There are many important ecommerce metrics to track when running a business or managing a store. In addition to visits, conversion rate (CVR) and average order value (AOV), here are a few more less commonly discussed metrics that should be incorporated into your ecommerce analytics.
- Repurchase rate
- Cost per acquisition
- Inventory turns
What is Repurchase Rate?
Repurchase rate is the percentage of first-time customers that come back to your store and purchase at least one more time. This is a universal customer metric that can be applied across product companies, service companies, D2C, retail, B2B and so on. The length of time for a second, third or fourth purchase to occur will depend highly on the industry that you operate in.
For example, a large purchase like a vehicle will have a very long repurchase cycle, potentially 10 years between the first and second purchase. However, there is value in finding ways to get smaller or subsequent purchases, for example, does the owner have children or a spouse who will be in need of a vehicle sooner? Or perhaps there are complementary products you can offer like vehicle service or accessories to retain customers and provide them with additional experiences with your brand?
Smaller value or consumable items, such as apparel or personal health and beauty products, might have a repurchase rate <1 year and have more levers available to the business to shorten the time between purchases.
Why is Repurchase Rate important?
Repurchase rate is important because it is always less costly to get one incremental purchase from an existing customer than it is to acquire a brand new customer. Regardless of the industry, product or segment, competition will eventually enter if it is not already present. Increased competition drives up acquisition costs. A business built solely on acquiring new customers will not be sustainable long term as costs rise.
Another related metric to look at is how quickly existing customers are lapsing, or becoming dormant. Many companies have definitions of lapsed starting at 13 months with no purchase, but this can vary by industry. If your customers are lapsing faster than you can afford to acquire new customers, this can have a compounding negative affect and eventually make your business completely unsustainable.
What is a good percent of repeat customers?
A good percent of repeat customers will depend on your business, but 30%-50%+ tends to be a good goal for smaller value items and consumables. The higher the number, the better for your business. You will always want a balance of new and repeat customers to balance out those who lapse and continue building a pipeline of future purchases.
However, if you have a new business, then your repeat rate will be low. In early growth stages, the goal is to acquire new customers and build a base of customers for your business. After ~1 year, repurchase rates should be something you begin paying more attention to as one of your key ecommerce KPIs.
Two ways to measure repeat rate
Repurchase rate is measured as a percentage. The percentage needs to be based on a timeframe that has a distinct start and end point. A customer who bought for the first time this month is unlikely to buy again this month, including them in a repurchase calculation would severely dilute the results. Typically repurchase cohorts (groups of customers) are based on either the month or quarter that they were acquired. This group is then measured together going forward over the same time period. For many businesses, an analyst has created a model that will do this math, combine all the relevant cohorts and produce one percentage that represents your repurchase rate.
Another way to work with this data is to visualize the concept and add more context through a layer cake graph like this.
The layer cake shows the revenue driven by each cohort over time. With a new cohort of customers, they drive the most revenue in the time they are acquired, as customers from that group come back and purchase, you can see how they are adding to the overall revenue each quarter in ‘layers’ for each cohort.
These metrics and visualizations come standard with Daasity’s base D2C Suite package.
What is Cost per Acquisition
Cost per acquisition (CPA) is the marketing spend a company invests to acquire one new customer. Acquiring new customers tends to be an expensive proposition in many marketing channels, however, you may be able to spend more than you think. When factoring in other aspects of your business including gross margin, customer lifetime value and purchase frequency, it may make sense for a business to spend significantly more to acquire new customers than what it costs to incite an existing customer to buy again.
Why Cost per Acquisition is important
Cost per acquisition is important because building a pipeline of new customers is essential to a thriving business, but the costs can be expensive and sabotage the brand’s budget. Acquiring customers at any cost is not advisable, even for a new company in growth mode. There are many ways to reach potential customers that all have varying costs. Knowing your company’s cost per acquisition target is crucial to efficiently allocating spend between various marketing channels.
What is Inventory turn rate?
Inventory turns is a metric used by supply chain personnel to determine the amount of product sold in a one month period. This can be looked at for your entire assortment, by category or at the SKU level.
Why is Inventory turn rate important?
Understanding your inventory turn rate is important to ensure that you are purchasing enough inventory to meet sales demands, but not more than you need. On the one hand, purchasing inventory is costly, and buying too much inventory can create cash shortages. In particular small and high growth businesses can quickly find themselves strapped for cash if they purchase more inventory than is necessary.
At the same time, not purchasing enough inventory means your business is missing out on sales. Every customer that comes to your site looking for a product that is out of stock is lost revenue that you may not recover. The cost of losing those sales may outweigh the cost of carrying the product. The goal for all businesses should be to always be in stock, especially on best sellers. This might mean having different suppliers and PO schedules for certain products or categories.
Further complicating your inventory decisions are seasonal effects on demand. Most inventory software management solutions don’t know your business and what makes your product sales spike–this is where the team must make manual adjustments to prepare for big sale periods. Holiday season is a large sale period for many businesses, but throughout the year there are others that will be unique and you will need the inventory on-hand to support the revenue goals of the business.
Having a perfect inventory system may not be achievable, but optimizing your supply chain, supplier relationships and inventory forecasting models can both save you money up front and make sure you aren’t losing revenue to out of stocks.
There are many metrics that are important to track no matter what business you are running. Conversion rate is a hugely popular metric for ecommerce and can be a good indicator of brand and site health. But other lesser used metrics are also critically important and can be instrumental in your business’ success. At Daasity we spend a lot of time educating clients on their repurchase rates, cost per acquisition and inventory turns in order to help them better manage their business. Understanding these metrics and using them to drive decision making can efficiently drive both top and bottom line results. Daasity’s D2C Suite contains the most important ecommerce metrics in pre-built dashboards so clients can spend more time making decisions and less time building dashboards. Contact us for more info.