Assessing Your Marketing and Sales Strategies
Just as in brick-and-mortar retail, there is a cost associated with getting people to your e-commerce shop. In the physical world, that cost might be premium rents to capture foot traffic from the sidewalk. Online, that cost might come from Facebook, Instagram or Google ads, the blog posts you write to attract organic traffic, or perhaps influencers you’ve partnered with.
Whatever you’re doing to attract visitors to your online shop, keeping track of customer acquisition costs is essential if you want your e-commerce channel to reach profitability. “In order to make money, your customer acquisition cost needs to be less than your customer lifetime value,” writes Jilt’s Beka Rice. “Ideally, your acquisition cost should be less than your average order value so you make money off every new customer.”
In other words, the ideal scenario is one in which your average customer spends more on their first purchase than you spent attracting them. Failing that, you can still keep your e-commerce operations profitable if your customers spend more money over the course of their relationship with your business than you initially paid to get them through the door.
The KPIs to track:
Average order value
Customer lifetime value
Customer acquisition cost