5 concepts to master If you work in E-commerce.
There are countless things you need to know if you want to be successful in e-commerce
But here are my top 5 picks
1. LTV to CAC ratio
- To Understand this we first have to understand CAC and LTV.
a) CAC — Customer Acquisition Cost (CAC) is the average cost of acquiring one new customer. Just add all your Sales and Marketing expenses and then divided them by the customer you have acquired.
b) LTV — Lifetime value (LTV) tells you how much profit your company can expect from a customer over the course of the relationship.
LTV / CAC ratio is a widely used ratio to determine how much customer value a product provides relative to the cost of acquiring that customer.
To become profitable your LTV to CAC ratio should be higher than 3.
Read my article on CAC and LTV if you want to dive deep into this.
2. Return to Origin (RTO rate) -
This is the non-deliverability of a package where a product never reaches the customer or the delivery fails because of multiple reasons. and hence the product is returned back to the seller.
This is a big pain to the A**, especially for Cash on Delivery orders which are often seen in developing Asian countries where cash is still the primary mode of exchange.
The customers often make excuses like “I am not at home come tomorrow” or “I don’t have change right now” etc.
Measure it and find ways to reduce it.
Goqwik wrote an amazing article on Return to Origin (RTO)
3. Retention cohorts -
Cohort Retention generally is a sign of how healthy and successful a business is.
They will help you understand the percentage of users who have been retained on your platform until the defined day/week/month.
To understand this you have to ask one question yourself
“Are we selling painkillers or multivitamins?”.
Retention is higher with painkillers and lower with multivitamins
For example, there are 100s “of hair growth oil” in the market but very few “Dandruff hair oil”.
Position yourself to be a painkiller brand instead of a vitamin brand.
4. Average ticket size
This shows the possible upsell opportunity you have for your brand. Techniques you can use
Techniques you can use -
a)Usage tracker leaflets where you can cross-promote the product.
b)Bundle the product together and transfer the saved shipping cost as a discount that you will be paying for individual products.
c)Coins and cashback in your wallet every time you purchase the product
d)Double down on your hero product first before scaling your product portfolio
For example, Boat an Indian electronic maker was primarily a headphone brand when starting out now they sell everything from speakers to smartwatches
5. Moat and growth channel
Let’s understand business moat first.
A moat is a deep, broad ditch, either dry or filled with water, that is dug and surrounds a castle, building, or town.
Business moat — A business moat is a critical competitive advantage that sets a company apart from its competitors.
Social media apps like meta use the network effect as a moat while Chinese companies use the Economy of Scale as a moat.
Read more about it here Why do startups chase growth to build business moats?
Coming back to Moat and growth channel.
We all know that Paid ads are easy but expensive. So we have to find ways around building these business moats.
Hence every successful e-commerce company has figured out a way to either build a moat around their brand or have multiple growth channels which are tough to crack in the short run like offline distribution channels, huge engagement on Instagram reels, organic traffic on blogs, or tonne of reviews on amazon.
That may sound easy but hard to duplicate in the long run.
Ex — Manmatters on IG and LLB blog
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Read more about startup and business strategy here
2. Why do startups chase growth to build business moats? 📈
3. CAC & LTV are confusing! So I have simplified them to get you up to speed (fast) 🚄
