Metrics That Matter // Add To Cart eCommerce podcast #001

Metrics That Matter // Add To Cart eCommerce podcast #001

In this episode of Add To Cart podcast, we are joined by Josh Newport from Shopify Plus to discuss the best growth metrics for your eCommerce growth. 

Common questions answered in the podcast include: 

  • What is considered a healthy growth rate for an eCommerce business? 
  • How do you balance profitability along with revenue growth? 
  • What is customer lifetime value and how do you measure it? 
  • How do you decide which metrics are right for your business and how do you report on them? 

A full transcription can be found at the bottom of this post.

PREVIEW

Links from the episode 

This podcast episode was brought to you by…  

Our friends at Shopify Plus power some of the world’s fastest-growing brands including JB HiFi, Koala and Kylie Cosmetics. The average growth rate for Shopify Plus customers is 126%. Massive! Shopify Plus has just released a really great Holiday Pre-Season Playbook which is well worth checking out. Visit shopifyplus.holiday/au to download the guide. Massive thanks to Shopify Plus for being the inaugural partner of Add to Cart.

About your host: Nathan Bush from 12HIGH

Nathan Bush is the founder and lead strategist at eCommerce consultancy, 12HIGH. He has led eCommerce for businesses with revenue $100m+ and has been recognised as one of Australia’s Top 50 People in eCommerce four years in a row. You can contact Nathan on LinkedIn, Twitter or via email.

About your co-host: Josh Newport from Shopify Plus

Josh Newport leads Merchant Engagement for Shopify Plus in the Asia Pacific region, working with some of the largest brands on the platform. Josh has previously led digital strategy in agencies and advised clients across marketing, search and social. You can contact Josh on LinkedIn

Contact Us

Please contact us if you: 

  • Are wanting to come on board as an Add To Cart podcast sponsor 
  • Are interested in joining Add To Cart as a co-host 
  • Have any feedback or suggestions on how to make Add To Cart better

We look forward to hearing from you!

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Add To Cart Episode #001 Transcript: Metrics That Matter

Welcome to Add To Cart. The podcast that express delivers all you need to know in the fast moving world of e-commerce. Every month, Nathan Bush, from 12 High and an e-commerce industry expert would share the news, research and insights that you need to know to keep you at the top of your game. And, of course, keep your customers adding to cart.

Nathan: Hello, everyone, and welcome to the very first episode of Add To Cart. My name is Nathan Bush, founder of e-commerce consultancy 12 High. And I’m really excited to bring in this podcast series where we’re going to dive deeper into the most commonly asked e-commerce questions and explore opportunities that you may be able to implement in your business.

To kick off, we’ve got Josh Newport, who heads up merchant engagement for Shopify Plus in the APAC Region, joining me as a co-host to discuss growth. On that note, we’re really excited to have Shopify Plus on as our inaugural sponsor and we really appreciate their support. So, without any further ado, let’s get into it.

This week, we’re talking about growth. What does a good growth rate look like? What metric should we be using to measure growth? And what are some of the common traps that we fall into around getting hung up on growth?

I have Josh Newport here with me today, who as my co-host, who is the Merchant Engagement Manager for Shopify Plus in the APAC region. Welcome, Josh.

Josh: Hey, Bushy, how are you, mate?

Nathan: Good, mate. I think my voice just broke.

Josh: Oh, wonderful. So, clearly you’re ready. You’ve done your vocal exercises this morning.

Nathan: I’ve done my vocal exercises.

Josh: Yeah.

Nathan: All right, let’s get into it. What we are here today to discuss is growth rates. And I think this is a topic very close to most retailers’ hearts. And most conferences that you go to or meet-ups that you will go to, one of the first questions; if it is not, “What your conversion rate?” it’s, “What your growth rate?” And there’s no magic answer, right?

Josh: No, there is no magic answer. I wish it was as easy as achieve 80 percent growth rate and you are on the way to success.

Nathan: I think we just lost 80 percent of our listeners right then.

Josh: Yeah, probably. Yeah.

Nathan: Okay, great. So, let’s get into it. So, I want to start just by sharing… We’ve just had results season for our larger retailers who are listed on the stock exchange and we’ve seen some really interesting results.

So, if we look at people like JB Hi-Fi, they’re up 23 percent online and we’re starting to see a lot of these retailers really highlighting their online sales growth, whereas two or three years ago, it was kind of hush hush and no one wanted to give anything away.

Josh: Yeah, yeah. Oh, totally.

