Analytics for Customer Acquisition Efficiency
In the last chapter, we talked about how to use analytics to achieve a Product/Market Fit for your online store.
But getting to Product/Market Fit isn’t enough. You still need to grow your customer base efficiently to make sure that your revenue outweighs your fixed costs and your store can become profitable.
In a physical business, such as a factory, “efficiency” usually means better managing physical resources, such as raw materials and machinery, to keep costs low and profits high, since these are the most costly parts of the operation.
Since an online store requires few physical resources, its biggest expenses aren’t tied to materials or machinery. Instead, the main job to be done by your website is to turn visitors into buyers, which means that your biggest costs will be marketing, sales and customer support. For an online business, becoming more cost-efficient means better managing customer acquisition efforts.
During the Customer Acquisition Efficiency Phase, your goal is to ensure that your website doesn’t stand in the way of visitors buying your products. It’s making sure that your website is clear, easy to navigate, has pages that load quickly and gives visitors the best possible shopping experience.
In other words, the efficiency phase is where you make sure everything is working well. Then you can safely start scaling growth.
Launching an ecommerce store is like building a new car. Unless you’re sure about the structural quality of it, you won’t feel safe driving it at 100 miles per hour. You do a few tests first and work on the bits that need fixing to certify that it can run faster without breaking down. Then you can accelerate.
In ecommerce, you test your store by running small-budget advertising campaigns and monitoring key metrics (see below) to assess if they’re performing well. If they are, it’s safe to increase your marketing budgets and start scaling. If not, your conversion rates will be too low, customer acquisition costs too high and you’ll lose money (more on these metrics below).
The main metrics you want to watch for while you’re improving your customer acquisition efficiency are:
1. Conversion Rate
The percentage of people that visited your website and either signed up or made a purchase is your conversion rate. This is important because the lower your conversion rate is, the more expensive and time consuming it will get to make a sale.
Install Ecommerce Tracking in Google Analytics to monitor conversions from your Google Analytics and Compass dashboards. To install tracking your Google Analytics, click Admin on the menu bar at the top of any screen on Google Analytics (see detailed instruction). Choose Ecommerce Settings and then Enable Ecommerce. When presented with the option, select Enhanced Ecommerce tracking too; this provides you with more data on your products and visitor behavior.
In Google Analytics you’ll see your overall conversions in the Ecommerce report, like this:
Google Analytics Ecommerce report
Knowing if your current conversion rate is good or bad can be tricky, since it depends on your industry, size and type of product. For instance, websites selling expensive all-inclusive package tours to Italy will have a lower conversion rate (often lower than 1%) because it’s a complex purchase, which requires users to do a great deal of research before buying it.
The example in the image above (over 4% conversion rate), however, is from a high performing company selling cheap and simple menstrual products. According to our data, an average conversion rate for such products is between 2% and 3%.
In your Compass’ Benchmark dashboard you can monitor your conversion rate in each acquisition channel (Google Ads, Facebook Ads, Google Search, etc.) and compare them against your peers to know what a good conversion rate should be for your store. If your conversion rate number is green, it means that you’re doing well. If it’s red, you need to work to improve it.
Compass Customer Acquisition dashboard
If your conversion rate is low, use Google Analytics’ report Behavior > Site Content > Landing Pages to identify which of your pages have high bounce rates and low conversion rates. Follow this infographic to learn what a standard landing page should look like and work on improving them.
Also, make sure that your entire sales funnel, from shop visits to payments, is well organized and easy for people to navigate. You can learn more about how to improve conversion rates here.
2. Page Load Time
Our study shows that page load time can have an impact on revenue of as much as 16%. Increasing speed has become a fundamental product requirement. People need websites to load faster and information to be readily presented. Every second counts when it comes to the time it takes for a page to load and if your visitors can’t find what they’re looking for, it will have a direct negative effect on business results.
If your pages are taking too long to load, conversion rates will be greatly affected, which will have a negative impact on your Customer Acquisition Efficiency. If we put ourselves in the shoes of an average consumer, this shouldn’t come as a surprise. With higher competition and lower attention span, users get frustrated after waiting for just 400 milliseconds for web pages to load.
Monitor your Average Page Load Time in your Google Analytics and Compass dashboards to know if your pages are loading fast enough. IThe biggest responsible for slowing websites down is usually the image used on the page.
While photos, logo and other images aspects help shoppers visualize products, they should be fully optimized to be contained in the smallest files possible. Use Photoshop or Pixlr (free online software) to reduce image size and reduce quality. Just be careful not to let images look ‘pixelated’ in your website, such as the ones below:
Visit your Google Analytics Behavior > Site Speed report to learn if your pages could be loading faster. You can find more information about how page load speed impact revenues here.
Google Analytics Site Speed report
3. Customer Acquisition Cost (CAC)
If you're spending more money than you're making, your business won't be profitable. So the metric that matters most to you is the ratio between Customer Lifetime Value (explained in the previous chapter) and Customer Acquisition Cost (CAC). CAC measures the amount of money you’re spending to acquire each customer. Since customer acquisition is the main expenditure in ecommerce, if your CAC is higher than the lifetime value per customer (see chapter 2), you will be operating at a loss.
CAC requires a simple calculation of the amount you spend in marketing versus the number of sales you generate from that amount. For example, say you are spending $10,000 per month on Facebook advertising. And from those $10k you generate 1,000 sales. Your monthly CAC from those campaigns will be $10.
You should calculate the maximum you can spend on each customer acquisition based on your CAC / LTV (Customer Lifetime Value) ratio. For example, if your average profit per order is $10, and your customers buy from you 10 times on average, your LTV is $100. So you will want to spend less than $100 to acquire each customer to make a profit. You can learn more about running a profitable business here. Compass calculates this instantly for you in the Revenue Report.
Improving Conversion Rates, CAC and Page Load Time will be a constant effort for anyone running an online business but it’s important that you prioritize them early on. Keep monitoring and optimizing them, as it’s normal to see variations over time.
Once you improve your Customer Acquisition Efficiency metrics, you can start scaling growth, which is the subject of the next chapter of this guide.