The D2C market segment has become increasingly popular. D2C brands are typically for digital natives, a big draw during the pandemic and in an increasingly digital world. Without the need to rely on middlemen or third-party suppliers, businesses can build direct relationships with their customers. They have more control over their brand and marketing tactics, leading to a better, personalized customer experience.
By 2023, the D2C ecommerce sales are projected to reach nearly $175 billion in the United States alone. With the rise of D2C startups and the transition of traditional business to D2C strategies, it is essential to ensure your business is performing well by identifying your successes and developing strategies for improvement.
What is D2C Ecommerce?
D2C ecommerce is when the business sells its product directly to their customers. More traditional ecommerce businesses go through wholesalers, distributors, and retailers before their product finally reaches the customer. D2C cuts out the middlemen and shortens the supply chain by selling direct-to-consumer. This allows D2C brands to take control of the manufacturing, marketing, and distribution of their products.
With a D2C business model, your relationship with customers is strengthened, giving unique opportunities for long-term customer relationships. Other benefits of a D2C business model over a traditional ecommerce model include:
- Greater control over branding and marketing, since it’s selling directly to the customer
- Heavier online presence through the use of the digital space and digital advertising
- Easier collection of customer data to understand the end-to-end customer journey
- Direct feedback from customers to identify their unmet needs
- Hyper-personalization of products to cater to various types of customers
- More safety in piloting new products with more comprehensive customer data
With more control over your brand, operations, marketing, and customer relationships, it’s ever more important to understand which areas you’re performing well in and which areas can be improved on.
How to Think About Performance
It’s important to choose relevant, informative metrics. A useful framework to consider when considering your store’s performance is the ecommerce funnel, which will help describe your customer’s journey with you.
By analyzing metrics at each stage in the funnel and understanding your customers’ behavior, your business can pivot strategies to drive sales and improve retention.
Using the funnel as a framework, here are some of the most important metrics your D2C business should be tracking:
Stage 1: Awareness
The first stage of the funnel is awareness. It’s absolutely necessary to create brand awareness to attract visitors to your site. Metrics that fall under this category measure activities that create awareness, such as impressions from ads.
Impressions quantify the number of views you get on an ad or piece of content. The more people who see your content, the greater chance you’ll have of attracting potential buyers. Impressions can come from many different sources, such as Google ads or social media ads. Since impressions are largely based on your budget and money spent on paid-advertising, it’s generally a metric you’ll have control over.
Stage 2: Consideration/Acquisition
Consideration is the stage where buyers are already aware of your brand. Metrics at this stage measure getting them to your site.
2. Organic Website Traffic
Organic traffic indicates your store’s top-of-the-funnel growth motion. This is particularly important in the early stage since a store with good organic traffic suggests overall organic interest from potential customers . Your website traffic metric is simply the number of visitors coming to your website. This measure is often checked weekly to ensure the health of your business is on track. Increasing web traffic can increase your reach and open doors for more opportunities for sales conversion.
3. Customer Acquisition Cost (CAC)
CAC refers to the average cost of acquiring a new customer. This metric is particularly important for determining profitability and efficiency. Maintain low CAC by finding low-cost strategies to acquire new customers and ensuring quality of products and services.
CAC = total cost of sales and marketing / # of customers acquired
It may be fruitful to observe CAC across different marketing channels. By understanding which channels have lower CAC, you can improve your marketing strategy and budget accordingly.
In addition to lowering down the acquisition cost, you have to make sure you acquire the right customers. Acquiring a new customer can be expensive, so it’s also important to ensure that customers stick around. This leads into our next metric.
Stage 3: Conversion
At this stage, your store already has visitors. Now we want to convert them into paying customers. Metrics that fall under this category measure how well you can get visitors to add products to their cart and checkout.
4. Sales Conversion Rate
Understanding the rate at which your visitors convert to buyers is crucial to determine how much traffic is necessary to reach your target sales. It’s calculated by dividing the number of sales by the number of total visits to your store. For reference, the average ecommerce sales conversion rate stands at about 2.58%.
Conversion rate = 100 * total conversions / total interactions
There are several ways you can look at conversion rate to understand your business:
- By channel: How does conversion rate compare between channels of acquisition like SEO, social media, paid advertising, etc.?
- By category of product: What categories of products have higher conversion rates?
- By campaign: Are you running an email campaign or working with influencers? Identify conversion rates for each campaign.
- And more!
Optimize your strategy by understanding which channels, products, and campaigns are generating the highest or lowest conversion rates and adjusting your efforts accordingly.
5. Shopping Cart and Checkout Abandonment Rate
Abandonment can be measured in a couple of ways: shopping cart abandonment rate and checkout abandonment rate. The difference between the two is the point at which customers leave the checkout process. Shopping cart abandonment measures how many people add something to their cart and do not make a purchase. Checkout abandonment, similar but slightly different, measures how many people begin the checkout process but ultimately do not make a purchase.
