Butterfly Metrics: 4 Key Metrics For Monitoring The Health Of Your Ecommerce Business

Posted by James Dunford Wood 16 Jan 15

butterflyIn chaos theory, the butterfly effect allows the possibility that a butterfly flapping its wings in New Mexico can cause a hurricane in China. It may take a long time, and multiple other causes and effects will come into play along the way, but the direct connection between the two is a real one. If the butterfly had not flapped its wings at just the right time and in just the right location, the hurricane in China would not have happened. 

Another way to put this is that small changes in certain conditions at one point in time cause massive effects in other places further down the line. Nowhere is this more applicable than in ecommerce - especially in customer analytics.

However, when it comes to analytics and data, most people running ecommerce businesses are simply tracking historic numbers - revenue, average order values, conversion rate. They track this over time to assess the effectiveness of their marketing effects - the point is to push the needle and affect one or more of these metrics in a positive direction. 

This is important, but can be very short term: tracking separate metrics in isolation - reinforced by the last click workflow enforced by PPC tracking and the ubiquity of Google Analytics. For example, marketing departments may be working towards revenue uplift, but with little visibility of margin. Or conversion rate specialists may be working towards better conversion, but with little understanding of the motivation, or expectations, of the shopper.

The challenge is to join all this stuff up.

In recent years ecommerce managers have begun to think in terms of long-term customer value and to develop more sophisticated attribution models, but there are still some metrics hidden in every ecommerce store's data that their managers should be looking at. I call these 'butterfly metrics' because of the signals they can give as to very large changes in the distant future. So here's a list of some key ecommerce metrics you should be tracking:

1) The Leaky Bucket

You know how many new customers you are gaining each month, right? But do you know how many you are losing? Indeed what does 'losing' mean? If you can understand this, you can get an idea, month to month, on whether you are winning more new customers than you are losing, and so growing your overall customer base.

The first step is to define a lost customer. As a start, you should look at the average time between first and second purchase, as well as RFM metrics for your repeat customers, and make an assessment of those customers who are well outside the expected pattern - they either dropped off or they did not re-purchase. Then on a monthly basis, work out how many former customers have passed the point of no return - i.e. have turned into 'dormant' customers.

The difference, of course, and the velocity of the change, is a great indicator of where your customer base will be in a year's time - if you do nothing further to influence it.

Actions you can take from this intel:

a)  Are they truly lost? Or is your repeat sales cycle longer than you thought, especially when it comes to certain products or categories? Carrying out a customer survey can be a great way of finding out.

b)  Set up a win-back campaign, triggered at the point they become dormant.

2) Reactivated Customers

How many customers are you serving each month who the previous month were classed as dormant? This is not just an interesting metric: it's crucial in helping you assess how efficiently your retention marketing efforts are performing. Clearly your goal should be to push this up month on month - though there will always be seasonal variations around sale time and Christmas, for example.

Actions you can take from this intel:

a)  Analyse the products or categories purchased that led to this reactivation. You may not find any patterns, but if you do, you can use these to optimise your reactivation campaigns.

3) Loyal, still active 

For this metric, we are looking for customers who were first acquired 12-24 months ago - as a customer count, as well as a percentage of the customers you first acquired in this period. You might also want to run the same analysis around those acquired 24-36 months ago.

Again, we need to define 'active' in this context. But say we define this as within the last 6 months (many retailers will define it as within the last 12 months - depending on their recency/frequency analysis). 

In this case, it's important to keep an eye on the percentage of previously acquired customers you are managing to retain, and on a rolling basis. In fact, it's useful to do this not just on a 12-month rolling basis, but also on a monthly cohort basis - as customers who you acquire in, say, December, and in the July sales, will have a very different retention profile from those acquired in a non-holiday, full-price period.

Once again, you can make predictions about the future growth of your company by using these percentages to extrapolate how many of the customers you have acquired in the last 12 months will still be shopping in the next 12 months, and what they are likely to be spending.

Actions you can take from this intel:

a)  Break them down by first source - i.e. which source first introduced them to your store - and optimise your acquisition activity around any obvious winners. Especially with referral traffic, which will tell you which partnerships drive you the most loyal customers over time, and which have the affinity for your brand.

b)  Cross match with AOV and total lifetime spend, to give you further insight into how much you can afford to spend to acquire more of these types of customers.

4) Warm leads

These are people whose email address you have - either through signing up to receive your newsletter or creating an account - who have not purchased, but who have visited your website or opened an email in the last three months.

As you grow your email list and drive your acquisition marketing, the size of this pool of people - at the very top of the funnel - should be steadily growing. They are the fuel that will be driving your growth - and as with a car, if your tank is only a quarter full and you have no prospect of filling up, you can predict pretty accurately when you will grind to a halt. So however fast your CRM team can convert these prospects, your acquisition team should be funnelling more and more people into this bucket.

Actions you can take from this intel:

a)  Break them down into categories and products viewed. Start to create taste profiles. Survey them for more information. Whatever you can learn from them will help your CRM team convert them.

 So there you have it: four metrics for monitoring the future health of your ecommerce business. Monitoring these should give you a level of insight far higher than simply tracking the basics, enabling you to take specific action targeted at particular customer groups. 

 

Ecommerce Product pages

Artboard 10 B-1.png