In the same way that Al Ries and Jack Trout wrote 22 Immutable Laws Of Marketing and provide a foundational lens which to view your marketing through, Bessemer partners released a largely unnoticed set of laws of e-commerce.
For those people who still read INC Entrepreneur magazine their online equivalent you may be used to click baity headlines and hot tips which will help you make better decisions in growing your online store. Unfortunately, what happens is you end up making all the same, relatively simple, decisions which everyone else is.
What you need are guiding principles. Or lenses which allow you to develop a mental framework for making far better decisions to grow your business.
Guiding principles are rarely ever discovered but often learned. They are best found by learning from the wisdom of others. In this Bessemer Venture Partners are well equipped in their experience to come up with guiding principles. They have funded retailers from Staples to Blue Nile and Diapers.com – they know what it takes to succeed in retail!
The 10 laws which Bessemer laid out in 2010 have served me well since then and are foundational to you understanding what it takes to succeed in the world online retail.
I have summarised my understanding, and added elements of my own experience to show give you The 10 Laws Of Online Retail below. You will find the list of laws in the infographic with further detail on each one below it.
(If you would like to read more on the original content back from 2010, I would suggest reading the more approachable summary on this blog.)
1. Build A Brand
- Build a brand penny by penny through direct response advertising that can be quantified and measured.
- CLTV is your growth and profit engine machine. See Law #2.
- All marketing should be measurable and profitable. There is no excuse for it not to be.
2. Customer Lifetime Value (CLTV) Is Your New Pulse
- NPV (Net Present Value) of profit from customer purchases.
all sales from repeat visits less any associated costs to service the resulting orders (including variable costs like COGS, credit cards processing fees, shipping and warehouse processing)
- CLTV needs to be > CAC (Customer acquisition cost)
- Spend until CAC approaches CLTC of your next incremental customer
- If you are not fully confident you have a handle on this, instead spend right up to the average, fully-loaded gross profit of a customer’s first order.
- Scale will allow more data so better cross sells, better margins from vendors and a broader selection of slow moving high margin goods
- This kicks off a virtuous cycle: CLTV goes up; you can afford to spend more money on marketing; you start to grow faster; you get more scale — and on and on and on.
3. The 6 “Cs” are your vital signs: Ignore them at your peril!
- Company Net Promoter Score or NPS: is a customer loyalty metric.
- This score is determined by posing a simple question to consumers; it’s a query designed to screen for customer loyalty.
- Consumers are asked, “On a scale of 0 to 10, how likely is it that you would recommend our company to a friend or colleague?” Consumers offering a rating of 9 or 10 are anointed “promoters”, implying they are likely to promote the company to others. Those who give a rating of 7-8 are “passives”— they probably won’t discuss the company with anyone. Those at the lower end of the scale, with ratings of 0-6, are dubbed “detractors,”
- You should calculate the overall net promoter score for your company
- Should ask this to every customer after receiving shipment
- Use netpromoter.com to compare to other brands like Google etc
- Customer Lifetime Value Contribution (CLTC) see Law #2.
- Customer acquisition cost (CAC). Fully loaded average cost to acquire a customer
- Conversion rate. % of new visitors who convert buyers. Streamlined landing pages and fast page load times are king here.
- Churn. % of customers who never come back. Also track returning customers over an appropriate period.
- Cash-conversion cycle and return on capital. Cash is king. You want to get paid by customers before paying suppliers.
- Positive cash cycle generally indicates a high valuation multiple.
4. Cheap, Fast and Free
- Your goal is to be cheap and deliver fast and free. For an online retailer there is nothing more important than PRICE and
- AVAILABILITY. It is a core advantage.
- Cheap – You don’t need to be the cheapest on all products all the time. But you should be rock bottom on those items your customers will use to judge you.
- Fast – biggest disadvantage to shopping online is delayed gratification. Quick delivery is the key to delighting customers.
- Free – consumers expect free shipping. It is absolutely standard. Build it into your prices.
5. It’s the service, stupid
- Customers need an extraordinary experience
- If you can answer 90% of customer calls in 120 seconds you are doing well
monitor customer service metrics
6. Last Click Is For Losers
- Last click is merely the referral source which closes the deal. You need to move beyond Last-Click.
- Google is a navigational engine as much as it is a search engine. So attributing all sales from Google to Search is inaccurate.
- Measuring last click discount the classic “marketing funnel”. The introducer, the influencer and the closer.
- Retargeting has become a must-have tool in any online marketer’s toolkit. If you don’t retarget your visitors, your competitors will.
7. Affiliates Are Risky
- Affiliates are third parties that charge a commission when a user clicks through a link on one of their sites to a merchant and subsequently completes a transaction (usually a purchase).
- On the face of it, affiliates look like a no-brainer—the more of them you can get, the better. But don’t be fooled. They can very easily pick your pockets!
- Watch out for spyware and other scams. Some affiliates will use pop-ups or hidden IFRAMEs in order to trick a user’s browser into downloading an affiliation cookie.
- Don’t let them bid against you. They might bid on your brand name search terms, driving up your acquisition cost.
- Everyone claims credit (multiple affiliates)
- The advice here: If you are using affiliates, ensure you have a system capable of monitoring them yourself.
8. WWAD (What Would Amazon Do)?
- Amazon are the leaders
- Not sure about the best way to: Structure you checkout? Follow up with customers? Present an item page? Present photos?
- Should you show advertising of competitors to your customers?
- In all of these instances, ask yourself: What Would Amazon Do?
- They have a metrics oriented culture and truly make decisions based on data (many claim they do, Amazon walk the talk!)
- Amazon have an obsession with page-load times!
- As further example of the Amazon culture: ach workgroup in Amazon must build a “fitness function”, a customized
equation that incorporates the most important metrics for a particular group. When
computed, the fitness function creates a single “fitness number.” This is the number
each group presents to Amazon CEO Jeff Bezos. And if this all-important number isn’t
going “up and to the right” consistently, the group is in trouble.
- Keep it simple. Amazon teams are never more than “no bigger than you can feed with two pizzas”.
9. Motivate The Evangelicals
- Identify your best customers, encourage customer loyalty, and motivate the evangelicals
- If you don’t know who your best customers are: find them!
- Correctly incentivised referral programscan be huge for your business.
10. Know Social
- Leverage social media but understand that it is a platform you are renting and not one which you own.
- Social media ultimately does allow potential competitors access to data about your business. Something to be aware of.
- It’s possible to build a big audience on social media, but understand that it takes a strategy which is aligns with both your business and the platform.
- Social media takes internal resource.