E-commerce

Merhandise analysis for online shops

Key metrics for tracking merchandise

It has never been easier to start an online business. It requires three things: cheap internet, free tools to build online shops and ease of advertising on social media. Yet, it is hard to make profits.

Kevin Hillstorm, a marketer and author of ‘Total Package, a book about growing merchandise sales’ Link, shared key metrics about e-commerce businesses.

1. Average margin value: Average order value can be misleading. Heavy discounts may persuade the customers to purchase more.
   I am paraphrasing his example:
   - A discount of 40% may bring in an order of $120.
   - A gross margin of 50% will produce the margins of…
   - No discount = $100 — $50 = $50
   - Yes discount = ($120 — $60) — ($1200.4) = $60 — $48 = $12
2. Past vs future gross margins: Offering discounts to lift sales harms the long term profit margins of the brand. Discounts result in less profit margin. The past gross margins will affect the future gross margins. Be careful. Link
3. Don’t optimise engagement: To increase average order value, marketers offer discounts. It may raise the order value, but it brings in less profits. It helps to calculate the gross margin from different channels such as online, search, Amazon, and email. Link
4. Know your buyers: One, buyers who bought merchandise from the same category last year and this year. Two, buyers who bought the merchandise from the category last year, but chose to buy other merchandise this year. Three, The rest of the buyers are either new or re-activated buyers from the past years. Link
5. Know merchandise categories: Dominant, complimentary and auxiliary are three categories of merchandise. Grading categories require rebuy rates, share of annal sales spent on the category, and the share of annual sales from each category. The dominant category represents the brand. Buyers are less loyal to a complimentary category. Auxiliary category is not the focus of the customer. Link
6. Know the star products: The product categories giving consistent higher percentage of next year sales are the key brand categories. Merchandise from these categories can be sold to most customers. Marketers should mass market these categories, send personalised emails for the other categories. Link

One more metric: repeat buyers/ loyal customers

Repeat buyers or loyal customers are every retailer’s dream. The more the better. Again, without understanding who they are, it is difficult to design the marketing plan.

Loyal customers of a D2C brand decide the marketing approach. If the re-buy rates are higher than 60%, then the brand should double down on getting more loyal customers. It means the brand will do less and less of mass marketing, and more and more of personalised outreach such as mailers and search.

Alex Grefield is a marketer. She has operated e-commerce businesses. She tweeted:

How do you define a “loyal” customer?

If you want to increase loyalty, you need a measurable goal. But every business is different. So how do you put a number on loyalty?

Key insights from the thread are:

1. Small businesses should calculate averages on the basis of customers’ order sequence.
   -What % of the first time buyers placed the second order within the first year?
   -What % of the first time buyers placed the third order within the first year
2. Most customers do not become loyal until they have made 4th or 5th purchase.
3. The first goal of building loyalty is to make customers purchase 4/5 orders.

Learn from Starbucks: 4 point checklist for successful loyalty programs Link