Nathan: Yeah. So, they’re making a point of it, which in my mind is either one; they’re really proud of it and they’re doing great things and it’s a great way to get shareholder confidence or they’re hiding some other results.

Josh: Yeah, I think it’s a little bit of… like it’s weird to say; online is hot right now. It’s not been here for so long. But I think from a traditional retailer perspective, that maybe hasn’t been as fast on the uptake around online. Maybe things take a little bit longer and sort of a much larger base that is a traditional retailer. And so, hey, if online is going good, investors should be happy and we should be talking about this because everyone’s frothing on online and then growth rates and then all those kinds of things.

Nathan: For sure.

Josh: Yeah.

Nathan: And it could be that it’s not so much the retailers catching up; it could be that the investors are catching up to the value of online as well.

Josh: Certainly.

Nathan: We won’t throw stones yet.

Josh: No.

Nathan: But some of the big results that we have seen is JB Hi-Fi announced 23 percent up online. Super Retail Group, which owns brands such as Super Cheap Auto, BSF and Rebel Sport, were up 25 percent online across the group.

Josh: How does that compare to your growth rate, Bushy, when you’re in charge there, mate? Things picked up or they…?

Nathan: I’m not at liberty to say anything around that, Josh, you know. Paperwork was signed.

Josh: Yeah, absolutely. {indistinct 4:03}. It’s all right. I’ll find out one way or another.

Nathan: And WES Pharma is up about 33 percent. So, we’ve seen probably around the 20 to 40 percent average for the retailers that are coming out there and beating their chests a little bit about their online growth.

How does that, from a Shopify Plus perspective, where a lot of your clients are traditionally online natives and you’re getting more omni-channel and more traditional coming over? But how does a growth rate of 20 to 40 percent compare with what you’re seeing in the market?

Josh: Yeah, I mean, that’s exactly right. Most of our customers are digital native brands, right? They’ve grown up online and now they’re starting to dabble in retail. So, they’re looking at pop ups. They’re looking at starting a retail location, but not in the traditional sense of retail; that’s an entirely different conversation.

So, to give you a sense; an average e-commerce growth rate for brands doing a million dollars or more on Plus is 126 percent.

Nathan: Wow.

Josh: And so, I look at that and I go, “What are these other retailers doing to be so happy about 20 to 40 percent?” But I think there’s other things to consider there. Like these retailers we’ve mentioned JB Hi-Fi, WES Pharma, which is K-Mart and Bunnings and a bunch of others, as well as Super Retail Group, they’ve all got a very significant retail footprint, they’ve got really, really strong brands and market, they have been around for a long, long time, and People know them. And therefore, to get that kind of growth rate would be something serious is going on there if they’re kind of getting that level of growth rate; 120 percent plus.

Nathan: And I think it’s important to point out here that we’re just talking about revenue growth. We’re not talking profit. We might touch on profit a little bit later.

Josh: Yeah.

Nathan: But we’re just talking about revenue growth.

Josh: Yep, pure top line revenue. And you know what’s interesting is that, so WES Pharma’s 33 percent growth in online, Bunnings doesn’t even have their e-commerce offering out rolled out yet. What’s going to happen when that rolls out? That’s going to be interesting to sort of see how they…

Nathan: Are they going on Shopify Plus?

Josh: I cannot say anything. But no, they’re not. I cannot say anything. But no. So, yeah, like when they eventually roll that e-com offering out… And that’s kind of to my point earlier around, “How has it taken this long for that to happen?” You know, there are complex business, there’s a lot of, I mean, Jeez, the SKU Count of that business, I don’t even want to know what that is; enormous.

Nathan: All the bulky item count.

Josh: All the… Yeah, exactly. Just that this complexities they’re going to have there to kind of really make that a solid customer experience. And that’s probably why it’s taking this time. They likely wanted to take the time to make sure this is a really solid offering and they’re not just going to show up with something that’s below par and really so never get used. So, I can understand that. But that’s going to be interesting.

What’s even crazier, really quickly; this is something that I only learned about a couple of weeks ago. So, I mentioned average growth rate Shopify Plus; a million dollars or more was 126 percent. This could be a little outdated; I’m just waiting to get some fresh numbers.

But for the top 20 Plus merchants on our platform, their average growth rate is 275 percent.

Nathan: So, now you’re just flexing.

Josh: So, now we’re flexing some crazy muscle. But no, that’s phenomenal, right? This is what we’re kind of calling The New Enterprise. These are these brands that are relatively new. They’ve only been around for five, six sort of max maybe eight or 10 years and they’re just completely obsessed by end-to-end customer experience.

