Reusser’s Post

Transcript

OK, today we're going to be talking about Growth Velocity, which will be part one of a little miniseries that will be posting here about ecommerce KPI's that actually matter. In the background behind this little mini series here is I've personally been inundated with kind of analysis paralysis in the past with ecommerce startups that are just simply like a lot of these out-of-the-box tools like Shopify give you an enormous amount of data and metrics to track and it's hard to decipher. What actually matters, what's going to help you? What do you need to focus your limited time and resources on? And so I'm here to just help you kind of cut through that noise and give you a, you know, hardly exhaustive list of metrics to care about, but a few that I think are important that you may or may not have heard of before. So let's dive into growth velocity first. So before we do that, let's shift gears. So kind of setting the background or the context of this, this KPI here in growth velocity, it's oftentimes and it's really tightly correlated with LTV or lifetime value. So some people may be familiar with this, but lifetime value, what I found here is a lot of these tools, you know, you jump in there and you see it. A cohort is worth X amount of dollars or has grown X percent in profitability over the course of six months from their original. Acquisition date or 12 months after their original acquisition date or even 2 years sometimes. And I think lifetime value is important, but I think fundamentally what it does is it sets your mind to really far into the future, which is important. But for cash strapped kind of early stage startups, ecommerce startups, you know, you can't be looking 2-3 years into the future because you're thinking about meeting payroll. You've got to, you know, replenish stock. You're thinking much shorter time periods and making sure that your profitability. It's always increasing, and that's where growth philosophy really can help you. So what is growth velocity? Growth velocity, and this is just a quick definition. We'll get into more practical examples here in a little bit. But the definition is it measures the incremental return on your investment by evaluating the speed at which those returns are realized throughout your customer journey. So the highlighted portions here will get into in a little bit. So here's just an oversimplified visualization of what focusing on growth velocity can unlock for for ecommerce businesses. So if you're looking at LTV again, at six months, 12 months, 1224 month increments, a lot of times you aren't in the mindset to pull levers to impact LTV as much as you would be if you focus on growth velocity. So we'll take a look at this and how practically this this plays in your business. So how how to find your own growth velocity? So here's the the function up here, it's total sales in a specified time period that matters to your business divided by the original customer cohort count. So we'll get into what this means here, but total sales after a given time period. So this given time period might be like if you're looking at a group of people in January and you want to know what their growth philosophy was. If you're a. 15, you know, kind of Valentine's Day type of business, you might want to look at, you know, your 60 day growth velocity because that would take you past January into February or past February and assess your growth philosophy after a major holiday. So that's, you know, kind of the thinking there about the timer commit. And then the total sales is just, you know, how much you got from that original cohort and then the cohort count is the original group of customers and how many of them purchased. That's a little bit fuzzy, but it'll make more sense here in a practical example. So let's say you are an ecommerce business and you did $50, 000 in sales in January. And you generated that $50,000 worth of sales? From 500 customers. That would mean your job is $100. Maybe you spent $20,000 on ad spend. These are just common variables that you probably have and are aware of as an example. But let's say your velocity or the time period that you want to look at is 90 days, let's say 90 days after that original acquisition month of January is really important for your business. Again, for a variety of reasons that might be the case, holidays, you know, payroll, internal sorts of considerations, whatever it might be. But we're looking at a 90 day window. So let's jump over into the right hand column here and let's plug this in. So your girl Felicity would be $65,000 because let's look at that. Initial cohort of people 500 and let's look 90 days out and assess how much sales that group of people have done. So you can see here that in this hypothetical example, $15,000 of additional sales have trickled in from that cohort of people over the course of the next 90 days. And you divide that by 500, the original count of customers, which gives you a growth velocity of $130.00 or 30% increase from your original. AV So what does that mean? I mean, you've got your growth velocity. Great. What do you do with that now? So let's walk into some practical examples of what you might do with that information. So if I found my girl philosophy, if I were this hypothetical business, what I might do here is. Assess. OK, I've got $130.00. Let me AB test a little bit. Maybe I'll do some e-mail post purchase flows like people who bought X might like Y or subscribe and save or refer a friend and save or buy one, get one. Point is or even unboxing incentives or SMS programs. The point is, is trying to pull levers at strategic times. Let's say 45 days after your acquisition date in January or maybe 60 days, 70 days. Trying to pull levers there and then assessing how that impacted your growth velocity at the end of that, you know, trial 90 days. So if you do that, you might want to watch KPI's like lift and growth velocity. So let's say your historical growth velocity after 90 days is. 30% Well, if you run a variety of incentives at the 60 day marker, you might notice that your New Girl philosophy of that cohort is 50%. So you saw a sizable increase in profitability from that cohort because of the initiatives you ran. As a result of knowing your growth velocity. You might want to look at it lift and repeat purchases. So maybe people who spent 90 days only bought 2 items or two orders. Now they're buying three items or maybe they're units per transaction has gone up. Then based on historical analysis. And then you look at even more specific cohort analysis like SKU level or campaign level. So like if you ran Facebook ads and you really started the push that 40 day marker like a certain type of initiatives, maybe that. Facebook campaign level, you notice different growth velocity metrics. So these are the sorts of things that you would want to look at from a practical standpoint that you can deploy to start increasing profitability sooner as opposed to looking way down the line with LTV only focus. Alright. And that concludes the first series, the first installment of ecommerce KPI that actually matter. In the coming weeks, you'll keep an eye out for some more KPI's and in the meantime, be sure to follow research. Thanks.