This sponsored post is produced by RJMetrics.
Over the last four years, the rapid rate of ecommerce growth has caused the physical-to-digital retail shift to happen even faster than many experts anticipated, and it shows no sign of slowing down. The most recent forecasts from eMarketer project the following compound annual growth rates through 2018:
- Ecommerce only, U.S.: 11%
- Total retail, U.S.: 3.3%
- Ecommerce only, worldwide: 15%
- Total retail, worldwide: 5%
This data is promising for both the present and the future of ecommerce, but it also hides an interesting reality.
Behind the industry-wide growth rates, some ecommerce companies have achieved breakout ecommerce success. For example, in 2013, jewelry retailer Alex and Ani, and flash sale sites, NoMoreRack and TheRealReal, all grew at rates over 200%. These examples of runaway success align exactly with trends we saw in our 2015 Ecommerce Growth Benchmark Report.
We found that top-performing ecommerce companies outperform their peers on all key metrics — which is clearly evident during their first three years in business. By the end of year three, the top companies have generated over $60 million in total revenue compared to the others that generated, on average, just over $6 million in revenue. In their first three years, top-performing companies grow almost 10 times faster than their peers.
Five Indicators of top-quartile performance
By stepping back from industry-wide averages, and analyzing what separates the best ecommerce companies from the rest, we found top companies outperform on five KPIs.
1. Customer acquisition. Top companies acquire new customers over three and a half times faster. They are outperforming the rest right from the start, and they maintain this advantage throughout their first three years in business.
2. Number of orders. By month six, top performing companies are generating over three and half times the number of monthly orders. At the end of year three, they have reached well over 500,000 all-time orders, while quartiles 2-4 have yet to pass 150,000.
3. Average order value. Top performers have 36% higher Average Order Value (AOV), $102 vs. $75 AOV or less for other companies.
4. % of revenue from repeats. Top performers have a more loyal customer base. Their ability to keep their customers coming back means they are able to create a “renewable resource” by the end of year three, when a majority of their revenue is coming from repeat purchases.
5. Revenue. All of these indicators culminate in the impact on the top companies’ bottom lines: breakout performers reach over $600k in monthly revenue by month six.
What’s driving exceptional performance
Blake Lyon, Senior Associate at Lerer Hippeau Ventures, credits the exceptional growth of top-performing companies to two factors: “First,” he says, “is a product and brand experience that customers love and keep coming back for.”
Some strategies he’s seen top-performing companies adopt relating to product and brand experience include:
- Solving inconvenient shopping experiences with a personal touch. Casper started with a great product, mattresses, and then transformed the buying experience by offering a set price range, convenient same-day delivery with a personal touch (all mattresses arrive in an easy-to-transport box with handwritten thank-you notes and a book for bedtime reading). Consumers can even sign up for regular bedtime reading updates. They also offer a 100-day in-home trial letting customers try out their mattress with the option to return it, no questions asked. This product and service blend removed all of the usual friction in the mattress buying experience.
- Building passionate communities. Companies like Bark & Co., that focuses on the shared interests of dog lovers, excel by engaging with the interests that are important to their potential and current customers. The BarkPost is filled with “Buzzfeed” style headlines, a place for dog lovers to upload pictures of their pets, and an Instagram feed filled with dogs doing adorable things.
- Blending content into the shopping experience. Jackthreads and Thrillist take content marketing to a whole new level. Jackthreads, the ecommerce arm of Thrillist Media Group, sells a “curated collection of guy gear & gadgets.” But it’s Thrillist that brings the brand to life through a vibrant editorial experience aimed at “helping guys live fun lives” in any city that they call home.
- Offering a “try before you buy” layer into the shopping experience. One of the major barriers to shopping online is always, “How will it fit/look/feel in real life?” Warby Parker turned this barrier into a brand experience by allowing eyeglass customers to build their own home try on kit. Customers can select five frames to try on at home, order their favorite, then ship the sample frames back within five days (pre-paid). By making returns an expected part of the process, Warby Parker created a stress-free customer experience.
The second factor Lyon sees driving top performance is “a keen focus on their KPIs, particularly around customer acquisition.” Metrics like Customer Lifetime Value, Customer Acquisition Cost, and Marketing ROI are the deciding factor on what campaigns are invested in or ended. In the thin margin world of ecommerce, having accurate data on these metrics allows top performing companies to out-spend their competition on acquisition efforts while still turning a profit on marketing spend.
2015 Benchmark Series: All of the analysis in this post (and more) is covered in the 2015 Ecommerce Growth Benchmark. This report is the first in the RJMetrics Benchmark Report Series. In upcoming reports, we will be digging deeper into understanding the customer acquisition strategies of top-performing companies. Sign up to access the Growth Benchmark and you’ll automatically be notified when new research is released.
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