How to Build an Efficient E-Commerce Strategy in 4 Steps, According to 7Shifts’ Justin Holmes
When you’re launching an e-commerce website, you need a strategy to monitor growth if you want to avoid plateauing. Labs mentor Justin Holmes, VP at 7Shifts, a restaurant shift scheduling software company, held a session to discuss his four-step process for building an e-commerce strategy that helps you forecast your growth and track your performance metrics.
Step #1: Create a cohort forecast
For e-commerce businesses, understanding customer buying patterns and behaviors is key to forecasting long-term financials. “What cohort forecasts do is follow a customer from the date you acquire them and track them throughout their entire journey,” Holmes says. Criteria for the forecasts can be based on a particular item that you sell, sales in a specific month of the year, or purchases where customers used a coupon code that you advertised. “This is important because you can make assumptions and figure out how much money customers are going to spend over time,” Holmes says. “And that's really going to inform you as you grow in terms of what's an acceptable cost of acquisition and price points.” For example, if you notice that customers who purchased your product using a coupon code did not return, it may be an indicator that your price point may be too high for some people.
Step #2: Forecast your sales and revenue streams and allocate your resources accordingly
Driving steady sales is one of the top priorities for e-commerce sites. And mapping out exactly where your revenue is going to come from can help you better plan out your sales and growth strategy. If your goal is to reach $1 million in sales within the next year, you should forecast what percent of those sales will come from new customers, repeat customers, licensing, targeted advertisements, or some other stream. “You want to figure out what percentage is coming from each of these places so you can appropriately map your time,” Holmes says.
For example, if you forecast that most of your sales will come from repeat customers, you should focus more resources on building and maintaining your customer's experience. “When I started my first company, we were misaligned and had a misallocation of resources. So by trying to understand the forecast, we were able to take some steps to fix our misalignment,” Holmes says. “You want to spend the majority of your time on understanding what's going to drive the most results.”
Step #3: Determine which performance metrics to track
Tracking metrics like website visits and customer acquisition costs can give you a broader sense of your overall business and how it’s performing. “You want to track a few metrics just to make sure that you’re on track with your goals,” Holmes says. “If you aren’t on track, how do you come together as a team and address how you’re going to fix it?”
It’s important to determine exactly which metrics you value and will give you the information you need to guide your business decisions. “Early on, you may be willing to pay a lot for your customers. But as you scale, you’ll want to see a decreased cost per customer acquired,” Holmes says. In this case, an acceptable metric for your business might be hitting a specific cost per customer within the next three months. Be sure to adjust your key performance metrics as you grow to be able to constantly revise your business goals and avoid growing stagnant.
Step #4: Fine-tune your advertising
Advertisements are a key part of any e-commerce business. But don’t make the mistake of hiring an expensive ad agency when a consultant may be more appropriate. Advertising consultants are typically outside contractors who pitch advertisement ideas and fine-tune current campaigns. “If you can find someone who will consult with you, even if they charge you a lot for one phone call, you'll be able to learn how to improve your advertising,” Holmes says. Advertising agencies generally work on single projects but don’t pass on any knowledge to their clients. On the other hand, being able to learn advertising skills, techniques, and methods directly from a consultant can be much more beneficial to startups in the long run.
If you decide to create your advertising in-house, you need to dedicate the time and resources to do it right. But keep in mind that you don’t need to spend a lot of money on a campaign for it to be effective. “I’ve noticed that a lot of the business I’ve consulted with don’t spend enough time getting the dedicated resources they need, whether it's an internal graphic designer or external graphic designer. But they don’t have to be expensive,” Holmes says. “You don't need to do a $5,000 video shoot. You can just do a one-day shoot with a graphic designer and produce all the assets you need.”
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This post is based on content from a WeWork Labs programming session.
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