They’ve grown up online. They have all the right teams in place. They understand the value of building a brand. They understand about ruthless performance marketing and creating a genuine community. And these really, really massive online retailers are growing at just a rate that we just haven’t seen before.

Nathan: Do you have any stats around retailers on Shopify Plus that have been around for five plus years? Because it’s pretty easy to get stupid numbers when you’re one or two years in and you coming off a low base?

Josh: Yeah. I mean, it’s not off the top of my head and I can’t really talk to specific retailers growth rates or I’ll be taken out the back and fed up with the end of me.

But, yeah, to your point, if you are a new retailer five years, you’re going to have a higher growth rate. You’re new in the market, you’re exciting, you’re fresh.

And I actually kind of think partly this is kind of one of the reasons why we’re starting to see, again, this sort of like household brands retailer pop up, because they can have the advantage, having multiple brands and they can just let that brand run its lifecycle.

Rather than like trying to squeeze everything out of a single brand and force it, they’re able to kind of create a brand, spin it up, let it run its natural lifecycle and grow. And then sort of leverage their other brands and decide to spin up in-house, under their household brands and sort of utilize or take advantage of that growth rate.

So, yeah, I don’t have specific stats on this business has been here for 10 years and this is their growth rate, but you can kind of expect unless you’re doing something pretty phenomenal, that the competition will be heavier for those brands have been around longer and therefore their growth rates are probably starting to level out.

Nathan: So, it’s really interesting and I think the perspective that you’ve put forward is great. But I don’t totally discount those 20 to 40 percent growth rates because Australia Post released some research earlier in the year (it’s probably two or three months ago) and they found the average growth rate for Australian e-commerce is about 13 percent year-on-year growth.

Josh: Yeah.

Nathan: So, much lower than what we saw in some of those results, but minuscule compared to what you are saying. We’ve got a real divide, haven’t we, in Australia around who’s doing really well in e-commerce and who’s just trying to stay afloat?

Josh: Yes, that’s right. I mean, as we kind of said, if the average is 13 percent, you look at those larger retailers that we mentioned, they’re between 20 to 40 percent online growth. And great, that’s good; they’ve clearly beaten the average.

And, as I said, someone like JB, 5.5 percent of their sales are e-com. The average for Australia, in terms of e-com, I think is 10 percent. I think that 10 percent of all retail in Australia is online. So, you tend to have 94.5 percent of your revenue come through stores and stores that have been around for a long time and have really, really a strong branded market, online is also driving growth in store. So, it’s not purely just about, “I’m making more revenue online.”

You know, the rise of click-and-collect and these kinds of initiatives, I might not be seeing my direct revenue online growing, in terms of dollar wise, but you can sure bet that online is helping the entire growth rate for that company rise by driving customers in-store as well.

Nathan: Yeah, absolutely. And I think you touched on a really good point there is that, the online revenue, year-on-year growth is often held up as the benchmark. If not that, then conversion rate, which I really have a problem with.

But online retail this year, there was a really great session by Fiona Moylan, who’s head of e-commerce for Sure Lake, the skincare brand. And she made a really strong point around saying that she just finds it weird that retail is obsessed with year-on-year performance comparisons. And from her point of view, she goes, “Well, who cares? 12 months was a long time ago.”

Josh: Yeah. It’s a good point. A lot’s changed in 12. Yeah.

Nathan: Exactly. And it’s kind of almost a hangover from retail of yesteryear where performance is measured on same store sales and even square foot comparisons between stores.

Josh: Yeah.

Nathan: Is the year-on-year measure actually worth it anymore? Because if you look at the US, they’re quarterly results. And when they release quarterly results on Amazon or Best Buy or anyone releases quarterly results, they are heavily examined. And any shift, whether it’s total retail or online, any shift there sends share prices in different directions. So, they’re not as concerned with the year-on-year. They’re concerned quarter-to-quarter.

Josh: Totally. Yeah, I’d say that’s absolutely right. I mean, you talk about US retailer, I think on the topic of whether growth rates or top line revenue growth maybe not telling the full story; a good example of this is someone like Walmart.

So, Walmart announced this year, a 37 percent growth in online sales. If you’re looking at that purely, you’re going, “Oh, great. You’ve grown 37 percent. That sounds nice.”

