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What to look at in order to increase revenue from your paid marketing efforts in e-commerce. How to make sure you are not cutting away profitable customers.
Understanding Customer Lifetime Value (as often abbreviated CLV or LTV) can be tricky but nevertheless one of the most important metrics in business and especially e-commerce whenever trying to understand where the profitability in customer acquisition lies.
As the name implies Customer Lifetime Value shows the accumulated revenue you recieve from a specific customer over time, during the entire period the customer engages with your business. The tricky part is measuring this right and understanding how much is your business ready to spend to acquire this customer. This especially becomes relevant discussion in relation to Paid Marketing or Advertising like Google Ads or Google Shopping.
So let's look at a simple way of calculating historic customer lifetime value:
- Historic CLV = (Transaction1+Transaction2+Transaction3…) X AverageGrossMargin
Now another metric often used when looking at return in an e-commerce paid marketing is of course ROAS or simply put = Return on Ad Spend. The calculus of that metric is below:
- ROAS = Revenue from Ad Spend/ Cost
This is a very important metric to keep track on, especially when considering acquisition cost however, important to note that without taking into account the CLV/LTV you are only seeing half of the picture. ROAS is all about winning that impression, click or customer engagement, but it doesn’t take into account the ultimate business measurements of profitability, margins, and new customer acquisition.
Consider this; the customer acquisition cost for a first time buyer of products with low margins may be very high. However, if you are able to win the loyalty of that customer long-time the customer acquisition cost is far presided by the value of the customer loyalty. Therefore keeping track of the individual purchase journey is crucial in order to understand where the cut-off for investment should lie. The customer may only be profitable on its 3rd repeat purchase and therefore it is important to have that consideration in your bidding strategy.
A good advertising agency in paid marketing should always look together with you at your Customers Lifetime value and present the purchasing path from organic and paid search. Together you should establish where you see the profitability and growth coming from in order to make sure you are not cutting away future profitable income. Any eCommerce business should always looks to the metrics of ROAS and CLV/LTV to fully understand and take use of the best strategic implementations in order to grow their business even faster.
Written by: Ana Stanojevic
Articles by Jonas Hagströmer Theodorsson
How to boost sales during sale season as an e-commerce and how to evaluate those results
Sales season is a nightmare or a goldmine depending on who you talk with. One can indisputably if well prepared make good sales out of seasonal campaigns. So how do you best prepare as an e-commerce?
Start with the analytics.
Start by analyzing your traffic. If you only have time for top level then look at your timeline when the offers were up, how much brand traffic did you get how much non brand traffic in Google Ads? What are the demographics of your customer base and what ad copy was the most successful?
In addition if time allows look at your keywords, what where the top 10% keywords generating traffic and more importantly conversion? If your agency provides analytics on keyword level in regards to demographics, location, device, time of day and other key factors those are great to analyze in order to understand when where and how you should be bidding. The same goes for Shopping, in Google ads you have loads of information stored. Example of this can be the top movers in your google shopping campaigns but also demographics like where your top shoppers are, what device did they use when they purchased from you and what day of the week did they prefer to buy?
All of this data especially if you are a large e-commerce can be massive to even scim through therefore preferably if you have a large customer base your agency should be doing an analytics report for you.
Now let's look at step 2. There are certain measures and steps you should consider in order to make any seasonal offers like Black Friday, Christmas or Easter a success.
Start by looking thoroughly through your budget. What are you willing to spend? Where should most of the traffic come through? In case of unexpected scenarios what do you want to do; should you kill any advertisement or keep it going? Take a moment to consider your ROI and revenue target and the different scenarios connected to your business that could affect the budget and plan in advance.
The next step is to consider how much you want to spend for your brand and non brand traffic. A good rule of thumb is that brand traffic should be unlimited. If they are searching for your brand you should always be visible. In regards to non brand, try to target for the average position, look at data cost per click from last year and add 15% on top of that. Make sure to review your performance constantly during the campaign period. Important to review average position as ROI and revenue will not had time to be accurately updated.
Now any time you have bidding campaigns you are of course also looking at conversion, or at least you should be! Depending on whether you are a large or small e-commerce those ROAS targets can fluctuate slow or really fast, therefore you should also be careful when reading into that data. See the graph below:
A small to medium sized e-commerce company may have high to medium fluctuation in ROAS on their conversion data. This means that drawing any conclusions from that data can be very tricky. Whilst, large e-commerce companies with alot of data, conversion have acquired a higher amount of data that shows good patterns. Their ROAS fluctuation is usually lower, and you can draw conclusions must faster.
Unless you are a full time specialist working with Google Ads, it may be daunting to have to think of so many parameters before doing any advertisement during seasonality offer. Some years ago the sphere of e-commerce did not have as high competition as it does today hence mistakes or missed opportunities were forgiven. In today's extremely competitive unfortunately that is no longer the case. Therefore make sure that the agency you are working with, has a proactive approach to preparing you and your e-commerce for seasonal offers. A good agency will approach this matter strategically asking for your input after it has provided you with an overview on data from your account. If you are not receiving this type of support switch today!
Written by: Ana Stanojevic
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