One question consistently challenges companies of all sizes: Should we be focusing on acquiring new customers or retaining existing ones? It can be easier and more lucrative to upsell and loyalize existing customers—but new shoppers bring in fresh revenue and drive growth. This decision can significantly impact your strategy and resources. Luckily, there’s no need to rely on guesswork. The Layer Cake analysis can uncover valuable insights about your acquisition and retention efforts.

What Is a Layer Cake Analysis?

The Layer Cake is a powerful visual tool that helps you understand your business's revenue performance over time. Here’s how it works:

The area chart plots sales on the Y-axis and time on the X-axis, breaking down your customers by the quarter they were acquired.

Each quarter creates a new layer of revenue for your business. And each layer represents a new cohort of acquired customers. 

The thickness of the layer shows you how much those customers are spending over time. 

It looks like this:

This visual representation allows you to see at a glance:

• How well you're acquiring new customers (the size of new layers)
• How well you're retaining customers (the ongoing thickness of each layer)
• The overall growth of your business (the height of the entire "cake")

By analyzing these layers, you can gain valuable insights into your acquisition and retention efforts, helping you make informed decisions about where to focus your resources.

Tip: If you see thick layers that maintain their size over time, your retention is strong. In that case, you might want to focus more on acquisition to drive growth. If you notice layers that start thick but quickly thin out in subsequent quarters, you likely have a retention issue. It would usually make sense to address that before ramping up acquisition efforts.

Example

Consider two hypothetical brands, A and B, with the same total revenue each quarter:

In Brand A's chart, we see that each colored layer (representing a customer cohort) maintains a relatively consistent thickness over time after its initial peak. This indicates strong retention, as customers from each cohort continue to generate revenue in subsequent quarters. The overall height of the stack grows steadily, suggesting gradual but consistent growth.

Brand B's chart shows a different pattern. Each colored layer starts with a large initial peak, but then rapidly thins out in subsequent quarters. This suggests that Brand B is effective at acquiring new customers (large initial peaks) but struggles to retain them (rapidly thinning layers).

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If you resemble Brand A: Focus on improving your acquisition strategy. Your retention is strong, so your opportunity for growth lies in bringing in more new customers.

If you resemble Brand B: Prioritize improving your retention strategy. While your acquisition is strong, poor retention will impact long-term growth. Focus on encouraging existing customers to make repeat purchases.

The ideal scenario is a balance of both strong acquisition and retention. However, understanding where your strengths and weaknesses lie can help you prioritize your efforts and resources more effectively.

What's Next: Turning Insights into Action

Once you've analyzed your Layer Cake, it's time to put those insights to work. Here's how you can make the most of your analysis:

• Refine Your Retention Strategy

Dive deep into your customer segments and develop targeted campaigns for each group. 

For example, you might find that high-value customers, churning high-value customers, and multi-buyers make up a significant portion of your total gross sales, despite being a small percentage of your customer base. This insight could lead you to create specialized retention campaigns for these valuable segments. 

For single buyers, you might focus on strategies to convert them into multi-buyers or high-value customers. 

This personalized approach can significantly boost your retention rates. 

• Explore Product Affinity 
  Product affinity data can help you uncover opportunities for cross-selling and upselling. When you understand which products are frequently purchased together or which items appeal to specific customer segments, you can create targeted recommendations to drive average order value and customer lifetime value.

• Optimize Your Acquisition Strategy
  Analyze how different marketing acquisition channels impact customer Lifetime Value (LTV). Use these insights to optimize your marketing spend, focusing resources on channels that bring in high-value, long-term customers.

• Implement Forecasting
  Leverage your Layer Cake insights to build accurate retention forecasts. This proactive approach helps you predict future customer demand, ensuring you're always prepared to meet your customers' needs while minimizing excess inventory.

Unlock Growth with a Free Layer Cake Analysis

Ready to unlock your brand's growth potential? Daasity offers a free Layer Cake analysis to help you make data-driven decisions about your acquisition and retention strategies. 

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In just 15 minutes, you'll gain invaluable insights to drive your eCommerce strategy forward. Get your free Layer Cake Analysis today. 

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Prefer to keep reading? Grab your copy of Daasity’s KPI handbook to learn about the most effective key retention and acquisition metrics.