Customer Acquisition Metrics
By this point, you should have a good understanding of your company’s position in the development cycle. You now know, by looking into your metrics in Google Analytics and Compass’ dashboards, whether you’re in Validation, Efficiency or Scaling phase.
This chapter focuses on helping companies that are either in the Efficiency or Scaling phases to better manage their customer acquisition efforts.
If you’re in the Validation Phase (Chapter 2), keep working on achieving a good Product/Market Fit – that should be your top priority. The information in his chapter will help you plan your next steps.
If you’re in Efficiency Phase (Chapter 3), you’re ready to use the acquisition metrics presented in this chapter, which will help you optimize your store for future growth.
Right now, you should invest small resources in marketing, with low-budget advertising campaigns, to bring just enough traffic to generate data. Then analyze the data to gain insights into the best ways to optimize the core metrics of your product. Once those have been optimized, you can move on to the Scaling Phase (Chapter 4) and invest more heavily in the channels that have worked best for you.
In the last chapter, we talked about some of the most important business metrics to evaluate your company’s growth during the Scaling Phase. In this chapter, companies that are ready to scale will learn how to use analytics to manage each marketing channel while investing more in them to grow.
There are dozens of acquisition channels out there, but for the purpose of this guide we will focus on the most popular channels for ecommerce today, which are SEO, SEM, Facebook Ads and Email Marketing.
We encourage you, however, to experiment with channels that best fit your audience. If your typical buyer spends more time on Pinterest than Facebook, for example, you should look into how to leverage Pinterest for growth, not Facebook. Same for events, blogs, magazines, Snapchat, direct mail, etc. If you know your audience well, you know where they are.
By learning more about analytics, your audience and their favorite channels, you should be able to replicate these learnings to any acquisition channel out there.
1. Search Engine Optimization (SEO)
If you have a product that people regularly search for online, such as “flights” or “shoes,” search engines can be a great free channel for growth. When you’re optimizing your site to gain more organic traffic (traffic from search engines), the metrics you should be looking out for are:
- Search volume: You can only grow with SEO if there are a lot of people searching for your product in Google or Bing. Keyword Planner is useful to learn if the keywords you want to be ranked for can generate enough traffic for growth. If not, you’ll never be able to generate enough traffic from them to scale growth.
- Average ranking position: In your SEO Report in Google Analytics you can see the average position of the keywords that are bringing you traffic. Position 1 means you’re the first result in Google for that keyword, the one that generates the most traffic. You can learn more about how to improve your SEO ranking here.
- Bounce rate: After people have clicked on a search result in Google, they will land on your site. If their expectations aren’t met, people will leave and you’ll get high bounce rates. Google uses bounce rates as a measure for ranking too, so high bounce rates are not only bad for sales, but for SEO.
- Conversion rate: If you have a steady volume coming in from organic traffic, you want to make sure that visitors coming from Google or Bing are converting into buyers as frequently as possible. Optimize your entire conversion funnel, from the landing page to payment, to better leverage SEO to grow sales.
- Revenue: You want to generate sales and revenue from visitors coming from search engines. Monitoring revenue coming from organic traffic is the best measure to see if your improvements in SEO are having a positive impact. Your Compass Revenue Report will show you exactly how much your revenue you’re generating from SEO.
2. Search Engine Marketing (SEM)
Advertising on search engines, such as Google and Bing, can help you attract the right audience to your site. Work on both SEO and SEM strategies – they complement each other well. The metrics below are based on Google AdWords, which is the advertising solution from Google:
- Search volume: As with SEO, if you’re investing in Search Engine Marketing you want to make sure that the keywords you’re targeting have high traffic volume. Research in Keyword Planner before you start investing in SEM.
- Cost per Click (CPC): You can control how much you are willing to pay per click in SEM by adjusting your CPC in your Google AdWords dashboard. The more you pay per click, the higher your ad will show in your prospective customer’s search results, which will generate more traffic. The trick here is to pay enough to drive traffic, but not so much that your cost per acquisition (see below) will be too high, which will hinder your profitability.
- Average ranking position: This metric, shown in your Google AdWords dashboard, is directly related to CPC. The more you spend in your keywords’ CPC, the higher your ranking position will be, which will generate more traffic.