What it doesn’t sort of mention or if you don’t look and compare the year before; they grew 40 percent. So, their growth rate has slowed down year-to-year. But sort of more importantly than that, there’s a lot of reports out there saying they’re projecting losses of a billion dollars in their e-com division.

And for a company that is used to printing money and last year, sort of recorded 7 billion dollars in profit, you’ve got some executives there starting to question, “Hey, is this online thing actually working? Cool, top line revenue is going up, but we’re losing a billion; it’s with a B.” So, that said, that’s a lot of money.

And so, these retailers are, you’re right, put under a lot more scrutiny. But you can’t just look at one single metric, like top line revenue, to kind of really get the sense of, “Is this business growing?”

Nathan: Yeah. Okay. So, what else should we be looking at?

Josh: Yeah. So, I mean, looking at things like operating expense, looking at some of that just look at… let’s look at bottom line, let’s look at how much profit is this business making.

And I don’t know about you, but a lot of these brands I see getting acquired and a lot of hype sort of being built up; a lot of them are losing money, but they’re doing some crazy revenue. There are some crazy acquisitions there; like Harry’s being acquired by Edge Well. So, Harry’s is the razor brand acquired by Edge Well, for 1.37 billion, but they are losing money. And you’re talking about stock prices, Edge Well stock price dropped once there was the announcement of the acquisition.

And so, this is sort of like balance between, “Do I just grow my revenue like crazy; like, do I have to think about profit? Does it come at the expense of profit?

And it seems to me that there’s this sort of feeling in the market that, “Okay, these brands don’t necessarily need to be doing profit immediately to be successful. They can grow very, very quickly and start to think about profit later on their pace. As long as they’ve got a clear plan to profitability that investors and VC’s and the like are buying into an understanding.”

Nathan: Yeah. And I think that’s a really great point, because even recently we’ve seen Deejays come out with their results and they were… profit overall fell. 42 percent profit fell, but e-commerce was still up 46 percent, which {crosstalk 14:40}.

Josh: Hey, thumbs up. We’ve grown 46 percent. How’s profit? Don’t worry about it. Well,…

Nathan: Exactly.

Josh: Yeah.

Nathan: Which headline are you going to take?

Josh: Yeah. And same as Big W. Their online sales are actually going fantastic. They’re up 128 percent year-on-year.

Josh: Wow.

Nathan: But the headlines that we saw were about closing stores, right?

Josh: Yeah, exactly.

Nathan: So, I think your point around if e-commerce is growing all by itself and not adding to the overall profit or the overall profitability of the overall retail business, it doesn’t matter how much online retail sales are up.

Josh: Yeah, that’s right. And ultimately, like these retailers are serving customers and customers are going to be deciding how they engage with you. And so, like separating talking about how good online growth is; yes, it’s a nice dimension, but ultimately, this is a retailer and today, a customer will interact with you in whatever way they want. And so, looking at that total revenue or total profitability is important. It’s not just about, “Oh, online did this and in-store did this.” Cool distinction to make, but it’s more than that.

This episode of Add To Cart is brought to you by Shopify Plus. Our friends over at Shopify Plus power some of the world’s fastest growing brands, including brands like JB Hi-Fi, Koala and a brand you may have heard a bit about, Kylie Cosmetics.

The average growth rate for Shopify Plus customers is 126 per cent, which is absolutely massive. In the lead up to Black Friday and Christmas and Peak Trading, Shopify Plus have just released a really awesome holiday pre-season playbook, which is well worth checking out. Visit shopifyplus.holiday/au. That’s shopifyplus.holiday/au to download the guide for free. You can also find the link in our show notes.

A massive thanks to Shopify Plus for being the inaugural partner of Add To Cart. Now, back to the show.

Nathan: There was two things that stood out to me in the reports that I read this year. The first was with Target in the US; I think they’re doing some phenomenal things. And by the way, I actually really like Walmart and I think we’re on different pages here with Walmart.

Josh: I think we might be.

Nathan: That’s okay. I’m a big fan of how they’re taking it to Amazon. But Target in the US was really interesting because they had 34 percent e-commerce growth. So, not phenomenal; solid, but not great.

But what they actually did is that that e-commerce growth contributed three quarters of their overall growth, but their profitability was up total 16 percent for the whole business.

And they put a lot of that down to a 90 percent reduction in costs for fulfilment. So, they moved a lot of their fulfilment to the in-store model. So, ship from store. They really amped up their click-and-collect capabilities and had a less reliance on three peels and warehousing.

Josh: Smart.

Nathan: Yeah.

