"E-Commerce Metrics & Quantitative Marketing," Citrus Lane >> Mauria Finley [COMMERCISM 2014]
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"E-Commerce Metrics & Quantitative Marketing," Citrus Lane >> Mauria Finley [COMMERCISM 2014]

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THE MATH BEHIND THE MAGIC: E-COMMERCE METRICS & QUANTITATIVE MARKETING

THE MATH BEHIND THE MAGIC: E-COMMERCE METRICS & QUANTITATIVE MARKETING

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    "E-Commerce Metrics & Quantitative Marketing," Citrus Lane >> Mauria Finley [COMMERCISM 2014] "E-Commerce Metrics & Quantitative Marketing," Citrus Lane >> Mauria Finley [COMMERCISM 2014] Presentation Transcript

    • Mauria Finley, CEO and Founder @mauriafinley E-Commerce Math
    • My Background Commerce Community Content Mauria Finley @mauriafinley
    • Key Terms CAC = Customer Acquisition Cost CM = Contribution Margin CLV = Customer Lifetime Value CLC = Customer Lifetime Contribution Fully loaded average cost to acquire a new customer Revenue from customer during his/her tenure Amount of contribution after all variable costs, excl. CAC Contribution margin from customer during his/her tenure Mauria Finley @mauriafinley
    • Unit Economics in A Good Business Payback: Recover CAC in contribution < 1 year Cohorts Improving ROI Ratio: CLC > 3 X CAC Can scale acquisition with ROI & payback ratios Mauria Finley @mauriafinley
    • Customer Acquisition Cost (CAC) Big leverage from: • Organic • Conversion Deep analysis: • Review & rank channels at lowest possible level • Watch by cohort • Beware averages: watch top & bottom buyers • Do attribution but avoid “double dipping” Total Marketing $ Total New Acquired Blended CAC Mauria Finley @mauriafinley = Things to think about: • Experiment aggressively • A balanced portfolio might be a barbell (different sides optimize for different things) • Set your CAC to ROI ratio and be comfortable spending to that • CAC can change from early days to scaling
    • Contribution Margin (CM) Cash In = List Price - Discount (Product COGS) (Shipping) (Fulfillment: materials, packing, storage) (Credit card processing) (Returns) (Inventory write-offs) (Fraud) (Customer care) Excludes: 1-time CAC & fixed costs (merchandising, dev, production, etc.) -> Product or Gross Margin -> Contribution Dollars Out Basically all the variable costs except CAC. Discounting can go into CAC or out of CM. Lots of costs come out of the cash you take in! Start with strong product margin If not, be great at the below the line operational costs Generally, you can optimize the operational costs later unless they are your unique advantage Mauria Finley @mauriafinley
    • Customer Lifetime Value (CLV) Purchases per Year X Average order value X Years active CLV: Total Revenue Dollars Over Customer’s Lifetime These are the levers = frequency, size of purchase, tenure A key decision is your tenure estimate; relates to the nature of your service Even with long tenure, you might want incentives to pull dollars into the present CLV is often better than you think (if you have a good product) But be wary of overestimating in the short term (cash implications) Mauria Finley @mauriafinley
    • Cash Payback Is Key Decision One $50 order $15 contribution  CPA Threshold = $15 PAYBACK IN 1st ORDER PAYBACK IN 6 MONTHS PAYBACK IN 12 MONTHS Two $50 orders $30 contribution  CPA Threshold = $30 Four $50 orders $60 contribution  CPA Threshold = $60 Approach to payback has HUGE implications, particularly for an early stage startup More aggressive => higher CPA threshold => faster growth But also exposes more cash Might choose to adjust other KPIs to have less payback risk Assumptions: $50 AOV, 30% CM, purchases 4x per year Mauria Finley @mauriafinley
    • Big Levers on Unit Economics LOWER CAC INCREASE CLV INCREASE CM Organic / viral Channels Conversion More purchases Higher AOV (upsell / cross sell) Longer active life Better product margin Lower costs Mauria Finley @mauriafinley
    • You Can’t Know Everything At Once 1st PRODUCT MARKET FIT SCALE LTV w/ BEST ASSUMPTIONS THEN ADD COST OPTIMIZATION Can you acquire? Do they like it? Can you scale acquisition Do they stay / repeat and buy more? CAC improvements Improve COGs Decrease operational costs (ship, fulfill, CC) YOUR UNIQUE VALUE Vendor terms? Quick ship? Producing products? Mauria Finley @mauriafinley
    • Remember Cash is King Marketing is a BIG variable cost And, headcount & opex add up too! Inventory can kill you Might balance payback & cash upfront over ROI Be paranoid about buying mistakes (too much, wrong stuff) Try for negative cash conversion (pay after you’re paid) Mauria Finley @mauriafinley
    • Great Resources Bessemer’s Top 10 Laws of E-Commerce: http://www.bvp.com/sites/default/files/bessemer_top_10_laws_ecommerce_oct2010.pdf Saar Gur: http://www.slideshare.net/saarsaar/why-most-startups-fail-at-acquiring-new-customers-and- how-you-can-succeed Jeremy Liew’s blog: http://lsvp.com/2012/06/15/how-to-estimate-lifetime-value-for-an- ecommerce-business-sample-cohort-analysis/ Zulily’s S-1: http://www.sec.gov/Archives/edgar/data/1478484/000119312513393718/d552850ds1.htm Mauria Finley @mauriafinley
    • Questions Mauria Finley @mauriafinley