- Click-through rate (CTR): Your ad may get shown to a lot of people, but it will only be effective if the right people click on it. Work on your ad copy so that it’s enticing for the people looking for your product. This will raise your CTR (also shown in your Google AdWords dashboard) and generate more traffic.
- Bounce rate: It may be that people are clicking on your ads, but when they get to your site they bounce (leave without performing any action). If your campaigns have high bounce rates, work on your landing pages and ads so they “tell the same story.” Make sure you monitor bounce rates in every SEM campaign in your Google AdWords dashboard and your overall SEM bounce rate in your Compass Acquisition Report.
- Conversion rate: Optimizing your SEM conversion rate will have a big impact on your profits. Optimize your entire conversion funnel, from the landing page to payment, to better leverage SEM for sales. You can find the conversion rate of each campaign in your Google AdWords dashboard and the overall SEM (Google AdWords) conversion rate in your Compass Benchmark Report.
- Customer Acquisition Cost (CAC): CAC in AdWords is calculated based on your average conversion rate and average cost per click. For example, if your conversion rate is 10%, that means you need 10 clicks to make one sale. If every click costs $2, your CAC will be $20. If a Customer Acquisition Cost of $20 is too high for you to make a profit, you’ll be losing money while you generate sales. You can monitor your SEM’s CAC in your Compass Acquisition Report.
3. Facebook Ads
Leveraging advertising in social media can be tricky, since people use social networks to connect with friends, not buy products. Nevertheless, social media is where people spend most of their time online, and Facebook is the most popular of them, so we encourage you to experiment with Facebook Ads to grow sales. The main metrics in Facebook advertising are:
- Impressions: If your ad has low impressions, it means that it’s not being shown to enough people. This means your target market is too narrow. Widen your audience by including more relevant interests.
- CTR: This is the percentage of people that are clicking on your ad after seeing it. If this is too low, the messaging or design of your ads need some work. Or you’re showing your ads to the wrong audience.
- Cost per click (CPC): In Facebook, a click will cost more depending on the type of audience you are targeting. A high CPC will translate into higher CAC. Learn more about how Facebook calculates CPC here.
- Bounce rate: Same as SEM, above.
- Conversion rate: Conversion rate is an important metric and each advertising campaign may have a different conversion rate. If you identified a particular campaign with a bad conversion rate (in Google Analytics, go to Acquisition > Campaigns to find out), work on your landing pages and ads to make sure that they both have a consistent and clear message, highlighting the value of your products.
- CAC: Same as SEM, above.
4. Email Marketing
Email marketing is, on average, the best performing channel for sales in ecommerce. The challenge is building an email list, which takes time (and we strongly discourage you from buying emails lists). The main metrics you should be watching for when leveraging email are:
- Number of email subscribers: If you want to grow sales by using email, the numbers matter. The bigger your list, the better your chances of making a sale. Work on getting as many email subscribers as possible from your potential clients. Learn more how to grow your email list here.
- Sales from email: Of course, simply having a big list of email addresses isn’t enough. You need to be able to sell to them. There are two aspects to this. First, you need a list of people who will be inclined to buy from you. Second, you need to work on the content of your emails to make that happen. Read more about these two metrics below.
- Conversion rate from visitors to email subscribers: Building a list requires adding forms to your website and asking people to subscribe. The conversion from visitors to subscribers will depend on how well you can convince them to sign up.
- Conversion rate from subscribers to sales: Once you have built a list of people interested in your products, you want to send them regular emails that are interesting, entertaining and will convince them to buy from you. Work on the designs of your emails and the selection of products to make sure that you sell to your list.
- Open rate: If people don’t open your emails, there is no chance of you selling to them. A quality email list can generate open rates of 20% to 30%. Test your email subjects to make sure they are enticing and can convince people to open them.
- Click-through rate: Once your subscribers have opened your emails, you want them to click on a product, promotion or piece of content and go back to your site to buy from you. The percentage of people that click on a link in an email is the click-through rate.
- Unsubscribe rate: Some people might not be happy to receive your emails. If you’re not careful with the type of content you’re sending to your list, people will unsubscribe. If too many people (more than 1%) unsubscribe from your emails, it’s a sign that you’re not sending them what they signed up for.
In the next chapter, we’ll show how to tie everything together and incorporate analytics in your company’s routine.