Josh: Very, very smart. And I think that that’s kind of like a typical… like I’ve seen it with a few retailers, it seems to be kind of a typical model; looks like early years. We’re growing and not just thinking so much about profitability. Obviously, I think every start-up should understand their unit economics like in and out; that’s incredibly important. You don’t just want to be blind without understanding those metrics.

But there’s many retailers out there that you probably think are doing really, really well; they’re not profitable. And then they’re starting a few years in or even many years in it. This never ends; this creating that efficiency, reducing cost of goods, reducing those 3PL’s; like, “How do I get a better deal?” “How do I make this more efficient as a business to then start to go to work towards that profitability?”

So, that’s fantastic that someone like Target has gone and done that. And that that I think is a very, very common theme amongst retailers is in their later years, when they’ve got a decent brand and they’ve got really good basic customers, now it’s, “How do we deliver this experience in a more cost effective way?”

Nathan: Yeah, absolutely. The other thing that I saw retailers referring to in results was around the percentage of sales that came from club or loyalty members.

Josh: Right.

Nathan: And I think that’s a really interesting metric that’s starting to become public and starting to become valued. So, if Super Retail Group, which obviously have got some history in, those numbers are now public. And for BCF off the top of my head, I think it was over 60 percent of their sales; total sales, now came from loyal to customers.

Josh: Right. And do you think that’s a result of a better loyalty program or there’s a bit more incentive to become a club member and therefore there’s just more members or what do you think the drive behind that?

Nathan: I think there’s a few things going on there. I think that it’s easy to bring people on as club members and the team in-store are really dedicated and they understand the loyalty program and they can explain the benefits to customers. So, the store acquisition of loyalty customers is, number one, the best way to grow a loyalty database.

And secondly, there are tangible benefits to that loyalty club; a lot of it pricing, but if you actually go to the BCF website, you’ll see a lot of content and a lot of experiences that you can only get by being a member.

So, I think they’re doing a phenomenal job there in loyalty. And it’s really showing that if you can get three out of every five customers, you’ve got their details and you can measure how they’re spending over their lifetime and what they’re interested in and then start giving them that value back. That’s a phenomenal business model.

Josh: Oh, totally. And I think I see sometimes, retailers that kind of forget about that loyalty piece or they’re so focused on top of funnel and just simply getting customers into the machine or acquiring these customers that the next part of that is retaining those customers right over their lifetime and getting more revenue out of them over that lifetime, which is super key to a sustainable business if you got a repeatable purchase product.

And so, it’s like I think I’m starting to see that change a little bit with some of the retailers that I’ve worked with in the past where it’s sort of been so much about acquisition. And now, they’re starting to, as they mature, they’re starting to go, “Okay. We don’t just want to have this tap turned on and running into this funnel that is leaking; leaking customs at the bottom.”

Because you’re paying like the cost to acquire customers only six or seven times more than the cost to keep them. And so, you’ve got to make sure you’ve got a really strong retention program in there to incentivize these customers to keep coming back.

You know, that subscription model, if you can run it, is massive. You know, like we talk about metrics for our business. If you have a repeat purchase product or the products you are selling, you expect the customer to want to keep coming back and buying, if you’re not measuring your customer acquisition costs and your lifetime value and more important, the ratio between those two, you are really, really missing out and that’s something that you should be doing.

Nathan: I think so. And you touched on a really good point there. And we’ve kind of covered it, but it was all about that if you’ve got that race for acquisition, it has knock-on effects, right?

So, if you’re acquiring the right customers at a healthy profit margin versus acquiring customers to achieve growth targets at an unhealthy profit margin; which might be single figures. The knock-on effects are that you’ve obviously got higher marketing spend to get them because they’re not your core customers.

You’ve obviously got then flow-on impacts to your customer service team. You’ve got cash flow problem because you’re trying to shift more stock and making sure that that the timing is right. So, your cash is held up in other ways.

So, it has all these other flow-on effects, if you’re a really high volume, low margin business as opposed to positioning itself as a high profit, lower volume. It just kind of can create a loop of pain.

Josh: Yes, 100 percent. And that’s why I kind of mentioned before that lifetime value to customer acquisition ratio. If you can look at that and if you start to go, “Okay, I’ve just spend one hundred bucks to acquire this customer and they are only going to make me a hundred dollars in their lifetime.” I don’t think your business is going to be around too long. That’s going to plateau out; you’re going to have to have different ways to grow unless you can effectively value add that customer over time.