The average cart abandonment rate across all industries hovers at just under 70%, while average checkout abandonment rate is around 25%.
Cart abandonment rate = (1 - # transactions completed / # transactions initiated) * 100
Checkout abandonment rate = 1 - (# orders completed / # checkouts initiated) * 100
These two metrics help you understand at which point and why customers are leaving your checkout process. Are they deterred by additional costs, a complex website, forced account creation? Make sure your checkout process is optimal for user experience. Methods to bring down abandonment rates can include:
- Streamlining the checkout process
- Sending email reminders to complete the checkout process
6. Average Order Value (AOV)
Your AOV is the average amount customers are paying per transaction. You should be tracking how it evolves over time and how it may relate to your marketing efforts, such as specific ad campaigns or loyalty programs. AOV will vary greatly depending on your industry. For example, the consumer goods industry has the highest AOV of over $200 and the food & beverage industry has one of the lowest at about $70.
AOV = total revenue / total # of completed orders
As you can see, AOV can vary from just over $100 to over $300. This is not a coincidence. AOV is lower during the summer months, indicating that there’s some seasonality in play here that you could explore. However, there does not seem to be much of an increase over the years, which is an area that could be improved.
Think of ways to grow this metric, such as
- Offering bundled products at a discount
- Upselling to existing customers
- Suggesting complementary products or services
Stage 4: Loyalty/Retention
There is great worth in retaining an already converted customer. Acquiring a customer can be at least five times more expensive than retaining one. Retention metrics will help your business navigate your customer service and customer satisfaction.
7. Customer Retention Rate
Retention rate is the percentage of existing customers that stay with you over a period of time. You want this number to be high and for customers to continue returning to you. This is an important metric to track because not only do you want to keep their business, but retaining customers is much easier than acquiring new ones.
Customer retention rate = 100 * (# customers at end of time period - # new customers during that period) / # customers at beginning of time period
Use this metric to better understand why customers are returning to your business and what areas you can still improve on. Develop strategies for satisfying and retaining existing customers.
8. Repeat Customer Rate
Repeat customer rate is simple but telling. This metric measures the percentage of customers who have made multiple purchases in a given period.
Repeat customer rate = # customers who made more than one purchase / # total customers
Repeat customer rate for ecommerce can vary between 20-40%.
How is this metric different from the customer retention rate? Retention rate is a great broad metric to gauge the health of your store over a longer period of time. Repeat customer rate, on the other hand, is more immediate and actionable. Tracking this metric can help improve your retention rate.
9. Customer Lifetime Value (CLV)
CLV is to forecast how much value a customer can bring to your business in his or her lifetime. CLV can reflect the quality of your customers and the efficiency of your marketing strategy. D2C brands are often specialized, so expansion can be difficult. Therefore, it is even more important to measure and increase customer lifetime value.
CLV = average order value * # of order * retention period
Retention period here is the average duration of customer retention.
10. Refund and Return Rate
Refund and return rates can be industry-dependent. Returns might range from being highly common to extremely rare. However, it is still crucial to track this metric for the health of your business. Refund and return rates are calculated as a percentage of total transactions that were refunded over a time period.
Refund and return rate = # transactions returned / total transactions
Customers are more likely to buy if there are generous return policies, since they have the safety blanket of returns or exchanges. However, if your return rate is rising, you should be careful. The higher return rate means a higher cost for a business. You have to analyze and find out the cause behind it.
Stage 5: Advocacy
Customers can also be a great marketing channel. The more satisfied your customers are, the more likely they are to promote your products. Advocacy metrics can help you measure how well you are showing your customers care.
11. Net Promoter Score (NPS)
Last but absolutely not least, we have the net promoter score. What every business wants is for current customers to love their products so much that they tell all their friends and family about it. NPS measures customer loyalty and gives insight to how likely customers are to recommend your products.
A common way to measure this metric is to ask customers to rate on a scale of 0-10 how likely they are to recommend your product, with 0 being least likely and 10 being most likely. From here, we can segment the customers into 3 categories:
- Promoters (9 or 10): actively communicate about the product either by word of mouth or on social media
- Passives (7 or 8): satisfied with the product, but do not actively promote it
- Detractors (0 to 6): unhappy with the product and unlikely to buy again
NPS = % of promoters / % of detractors
The higher your NPS is, the more plausible it is to grow your business through existing customers.
Running a successful ecommerce store requires attention to customer experience, brand appeal, product quality, and customer service responsiveness, among many other activities. By taking into account the metrics mentioned above, you can better identify how well you’re performing and in which areas you should focus on to develop business-enhancing strategies.