Is Your Data Leading You In The Wrong Direction?

Using the wrong metrics is dangerous for any business. It’s all too easy to fall into the trap of relying solely on one or two familiar metrics at the expense of seeing the bigger picture. Learn how to avoid unreliable metrics and ensure your business is data-driven - in the right direction. 

ROAS: The Short-term Gain, Long-term Pain Paradox

If you are looking at the wrong metrics, you might be reporting success only to be headed in the completely wrong direction. Some business activities may appear to boost your revenue and ROAS in the short-term, yet they can undermine your business in the long-run. Take remarketing, for example. While effective remarketing is great for driving sales, it’s important to keep in mind that your existing customer base isn’t a bottomless resource - relying too heavily on remarketing efforts to sustain your revenue will drain the sales potential of your customers eventually, leading to a decline in revenue over time. 

Don’t overlook the significance of new customer acquisition - although more challenging than remarketing, putting the legwork into extending your customer base will pay dividends in the long-run. Not only will you be creating more revenue opportunities, your marketing - and remarketing - efforts will become far more sustainable, as you won’t be over-working a finite pool of customers. A secondary benefit of a  larger customer base is that you’ll have more customer data to work with, allowing you to make more informed decisions and adjust your ongoing marketing activities accordingly. 

New customer acquisition is normally going to help in the short term with driving a lower ROAS. This is where more advanced metrics are needed in order to steer your decision making. 30, 60, 90 day LTV for example as well as predicted LTV is a vital addition to this picture.

Time To Value & Cash Flow: Balancing Growth Aspirations with Business Data

It's important to consider the bigger picture and make sure that your data strategy aligns with your overarching business objectives and your business's unique circumstances. For instance, if you're aggressively pursuing growth via new customer acquisition without understanding your customer time-to-value (TTV), you could soon run into cash flow issues. Knowing your TTV is important to carefully expanding your customer base in a sustainable manner. 

Flash Acquisition: Ignore Customer LTV at your peril

It's tempting to regularly launch big, bright new customer acquisition campaigns. However, if you're not considering the overall Customer Lifetime Value (CLTV), you might be missing out on the bigger picture. The initial purchase value represents just a fraction of the total potential revenue from a customer.

If you’re focusing heavily on flash sales for example, they can drive a massive influx of new customers with high decent initial purchase values. Yet, if these customers don't return after that first purchase, their CLTV remains low. Compare this to a customer who makes smaller initial purchases but returns consistently over several years. This customer might seem less valuable at first glance, but their accumulated value over time – their CLTV – makes them far more valuable in the long run.

Decoding Cart Abandonment: Seeking Causes, Not Just Symptoms

At first glance, a high cart abandonment rate can be alarming for e-commerce businesses. It's a direct indication of potential sales slipping through the cracks. However, while reducing cart abandonment should be a priority, it's equally crucial to understand why customers are abandoning their carts.

For instance, if you focus solely on the cart abandonment metric, you might rush to implement strategies like retargeting ads, flash discounts for returning customers, or reminder emails. While these can be effective, they might be merely addressing symptoms rather than root causes.

Consider the following scenarios:

High Shipping Costs

Perhaps customers are happy with your product prices but are turned off once they see the additional shipping charges. If this is the primary reason for abandonment, no amount of retargeting will fix the core issue.

Complex Checkout Process

If your site's checkout process is too lengthy or cumbersome, customers might abandon their carts out of frustration. Instead of just enticing them back with discounts, the solution could be streamlining the checkout experience.

Lack of Payment Options

Customers expect multiple payment options, from credit cards all the way to digital wallets. If you don't offer their preferred method, they might abandon the purchase entirely in favor of a competitor.

By diving deeper and understanding the reasons behind your cart abandonment rate, you can address the underlying issues and develop a more holistic approach to improving your e-commerce experience. Don't just chase the symptom with short-term solutions; seek out the cause and pave the way for long-term growth and customer satisfaction.

Average Order Value (AOV): Context is Key

An increasing Average Order Value (AOV) is normally hailed as a sign of success. On the surface, it suggests that customers are spending more, presumably due to increased trust, loyalty, or a higher perceived value of products. However, while a high AOV can indeed be a positive indicator, relying on it without examining the underlying causes can be perilous.

Understanding AOV in Context

AOV represents the average amount of money each customer spends per transaction. When businesses notice an uptick in AOV, the immediate response might be to amplify whatever they've been doing lately. Yet, it's essential to dig deeper.

Price Hikes Without Value Addition

If the rising AOV is primarily due to increasing product prices without enhancing product quality or offering additional value, the business risks alienating its customer base. Over time, customers will recognize the disparity between cost and value, leading to potential trust erosion. Or they may find cheaper options with a competitor when they become sufficiently motivated. .

Over-Reliance on Upselling and Cross-Selling

While these are valid strategies to increase the AOV, overdoing them can overwhelm or even annoy customers. The initial boost in AOV might be overshadowed by a subsequent decline in transaction frequency if customers feel they're always being pitched additional products.

Discounting High-Value Items

Offering discounts on premium products can temporarily increase AOV as customers jump on the deal. However, frequent discounts can devalue the brand in the long run and condition customers to wait for sales.

Ignoring Customer Segments

AOV might be increasing because a specific, affluent customer segment is buying more. While this isn't inherently negative, if the business shifts its focus solely to cater to this segment, it might inadvertently neglect or alienate its broader customer base.

A Holistic Approach

Instead of solely focusing on boosting the AOV, businesses should aim to understand the motivations behind customer purchases. Regularly surveying customers, analyzing purchasing trends, and keeping an ear to the ground for feedback can provide invaluable insights.

While AOV is an essential metric, it shouldn't be viewed in isolation. As with all data, context is key. By understanding the factors influencing AOV and balancing short-term gains with long-term brand health and customer satisfaction, businesses can genuinely harness the metric's potential.

Developing A Hierarchy Of Metrics 

To avoid data leading you in the wrong direction, you need to establish a hierarchy of metrics which will act as the foundation for all your data-driven decisions. Consistently using the right metrics for your business at the right time will help you understand, and ultimately, optimize performance throughout your sales funnel, putting you ahead of your competition who may well be using a familiar set of two-dimensional, descriptive analytics to make business decisions. 

It is important however, regardless of how rich your data is, to always keep context in mind and your specific business nuances. Look for the why’s, the bigger picture and the long term strategy and impact of changes.  

Next Steps

So how do you know which metrics you should be using? In the full guide we cover how to structure your measurement hierarchy and select the right metrics in order to define a clear path from raw data to actionable insights. We explore how to create a structure that aligns with the workflows and goals of the teams who will be acting on the data, to ensure that the data is accessible, understandable and relevant for everyone in your business. 

Get the full guide: “Actionable Ecommerce Measurement: The Incendium Blueprint For Rapid, Profitable Growth”.