But that’s where you… like I think a baseline for most return, repeat purchase businesses is looking like a three or four to one ratio. You know, if you’re earning three times the amount in profit from acquiring a customer, I think you’re in a pretty good place.

If you’re earning much more than that, it’s probably saying, “Hey, you might be underinvesting here in customer acquisition. Maybe you can probably grow faster or grow more.”

Then if you’re sort of under that, it’s like, “Are you just pouring too much into bad customer acquisition tactics and channels and should you be trying to maybe cut that spend back and then look at where that leak is broken or post acquisition, what’s not working there?”

Nathan: Yeah.

Josh: So, that’s the super important thing to figure out.

Nathan: So, it’s just not like customer lifetime value, because it is a scary topic for many people because there is lots of software and lots of programs out there that promise the world around customer lifetime value, about cracking it and being able to send triggers and alert you when people are about to churn or whatever it is. It actually doesn’t have to be that complicated, does it, to get an idea on how your tracking in terms of lifetime value of customer.

Josh: No, like not at all. And there are so many different ways to try and calculate customer lifetime value, as you kind of said, and each is more complex than the other. And it does depend on your business model, but keep it really simple. Just keep it ever really simple metric. And then the key to that is use that same metric over and over again so you can see the trend.

If you start to change that over time, you’re going to change your data. You’re not going to be to see the trend. If you keep the same calculation for customer lifetime value and you can do this really simply, then that will allow you to see a trend and that’s what’s most important. Not so much, “I need to have the most perfect understanding of my customer lifetime value”, that is something that even the biggest retailers are still chasing and still getting wrong.

So, just have a nice simple metric and then keep that consistent and you should start to see the benefits from that.

Nathan: So, at its most basic level, if you did it on a yearly level, you could have all your revenue divided by the total number of unique customers as a starting point.

Josh: Yeah, totally. Or something like, “What’s my average cost per sale or average order value?” times by, “How many times does this customer purchase from me on average per year?”

Nathan: Yeah.

Josh: And obviously, factoring in your margin there. So, you’re looking at it from a profit perspective. That’s going to give you a very basic understanding. And then just simply looking at your acquisition cost to counter that, so you’ll understand like very basically, on average, “How much am I spending across these acquisition channels?”

You might factor in, if you want to get fancy, like, “How much am I paying for staff or for my marketing staff or agency heads, those kind of things?”

But just keep it simple to start. You don’t want overcomplicate it.

Nathan: It’s just turning into a PNL then, right?

Josh: Yeah, I mean, that’s important. You should, I think, yeah. {indistinct 25:46} with the PNL. PNL focus is very important, but if you’re starting out, if you don’t know where to begin, keep it very simple and keep it consistent. And then you can always start to overhaul that aspect a year or so down the track.

And it’s going to take time to get the good data. Like, it depends on your product. It might take a couple of years to get some really, really solid data in there and understand your customers truly. So, that’s also an important consideration to make.

Like I’m only going to buy a bottle of wine much more readily than I’ll buy a mattress or something like that. So, that’s important to consider as well.

Nathan: Yeah. And I think that’s a really good point. So, brands like Koala, even clients like All Birds.

Josh: Yeah.

Nathan: They have phenomenal brands and their customers are truly passionate about them, but they’re not buying product every month or even every year, potentially if you’re koala, right?

So, how do you measure, if you go, “Actually, customer lifetime value might not be that great for us, but we have brand love and we know that as soon as that person is in the market for something that’s in our realm, that we’re going to be top of that list.” How do you measure that?

Josh: Yeah, that’s absolutely right. You know, someone like Koala, initially when they were just doing mattresses, customer lifetime value isn’t super useful for them. I’m going to buy a mattress. I might come back and buy one for a mate, but really, there’s not a lot of repeat purchase there once you’re a single SKU company.

Now, as someone like Koala starts to expand their product range and we’re seeing that with the sofa now, they’re about to drop a whole bunch more products by the end of this year, which is super exciting. And so, now the customer lifetime value metric starts become more interesting and more valuable because now I might have someone coming to buy a sofa and now I can start to cross-sell or upsell and get them to come back and buy the rest of those products to complete the house.

So, that’s an interesting aspect. All birds you touched on, you’d compare All Birds, I could have a couple of pairs of All Birds. Now, All Birds are selling socks. And I find that very side point very interesting because one of the big selling points of All Birds initially was, “The shoes you don’t need socks for.” And now, what are they doing? They’re selling you socks, “Because we need some more. We’re starting to probably level out in terms of our revenue. So, we need to have that product there.”

