. Profitability here is paramount.
Grow traffic and revenues from direct & organic channels
Your journey should begin with paid traffic and progress to non-paid channels such as Direct and Organic, which should account for 50% of your traffic and earnings.
Agree on the audience segmentation
Whether it is getting traffic through paid or free channels, it's important to have a better understanding of what's available online (Search, Social, Display, Targeted ads, Emailers, SMS) and offline (Print media, Radio, Broadcast).
Start paying more attention to key business metrics
From CAC to LTV, it is essential to monitor and analyze all key data metrics to ensure that you have the right insights to help you stay on the right path.
Nail your customer acquisition strategies, but start focusing on customer retention
It's no secret that it costs more to onboard a new client than to retain an existing client, and loyal customers will pay more for your product or service—while also playing other important roles in your business. So at this stage, your customer acquisition should work like a well-oiled engine so that you can focus on customer retention. It might be a good idea to look beyond a website store and start thinking about creating a mobile app and a customer community.
Cross-sell & Up-sell
Product recommendations account for an average of 10-30% of eCommerce site revenues. Upselling and cross-selling will help solidify your revenue stream. Do you know that Amazon has reported that cross-selling and upselling makeup as much as 35% of their revenue?
The channel mix is the same as in stage 1, but a more developed media strategy underpins it. After $3-5 million, you start to gain a grasp on creatives, audience segmentation, and messaging. Influencer marketing becomes relevant and, to some extent, important. Amplifying influencer or UGC-style content via paid media is a smart strategy.
Keeping the focus on internet platforms, the following options are available to you in this sector.
Use Google & Bing for Search & Shopping (highest customer intent)
Social & Display (Immediate purchases with audience clusters) - Facebook includes Instagram, Tiktok, Google, LinkedIn, and Twitter
Existing visitor/buyer base retargeting (increased lifetime value) – All Search and Display inventory
Growth hacks and influencer marketing - Blogs, Celebrity tweets, and infomercials
Overall, you should have a bird's eye view of everything from design to inventory. Demand planning should always be on top of your mind, especially if your suppliers require 90+ days. Stage 2 will need brand leaders to start building their organizational chart. Great brands care about being nimble and agile.
Warning: This phase has the highest failure rate. The prospects of scaling feel like an exciting challenge at this stage. Nevertheless, there are moments when businesses pursue growth too aggressively and reach an inflection point. It is not a bad thing. Knowing when diminishing returns will occur may be advantageous, since it allows you to simply draw back and ramp up again.
Consolidation stage: $5-25 million revenue
Retail and wholesale are becoming more lucrative. As brands reach $10 million in sales, the solid foundations will begin to yield benefits, but the organization's mechanics will alter.
Optimize your cost structure to get the highest margin possible consistently.
This is the time to negotiate on the costs - from raw materials to customer acquisition.
Hire the right people
Brand leaders will need to invest in people. Hire experienced individuals that are familiar with the category and have performed the function in the past. Before hiring, you should disclose OKRs and create appropriate expectations.
Channelize all your energy (and money!) into Customer retention
At this stage, it is only customer retention strategies that will retain your growth. Your CRR, NPS, and CV score must be high to succeed at this stage.
Just tracking numbers isn't enough—you need to take action. Loyalty programs, community creation, exclusive products or features, and taking the customer experience to the next level by sending personalized notifications, content, etc., becomes key. Invest in brand loyalty and elevate customer engagement on direct channels like mobile app, social media and community.
"At this stage, customers don't buy a product; they buy experience."
At this point, it is crucial to discuss how CAC will decrease over time. This is rare for digitally enabled companies. CACs rise at the channel level, and channels become less efficient with time. Cohorts risk growing stale if the product catalogue is not diverse or sufficient effort is not put into retention. The blended CAC just ends up following the leading channel over time.
Brands should also start monitoring the 'copy-cats' in the market. It's hard to get to stage 3, so when you do, you'll observe the product knock-offs of your brand. There are ways to escape velocity and jump to stage 4.
The consolidation step is crucial, and most brands get trapped here. More than 90% of e-commerce firms are in phases 1 and 3. In general, e-commerce, and particularly DTC, is very fragmented. The bulk of merchants and brands are captured by the long tail.
Side note: As the topic of consolidation enters the debate, there will certainly be significant M&A activity in e-commerce in the future. In stage 2, there will be a great deal of activity, but it will be led by tiny holding firms. The best chances will be found in stage 3, and organisations in stage 4 may most likely purchase stages 2 and 3.
Expansion: $25+ million revenue
In this phase, companies that have already advanced in executing their business model move forward, consolidating their growth in both revenue and employees. A proven business model allows it to consider more ambitious goals, for example, internationalization, expansion to other product ranges, or hiring new professionals.
Diversify - be it product line or geographies
Now, it is time to expand your business to bring in additional revenue and further establish you as the market leader as your first product engine now runs like a well-oiled machine.
Now, retail and wholesale provide a tremendous potential. The leaders of a brand must find a means to scale this in addition to their own efforts.It can either happen via partnerships or owning physical stores.
Here, companies will use a broad channel mix. There will still be some over-indexation on 1-2 main channels, but businesses will be able to diversify their risk among 8-10 channels. Stages 1-3 demand brands to be a millimetre broad and a mile deep in each element. As they get to stage 4, they must spread out and dig deep. They must have the necessary personnel, procedures, tools, and allies to facilitate this expansion.
And now, your new product line or initiatives will be in the early stage category. Have a team that can now run the show for your first product and start from scratch. Your new product might be a beginner, but you are not. You would have mastered this e-commerce game by now!
Now that you have gone through the entire lifecycle in your mind in 10 minutes, we are sure you will have a lot of queries on strategies and tactics for each stage. We will be addressing those in our next series of posts.
Until then GOOD LUCK!