The 5 Golden Multipliers to Grow Your Ecommerce Business

There’s no doubt about it, business is complex. But we also see ecommerce business owners overcomplicate it all the time, which leads to overwhelm and ineffective decision making. When you get down to it, any business model that works is just a few metrics that work well together under the hood.

Jay Abraham is known for saying there are 3 basic levers you have to master in order for any business to grow exponentially:

1) Increase the number of customers
2) Increase average price per purchase
3) Increase frequency of purchases per customer

This translates almost directly to ecommerce and is the primary way we seek to grow ecommerce businesses. In fact, there are a couple more simple levers we can throw into the equation as well.

In this post, we will outline five simple multipliers (or, metrics) that can be leveraged to grow an ecommerce brand and explain how to use them to see business growth.

5 Multipliers to Leverage to Help Grow Your Ecommerce Business

Let’s walk through each of these multipliers and explain how to use them and what they can do for your business.

Multiplier 1: New Customers

Definition:
The number of new people coming into your ecosystem in a given time.

Why is this critical for growth?
New customers are obviously how you expand your brand’s influence and sales. Acquiring new customers is where business owners focus, but it shouldn’t be the only focus. While a steady flow of new customers will provide linear growth, it won’t bring exponential growth. That comes from working on the other multipliers.

How do you measure this multiplier?
The number of new customers acquired per week, month, or year.

How do you grow this area?
The first is obvious: make sure you have a great product and a strong offer. Marketing that product comes next. Remember, you will need to pay for traffic somehow in order to acquire new customers. Additionally, be sure to capture as many email addresses from site visitors as possible, even if they do not purchase (because most will not). Utilize automated email sequences to follow up with those names and help them get to know your brand until they are ready to purchase.

Multiplier 2: Average Order Value (AOV)

Definition:
The average price per unique order

Why is this critical for growth?
Increasing your store’s average order value is critical for supporting your new customer acquisition costs. The larger orders your store sees, the more you can afford to spend on acquiring more customers. It’s hard to identify a benchmark average order value because every business is different, but in our opinion, it should be over $60 for most businesses.

How do you measure this multiplier?
This is a simple metric to calculate and is usually readily available in any store platform.

How do you grow this area?
There are a few ways to help increase your average order value:

1. The root of a high average order value comes from having a strong product line strategy. Your ecommerce store needs to have a variety of products that a customer can identify a reason to purchase; the site shouldn’t be a one-hit-wonder.

2. A good tactic for increasing AOV is utilizing up-sells and cross-sells. For more on this, check out How to Optimize Your Upsells or The Upsell Strategy That Converts Like Crazy.

3. As mentioned above, you need to have a great offer. Price plays a part in this, but a great offer is all-encompassing and has more to do with the messaging and proposition of your product and its value than having a nice discount.

Multiplier 3: Lifetime Value (LTV)

Definition:
Lifetime value measures the value of a customer (the amount that customer has spent) for a period of time. Contrary to the name, this isn’t looking at the full lifetime of the customer. It’s usually more useful to look at a time period of 30, 60, or 90 days, or possibly 1 year.

Why is this critical for growth?
LTV is actually key for exponential business growth. Most businesses lose money on the initial sale (primarily due to advertising costs to get the visitor to the site), and just breaking even is great. The way your business wins is by bringing the customer into your ecosystem and encouraging them to purchase again and again.

How do you measure this multiplier?
Measuring your lifetime value first requires identifying what period of time makes the most sense for your customer life cycle. From there, you can use a simple equation involving average order value and average order frequency. Check out our post How to Grow The Lifetime Value of Your Ecommerce Customers for that simple equation, or take a look at this post from Shopify for more in-depth info on lifetime value.

How do you grow this area?
Growing lifetime value has a few layers to it, including:

1. Product line strategy: As mentioned pertaining to AOV, your ecommerce business needs a product line strategy that allows for customers to purchase again and again. Either your product is something that needs to be bought monthly or a few times a year, or you have a variety of products to choose from to keep customers coming back.

2. Email / communication strategy: You’ll also need a strong email marketing strategy for nurturing the relationship with your customer, reminding them of when it might be time to re-order, educating them on other products you have to offer, and keeping them in the loop about sales and new product releases.

3. Fan creation: The best way to increase lifetime value is to create brand fans— not just “customers”. These are the people who rave about you to their friends, talk about you on social media, and will buy again and again. There are certain tactics for accomplishing this, which we dive into in The Holy Grail of Ecommerce Success: Creating Lifelong Brand Fans.

Multiplier 4: Margins

Definition:
Your product margin is the amount of money built into your products’ prices and leftover after pulling out your hard costs. This is not the same as profit but contributes to it.

Why is this critical for growth?
If your margins are too low, your business will not be able to operate in profit or invest in acquiring customers, providing outstanding customer service, and innovating with new products. Without all of these elements, ecommerce businesses will likely stall or fail. Margins are truly fuel for your business rocketship.

With that in mind, we suggest at minimum a 5x markup. However, ecommerce companies do best when margins are close to 10x markup, or even as high as 30!

How do you measure this multiplier?
You can measure margins by the percent markup on a product, or you can look at percent markup as a weighted average of the best-selling products.

How do you grow this area?
Product margin is really something you should consider before you start your business. It’s hard to grow your margins once you’re already established. And if you do, it usually means lessening product quality which is not great. If you are an established brand, the best way to grow product margin is to take it into account as you develop new products alongside your current ones.

Multiplier 5: Conversion Rate (CR)

Definition:
Your ecommerce store’s conversion rate is the percentage of people who make a purchase vs the total number of visitors at your site.

Why is this critical for growth?
Most ecommerce business owners often keep an eye on this number, but it’s influenced by so many factors that it feels difficult to do anything about it. However, it’s critical for growth because it has a lot of power when leveraged. It’s actually the largest growth lever because a small increase in conversion rate increases everything else. Marketing spend goes further, more traffic can be acquired for less cost, it can help increase lifetime value, and more.

How do you measure this multiplier?
You can easily measure conversion rate on any platform, and you can also look at analytics tools like Google Analytics. The best way to measure it though is by looking at conversion rate in segments, such as by device (mobile vs. desktop) or per marketing channel.

How do you grow this area?
This is a compound metric, meaning it’s influenced by underlying metrics. Therefore to grow it, you’ll need to grow the contributing metrics and factors. That could include:

  • Technical elements on your site
  • Experiential factors such as site navigation, landing page or product page layout, etc.
  • Your offer and value proposition
  • Product and surrounding messaging

It’s Grow Time!

While every business has its complexities, if you can focus on improving each of these levers by just 5%, all of that will compound into exponential growth. In fact, if your business is at a certain size and you have a growth goal in mind, you could back out of that growth goal and determine how much each factor needs to increase. Once you have those specific goals in mind, you can create initiatives that contribute to those objectives.

 

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