I thought I would share a summary I wrote after reading Bessemer’s top 10 laws of e-commerce. This was something which gave me a great understanding of e-commerce when we first launched MyNappies and we built many concepts for the business around these. For instance when it comes to being cheap we offer extremely cheap prices on nappies but plan to be a full priced retailer when it comes to other products.
It can be difficult to find resources which can give you guiding principles so I was thrilled when I first found this.
As a startup these are things you should be thinking about as your business grows, and as an established online retailer it is a great checklist to see that you are still covering the essential.
It was written by the folks at Bessemer Venture Partners in October 2010 but it still reads as relevant today. They are an old VC firm who have funded retailers from Staples to Blue Nile and Diapers.com – they know their stuff!
You can download the entire PDF here. I would recommend you take the time to read this document it if you are interested in e-commerce. It is about 30 minutes to read. Following is the summary.
The Summary Bessemer top 10 laws of ecommerce:
- You must build a brand, but not through brand advertising (link)
- Customer Lifetime Value (CLTV) is your new pulse (link)
- The 6 “Cs” are your vital signs: Ignore them at your peril! (link)
- Your goal: cheap, fast and free (link)
- It’s the service, stupid (link)
- Only lemmings focus on last-click marketing (link)
- Affiliates are risky. Don’t let them pick your pocket. (link)
- WWAD (What Would Amazon Do)? (link)
- Identify your best customers, encourage customer loyalty, and motivate the evangelicals (link)
- Keep it social, but keep your data too (link)
1. You must build a brand, but not through brand advertising
- Build penny by penny through direct response advertising that can be quantified and measured.
- CLTV is your growth and profit engine machine.
- all marketing should be measurable and profitable
2. Customer Lifetime Value (CLTV) is your new pulse
- NPV 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 customers 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: CLTC 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 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
- netpromoter.com to compare to other brands like Google etc
- Customer Lifetime Value Contribution (CLTC) see part 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 and 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. Your goal: cheap, fast and free
- 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
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. Only lemmings focus on last-click marketing
- last click is merely the referral source which closes the deal
- Good is a navigational engine as much as it is a search
- Measuring last click discount the classic “marketing funnel”. The introducer, the influencer and the closer
- Convertro is an example of a company doing it different
7. Affiliates are risky. Don’t let them pick your pocket.
- Watch out for spyware and other scams
- Don’t let them bid against you
- Everyone claims credit (multiple affiliates)
8. WWAD (What Would Amazon Do)?
- Amazon are the leaders
- metrics orientated culture
- Obsession with page-load times
- Keeping “fit” – a customised equation which incorporates the most important metrics for a particular group and reports it to Jeff Bezos.
- Keep it simple. Amazon teams are never more than “no bigger than you can feed with two pizzas”.
9. Identify your best customers, encourage customer loyalty, and motivate the evangelicals
- motivate your evangelicals.
10. Keep it social, but keep your data too
- Cautions social media as it allows competitors insights into your customer and possibly the ability to target them – not all too relevant to me.
- I don’t put much weigh into this last point