Nathan: And how many pairs of you bought?

Josh: Yeah, I bought zero, I got one pair of orbits. There’s actually a store just opened up in Auckland, which I haven’t checked out yet, but I plan to next week. But yeah, the socks was an interesting one for me just so to say that; probably not.

But yeah, like in terms of metrics, like if you’re sort of single SKU, I would kind of argue that point; conversion rate is a more important metric. It’s a one-off purchase typically, so you try to maximize it as much as possible.

Things like contribution margin. “How much am I making?” “How much is this product costing me?” “How much is the business making?” That’s an important metric. But yeah, look, that’s why you start to see retailers that start off with a single product, they will either be able to grow through and go into different markets, done untapped customers in different markets, or you’ll start to see them expand that product offering in order to enable their growth because VC’s want to continue to see growth. So, if you find a buyer VC, they want to keep seeing those numbers going up. You’re going to be feeling the pinch and you’ve got to find another way to increase that growth.

Nathan: You touched on conversion right there, and I think that’s a really interesting topic, especially with you coming mainly from an online perspective and my background being more omni-channel perspective.

I used to get really frustrated (and I still do) around people in omni-channel businesses talking or obsessing around conversion rate. Because for me, if I look at the role of the website, absolutely conversion is a key one and we want to get people through that checkout.

But there’s a variety of reasons people can come to a website, especially when you’ve got 100 plus stores. So, for me, if people are coming on to check store opening hours, they don’t put anything in their cart; don’t intend to, but they still get the information they need. That’s a successful visit.

Josh: Oh, totally. Yeah. You have to be building in those other touch points into the website and tracking them. So, you might say, “Okay, a click on ‘Store Hours’ is worth X and then a click on the phone number to call the store is worth a little bit more.” And you can start to get a bit of a model around these valuable touch points on the site that you can then sort of say, “Sure, our conversion rate might be 2 percent, 3 percent, but you’re right, that is not the only thing that you should be obsessing over.” I agree with you; that is a big mistake that some online retailers do make, especially if you do have multiple channels like stores.

Nathan: I once ran an experiment where I go to research company. And I said, “Can you just go and stand outside about 10 of our stores? And I said, “As people come out with their bags, just ask them if they looked at that product online before they came into store.

Josh: I remember you doing this, actually. Yeah.

Nathan: It was the most manual research ever, but it was to get to those assumption numbers that you’re talking about to kind of go, “Click to visit the store or product page review is worth this.”

And it worked out. I can’t the exact numbers off the top of my head, but it was something like six or seven in ten customers that walked out of that store was looking at that product online before coming in and they were visiting our website before.

So, even though our e-commerce numbers may have been single digit percentage to overall sales, the actual value of the website was much higher as the most powerful marketing tool we’ve got across the business to drive people in-store or online, because from my point of view, I didn’t care as long as they were buying.

Josh: Exactly. And that’s early in the day. But as a retailer, it is about sales and how much you’re getting through the door. And I love that you went out and did that very manual research because I don’t think a lot of people would go and do that. And that’s very, very valuable to understand the bigger picture.

So, yeah, massive hats off for you to go and to implement that. Did you ask me a question? This always interest me. So, you asked, “Did you go and view this product on the site?” Did you also ask, “Did you just go and do this product in a search engine like Google? And then how many sites did you go to before deciding to come into our store?”

Nathan: We didn’t go down that far. But I think it’s a really good question and would be really interesting. I think I was just hell-bent on proving a point.

Josh: Yeah, good. Yeah. You’ve got some directives that your guide now and to prove this to you. Yeah, good. Good on you, mate.

Nathan: So, I think we’ve started off here talking about growth, in terms of a revenue perspective and we’ve also talked about profit. We’ve talked about customer lifetime value. We’ve talked around operational efficiency and we’ve talked about giving it to the total retail pie.

If you’re sitting down, if you’re the owner of an e-commerce business and someone said to you, “What’s the one metric that will tell you if your business is going well?” Where would you put your money?

Josh: Jeez. That’s a very nice on the spot question. Thank you.

Nathan: That’s lucky because I’ve spoon-fed you everything else.

Josh: Oh, yeah, totally. Yeah. The telephone has been very helpful. Thank you. Jeez, I don’t know. Again, I’d been looking at things like if you are a big purchase business, I would be looking at lifetime value in acquisition costs and the ratio between those two. I think for me, those are just so central to any e-com business that has that repeat purchase model built in.

