How to Measure Profitability of Your eCommerce Store for a Better Business Decision-Making?

According to ‘The Analytics Advantage. We’re just getting started’ report published by Deloitte, only 49% of managers base their business decisions on data. What about the remaining 51%? They definitely aren’t using data – and that’s a big mistake. Read on to learn why.

Why managers don’t keep track of data

Where does such an attitude come from? Perhaps the fact that companies use, on average, as many as seven independent data sources – including their own CRM, Google Analytics, Google Ads, Facebook Ads, a CMS – managed by different employees makes the managers look at data separately, independently of each other. This prevents them from taking into account the synergy effect. It can be compared to following a single wire, instead of looking at tangled cables. As a result, managers get confused by the numbers and cannot interpret them correctly for the purposes of business decision-making.

How to wrap your head around the multitude of data you collect?

To feel the ground under your feet again, focus on four basic parameters for multi-channel marketing paths. Tracking them will allow you to check if your eBusiness is heading in the right direction.

Attribution Allocation Model (AAM)

Customers are constantly bombarded with marketing content, which makes it impossible to determine which piece of content and from which channel ultimately influenced the purchasing decision. The Attribution Allocation Model allows you to determine which points of contact between the customer and your brand initiated the sale. However, doing it is not the easiest task as it requires a very meticulous approach and correct configuration of tools.

Customer Acquisition Cost (CAC)

This is an average cost of acquiring a single customer for your eBusiness. It includes money spent on marketing and sales activities, employee salaries, etc. It’s important to know if a customer is new or a returning one. In the latter case, it’s also important to measure the:

Customer Lifetime Value (CLV)

This is an assessment of the customer’s value over time, i.e. the value of purchases made by him or her during the entire period of being a customer of your online store. CLV is the key parameter showing the profitability of your business. It’s calculated for the average customer and it’s an average value. There are also various methods of calculating it – they can be simplified and approximated, or complex, allowing you to take into account other factors, e.g. additional costs of acquiring a customer or product margins.

Incrementality

This is an indicator of the effectiveness of your marketing activities. It allows you to determine how certain actions affect your audience and what percentage of them convert – in all meanings of the word – after contact with your specific marketing activity. Check how the results are affected by separating a single advertising campaign in one tool and disabling it. This way you will exclude non-selling ones. In addition, you can also disable campaigns on the entire channel (e.g. on Facebook) and check how it affects performance and budget. If the latter is significantly relieved with only a slight decrease in performance, it means that the campaign is not sufficiently profitable.

Key things to remember

Bear in mind that the above indicators themselves are still only numerical data. In order for them to be of real value and support you in decision-making, they still need to be juxtaposed and thoroughly analyzed, and the conclusions must be critically assessed.

When working with data follow these key principles:

  • Audit the configuration of your analytical tools – before you start working with them, check if there are no errors; use a number of different tools.
  • Consciously analyze the data, paying special attention to CAC and CLV.
  • Avoid relying on a single user ID.
  • Don’t lose your curiosity, don’t be afraid to ask questions and test – preferably on small groups of customers.
  • Take time to think and draw conclusions.
  • Periodically update your measurements and verify data!

Good luck!

This article was written in cooperation with Łukasz Heine, CMO at Yetiz Interactive.

Written by
Jarek Wasielewski
Digital Content Specialist at ExpertSender
After work: local historian. Double bass enthusiast.
 
 
 
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