At Baotris, we know that growth and performance over time are integral to continued success for our e-commerce clients which is why we created an internal proprietary tool we call the Baotris Marketing Indicator (BMI) that tracks all the important health metrics for us. Using it, we can see when something is or is not working as it should. When something is working, we find a way to exploit it, double down and get all the value out of it as possible.
When something is not working, we dive in deep to figure out why. We CSI our way to an answer - it could be a technical issue or a glitch, it could be creative exhaustion, or it could just be a failed campaign.
However, if you're not working with us then you won't have access to the BMI, but you can still keep an eye on the metrics that are important. Some of the most important metrics we use our technologies to track are: Average Order Value (AOV), Lifetime Value (LTV), Customer Acquisition Cost (CAC), and Marketing Efficiency Ratio (MER).
AOV - Knowing your AOV helps you evaluate your overall online marketing efforts and pricing strategies. By working to increase your AOV, you can grow your revenue without having to spend additional marketing dollars acquiring customers as acquisition costs tend to be much higher than the cost of strengthening your relationship with established customers.
There are numerous ways to increase your AOV such as customer loyalty programs, offering free shipping with a minimum spend, bundling product, targeted offers, personalized recommendations, and more.
LTV- LTV is important to track because if you know on average what each customer acquired is worth to you over time then you know how much you can spend to acquire them where it still makes it worthwhile to do so. LTV is also great to know because it means you already have a relationship with the customer and similar to AOV, by increasing LTV, you can greatly impact your revenue without having to do marketing to get new customers who don't know or trust you yet. LTV can also help you know what your most loyal customers look like so that you can build better targeted campaigns to reach lookalike audiences built on the profile of those customers.
To increase your LTV, you should engage your customers on a deeper level, what education can you provide, what problems or pain points can you solve for them? Give them a reason to stay in touch with you.
Secondly, find more places to have touch points with them; email, SMS, each different social media channel, can all be great ways to remind your customers that you exist and the value you provide.
Third, have great customer service. Nothing keeps customers coming back and singing your praises quite like a great customer service experience and on the flip side, nothing can keep people away like a bad experience so be sure to be responsive, understanding, patient, and helpful.
Lastly, the best way to increase LTV is by offering a subscription. Customers who pay monthly, or better yet, upfront for a year, are some of the most valuable customers you can have. Customers love subscriptions because they come with special perks and a break in price, and as an e-commerce shop owner, subscriptions help you plan your finances better and lead to better projections.
CAC- If you are spending more on acquiring a customer than what they are worth to you over time (LTV) then you are in a losing situation. Understanding your LTV means you know what you can spend on CAC and create limits for marketing spend when creating campaigns.
There is no rule for what your CAC should be, that depends on your costs of running your business. New ecommerce brands will always have a higher CAC because audiences are not familiar so it can take a while to build trust in order to get them to buy. Sometimes, it makes sense to overspend to acquire someone, like if your product had a high repeat purchase rate - but again, this is where the LTV matters so you can balance out the margins.
High CAC costs are also why it's always a better strategy to nurture the customers you do have and provide a great experience as a brand to keep turn them into repeat purchasers, and even brand loyalists. Focusing efforts on increasing AOV and LTV are more beneficial than keeping a low CAC. Think of it as a leaky bucket - if the bucket is unable to hold water, then you will always need to add water to it in order to keep it full. If there is a drought or water prices increase, it becomes more expensive to keep the bucket full. However, if you fix the leak in the bucket or reduce it to as small a leak as possible then you don't need to add as much water in order to have a full bucket. The bucket is your business, the water is your customers, and increasing LTV and AOV is fixing the bucket.
The other option here is to manage your CAC. You can do so by increasing pricing, though this may drive consumers to a cheaper alternative, or you can reduce your COGS (cost of goods sold) but sourcing cheaper materials, reducing shipping costs, negotiating volume discounts, etc. You could also change your focus and redirect your business towards a less competitive or more niche market.
MER- Last but not least, your marketing efficiency ratio shows you the overall performance of your digital marketing efforts. There are a few different names for this metric, but essentially you find it by taking your total revenue and dividing by your total marketing spend.
Because attribution is messy in the best situations, MER is important because it allows you to evaluate your marketing program as a whole VS channel by channel or campaign by campaign. Many different channels have a touch point in a buyer's journey without considering performance of the program as a whole, you may not give enough credit where credit it due.
A high MER also means that you could be earning more money. While the law of diminishing returns holds true in marketing as it does everywhere else, your aim in experimenting with marketing spend across all your difference channels should be to find the point of maximum yield. This is the point where you are returning the most money for the money you are spending and if you increase any more spend, you will start showing negative returns.
This too is a little messy, because with so many different marketing channels, you may think that you have found the point of maximum yield but it may just be for the current configuration. Moving money from spend on one channel to another will change this data point for you, just as adding or subtracting channels will do as well.
Each channel also serves a different purpose. Paid ads are important to acquire new customers who you otherwise would not have access to, while email or SMS is often more targeted to current/past customers, or at least parties interested enough to sign up for your mailing lists.
This is why MER is important. While the other metrics you're looking at for individual channel performance are critical to evaluate the channel in a vacuum scenario, you need to always understand how the MER is affected as well both for shorter and longer time periods. This is because many channels like SEO have upfront costs that pay dividends over time vs the direct return of a PPC ad.
Of course, if this sounds like too much to wrap your head around, you can always reach out to us here at Baotris so we can hook up your BMI to your data and calculate these metrics for you in a biweekly report with a weekly health check in between.