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The 2 Fundamental Things Ecommerce CEOs Should Know About Retaining Customers Are you making money right now? Do your customers love you? Here's how to find out.

By Matthew Goulart Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Today, building an ecommerce site from scratch is easier than pie. A free and versatile platform such as Spaces or a complete out-of-box solution like LemonStand can turn your entrepreneurial dreams into digital reality in minutes. However, simply setting up an ecommerce site is not enough. Without knowing the numbers behind your business, you will find your entrepreneurial venture short-lived.

Related: 7 Ways Quality Boosts Business That Quantity Can't Match

I regularly sit in at client sales meetings when we're launching their ecommerce website or handling their SEO strategies. Because we're brought in to help increase our clients' sales, we need to be aligned with their goals.

From these regular sales meetings, I've noticed that every boss has two burning questions. More importantly, I know what metrics will answer those two questions if you have them too.

The first question: Are we making money right now? Is it more than last year?

The second question: Do our customers love us?

The first question is the most common one of all. Every CEO wants to know whether his or her company is "making money." That's what they were set up for in the first place, right? So, here's my advice.

In e-commerce parlance, making money means you need to:

  1. Attract targeted buyers.
  2. Upsell and increase profits.
  3. Keep costs under control to remain profitable.

To attract targeted buyers, website traffic will be your most basic indicator of who's coming to your site. Any analytics program can offer you this most rudimentary metric. However, you should remember that not all traffic will convert. Research conducted by Monetate brings to light the fact that 2.84 percent is the average conversion rate for ecommerce websites. Tip: SEO typically generates the best quality traffic. Check your acquisition funnel to confirm the quality.

Related: Score More Customers With Your Website With These 4 Tips

To upsell and increase profits, you need to make a distinction: What if your users simply come onto your site and buy only cheap, low-margin stuff -- then move on? You've attracted traffic, sure; you've "converted" these visitors, even. But your profits are low. The notion of upselling the right items to your visitors is deeply ingrained in ecommerce psyche. So, you need to incorporate some upselling tactics such as:

  • Add accessories onto your product page sidebar and at the bottom of the page.
  • Add accessories onto the cart page.
  • Add accessories onto the checkout page.

Your objective is really simple: Provide accessories relevant to each product. If any accessory isn't related to your product, a user won't add it to his or her cart. But if you sell related items, that user might be interested in purchasing it. You are trying to achieve a higher average order value (AOV) for your site. The higher the AOV, the higher your GMV, or gross merchandise value.

To keep costs under control, to remain profitable, entails smart marketing. By keeping close tabs on how much each marketing channel costs you, and cross referencing that against the number of new customers that these channels bring you, you can arrive at your cost per acquisition (CPA). Tip: The lower your CPA costs are, the more efficient your marketing machinery is and the more likely you are to beat competition.

For the second question, "Do our customers love us?", every smart CEO knows that sales are transient. What really matters is how deep the connection runs between your brand and its users. A brand with a large and loyal customer base can depend on a steady flow of revenue, lower competition and higher profitability than an unestablished brand. So your goals are:

  1. Keep customers coming back.
  2. Encourage customers to be generous with their time and money
  3. Employ customer nurturing.

To keep customers coming back, you need to attend to your retention rate, which measures the stickiness of your brand. A ratio of those customers who remain with your brand over a pre-determined period of time, versus the original number of customers at the beginning of this time period, gives you your retention rate.

Let's assume you began May 2015 with 1000 customers. You acquired 50 new customers in May. However, 20 customers stopped buying from you in the same month. This means that your retention rate for May was:

[{(1000+50)-20}-50]/1000 x 100 = 98 percent

Retention Rate Formula

Retention Rate = [{(X + Y) - Z} - Y]/X * 100

X = initial customers

Y = New customers

Z = Customers you've lost

To encourage customers to be generous with their time and money, you need to consider that a customer may stay with your brand forever, as a loyal advocate of the brand. However, getting that person to keep spending generously is critical, too.

To encourage customer nurturing, realize that this task plays a pivotal role. Customer lifetime value tells us how valuable a customer is to the business in the long run: Is the individual worth pursuing? Will the individual give us the ROI we seek? Will the individual spread a kind word and win us more customers?

A simple CLTV calculator can tell you the future profitability of your business and the areas that need your attention immediately. Tip: If you have very loyal advocates of your brand already. maximize your revenue by implementing a social sharing solution to increase sales. A tool like AddShoppers helps your brand increase sales!

So, those are my two bits of wisdom about fundamental metrics that matter in ecommerce. Tell us what metrics you map, and which ones were your lifesavers!

Related: 7 Things You Need to Know About SEO to Remain Relevant in 2015

Matthew Goulart

Founder of Ignite Digital

Matthew Goulart is the founder of Ignite Digital, a Canadian digital marketing agency. Through Ignite Digital, Goulart works with Fortune 500 companies and advertising agencies from around the world and has helped launch profitable and highly successful digital marketing initiatives for his clients. He has been featured in several publications, including The Washington Times.

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