But I think, probably, broader than that, touching on, you know, there are so many metrics that a business can keep across and that can be incredibly overwhelming.

You know, there is a new… you might read in a blog article tomorrow about this new little known metric that the biggest brands are tracking now and you should do this and that. You know, as a smaller retailer, that can be quite daunting.

And so, I think you really do need to pick one top line metric and whether that be lifetime value in and the ratio between that and acquisition cost or whether it just be like total number of new customers join this month or whatever that means to you and your business. Keep that as your sort of North Star and your number one goal. And then have maybe two or three, maybe four sub-metrics that you kind of just keep an eye on and keep it simple like that.

There’s always going to be deeper dives you can do. You know, at some point, you’re going to be hopefully hiring someone to actually mine this data for you and actually present that data in a really meaningful way, once you’ve actually got a really good data infrastructure at your company.

This is another side topic, but I hear a lot of, “Should I hire a data scientist?” and I say, “Yeah, do you actually have really good clean data and a good infrastructure for them to work off? Because if you don’t, then there’s no point in hiring a data scientist that is going to be twiddling their thumbs.”

Nathan: Or another question; it’s good when I ask that is go, “Is anyone looking at your Google analytics?”

Josh: Yeah. And then they go, “What’s Google Analytics?” And I sort of like just throw the phone away. But, yeah. So, have one really sort of top level North Star metric that you want to keep track of and that’s sort of everyone in the business is aware of and like report on that. Like have a town hall with your team like every week or every two weeks and sort of share how the whole company is progressing towards the sort of top line metric.

And then maybe sub-teams have their own little metrics, so they follow as well. If you’re a larger org, like that can be a really pretty powerful way to kind of keep focus. But it has to be suited to your particular business model.

Nathan: I really like that advice. I think that’s really great. Have a North Star and then a couple of metrics, three or four metrics, that really give an indication on what might be contributing to that without giving the full story.

And if you set a challenge for yourself, if you use Google Data Studio and obviously that can pull in Google analytics, but all other sources as well. If you give yourself a challenge of, “How do I create a one-pager that can give me a pulse check on how we’re tracking right now?”

It doesn’t have to explain everything, but I can go, “Oh, we are in a good place or a bad place and what may be contributing to it?

If you can create a one-page without squinting, you’ve probably got the right metrics, right?

Josh: Yeah, exactly. And I like that one-pager like I think at Shopify, we have a rule where I think {indistinct 35:53} sort of says, “If there’s a brief that’s more than three pages, I’m not reading it.” Like keep it simple, keep it succinct and to the point and that’s the same sort of with anything really. Like if you want to get some traction internally or keep people interested, keep that succinct, keep it to a one-pager or a single-page in Data Studio for using something like that, which is a great tool. So, yeah, it’s super good advice.

Nathan: Awesome. Well, thank you, mate. I’ve really enjoyed where we’ve gone with this. We’ve started off with revenue and we’ve gone through all these other metrics to talk about the pros and cons. And I think we’ve landed in a good place in that it all comes back to the customer and that it’s got to be long term; we can’t chase sales that are short term because it will come back and bite you in ways that aren’t sustainable.

Josh: Yeah.

Nathan: And if you’re just chasing those numbers to impress other people, you’ve really got to take the moment to go, “Are we doing the right thing in the interests of our customers, our team and our investors as well?”

Josh: Yeah.

Nathan: So, thank you, mate. I really appreciate your insights and some of the examples you’ve given us from a Shopify point of view.

Josh: No worries at all.

Nathan: And hopefully it’s been valuable to everyone.

Josh: Thanks so much, mate. Appreciate it. Always happy to come on.

So, there we go. Episode 1 of Add To Cart done and dusted. Thanks again to Josh Newport for being such a fantastic guest and sharing so much of his knowledge. And thank you to Shopify Plus for getting on board Episode 1 as our very first partner.

We hope you guys learned a lot today. Please give us feedback. We’d really love to hear from you. What do you want to know? What you want to ask our guest? We got some really exciting people coming up.

So, shoot me any feedback or questions to nathan@12high.com.au (1-2-H-I-G-H.com.au). I’d love to hear from you. See you next time.

Oh, and apparently this is the part where I’m meant to ask for a rating or review from you, but we’re Episode 1. So, what I’d really love instead of that is if you can just share it with your friends or colleagues; anyone who might get value from it.

The more feedback we can get, the better we can make it. We’ll be here for a long time. Cheers, guys.