Research by RJ metrics shows that growth within the first six months is what ultimately separates top performing ecommerce companies from everyone else.
In a study of over 200 ecommerce businesses, analyzing the three year sales trends of businesses doing between $1 - $60 million in revenue, it was found that top performing companies were making roughly 2.5x more than other companies who started making sales around the same time, and by the end of the first year, were quite literally, off the charts.
Extrapolated out, the growth of these top performing companies over the course of three years ends up looking something like this:
But how is this possible?
In case you didn’t catch it from the first screen grab, RJ Metrics says this:
"This rapid rate of growth so early on in a company lifecycle points to the significance of natural product/market fit and execution. Marketing spend can get you far, but marketing alone is unable to drive this kind of accelerated growth."
I’ve already talked quite a bit about product/market fit before, so I won’t push on that too hard here, but basically, this kind of rapid, off-the-charts growth happens early on because of three main things:
- Selling things to people who want to buy them (duh).
- Securing & owning your marketing channels early on.
- Having a plan to remarket to existing customers.
Looking at other data from the report, we see that top performers aren’t just doing double the revenue, but are actually acquiring new customers at a much faster rates than everyone else too.
This isn’t an accident. As I mentioned in my article about pre-launch marketing, top performing companies plan and test their customer acquisition strategies well ahead of their launch - often securing strategic partnerships, press contacts, and early buzz, months (if not years) in advance of the initial release.
There could be an entire blog dedicated to pre-launch marketing and early traction, but the short version is this, top performing companies aren’t launching to nobody and hoping to make sales.
Likewise, top performing companies aren’t just acquiring customers once & hoping those customers come back. Instead, there is a plan in place, early on to get a person buying again and again and again as soon as possible, and getting them hooked on buying from you.
Just look at the difference between the two graphs below:
The graph on the left shows how top performing companies start getting customers hooked, and turning them into repeat buyers almost right away.
By the time these companies reach the three year mark, repeat customers actually end up accounting for more revenue than new customers, which is AWESOME because marketing to existing customers can be way more profitable and comes at a fraction of the cost. The graph on the right shows a slower, more natural progression.
What the "average" companies might not realize though, is how much of a missed opportunity that is. For instance, did you know that Harvard Business School found that increasing customer retention by as little as 5% can increase profits between 25-95%?
What’s even better, is that other research by RJ Metrics found that top customers spend up to 30x more than the average customer over their customer lifespan.
I’m not a betting man, but if I had to, I’d bet these top performing companies are focusing on their best customers and developing their business around acquiring customers just like those that are spending more and more frequently.
Evidence of this can be found when you see that the average order value of top performing companies is pretty consistently around the $100, whereas there is far more fluctuation of AOV for the bottom performing companies.
It was also found that the average customer for a top performing company makes around 7 purchases in a quarter, whereas the customers for the other companies are doing less than half of that.
Richard wrote a phenomenal article on getting repeat sales and retaining customers that you absolutely need to check out if you want to nail this out of the gate.
Given these two facts, it should come as no surprise that the customer lifetime value of top performing companies was also 5x higher than each of the other groups.
So, What Does All This Mean For You?
If you’re the kind of entrepreneur that wants to light the world on fire with your new ecommerce venture, you need a plan.
That plan needs to address how you’ll:
- Penetrate the market.
- Find product/market fit.
- Get people hooked on your store.
- Encourage repeat purchases.
- Increase your order values.
- Focus on and reward top customers and...
- Grow as fast as possible in a six month period.
This takes time.
Approaching the market, and knowing how to position your brand in an impactful way requires a great deal of planning and strategy. And the more time you spend dedicated to understanding the market and developing that approach, the better your chances of having that off-the-chart growth we saw in earlier graphs.
But also, it takes money.
This isn’t just the investment in the inventory, but also the tools, talent, relationships, ads, and whatever else is necessary to get you in front of the right people.
Yes, there is a lot that can be done for free (and I strongly recommend you do those things to make your first sale) however if you’re looking to build the “next big thing” you’ll need to invest in breaking into the channels where your most engaged prospects will be, and the talent necessary to position your product as something they want/need.
All that being said, there’s nothing wrong with not being a top performer either. The “average” companies in this study are still doing between $1 million and $15 million in revenue per year, which is nothing to sneeze at.
But now that you know the difference, the question is, what kind of entrepreneur do you want to be?
About The Author
Tommy Walker is the Editor-in-Chief of the Shopify Plus blog. It is his goal to provide high-volume ecommerce stores with deeply researched, honest advice for growing their customer base, revenues and profits. Get more from Tommy on Twitter.