To grow a store's revenue, most business owners think they need to acquire new customers. They would be right; more customers does equal more revenue, but is it the easiest way to double your sales?
No. There are three things that every e-commerce business can do to double, triple, or quadruple their revenue. They are:
Current customers are nine times more likely to reorder than a first time buyer.
Increasing your customers' average order value and average purchase frequency is not only cheaper through email marketing, but also several times more profitable than customer acquisition.
A store's primary goal should be to focus on retention first and then acquisition later.
Once you have your AOV and APF email setup and optimized, then it's time to refocus the shift to customer acquisition, not the other way around.
Simply increasing your AOV and APF by 40% (which is low if you currently have no AOV/APF strategies in place) can have a huge impact on your revenue. Let me give you an idea of what a 40% increase would do for a business: $100 (average order value) x 2 (average purchase frequency per 365 days) x 500 (customers) = $100,000
If we increase the AOV and APF by 40%, you get the following: $140 (average order value) x 2.8 (average purchase frequency per 365 days) x 500 (customers) = $196,000
That's a 96% increase in revenue per year without having to acquire a single new customer.
Calculating your average order value (AOV)
Before you can start to increase your AOV, you need to find out your current AOV to use as a benchmark.
It's a simple calculation: as follows: Average order value = total revenue / total orders
For example, if your total revenue for the last 365-day period was $50,000 from a total of 268 orders, your AOV is $186.56 (50,000/268).
This is the most basic way to calculate AOV. You can also add your cost margins to find your net AOV.
Calculating your average purchase frequency (APF)
Figuring out your APF is just as easy. You need to calculate two things:
Average purchase frequency = total orders / unique customers
For example, if you receive 268 orders (in a 365-day period) from a total of 42 customers, your average purchase frequency is 6.3 (268/42) orders per customer per year.
Average time between purchases = 365 days / average purchase frequency
With 6.3 orders per year, if we divide that by 365 days, a customer orders every 57 days, on average.
The reason why it's important to know your average purchase frequency is so you don't bombard your customers with too many or too few emails. Based on your store's APF, you'll be able to gauge how many emails you need to send your customers each month. Here's a great starting point to use:
So now you have calculated these two important metrics, here is how you can use a few emails to increase your store's revenue through email marketing without having to acquire new customers.
Cross-sells and up-sells
Cross-sell and upsell emails are the bread and butter of increasing AOV and APF for all businesses. If you've ever bought a car from a dealership, the mats, leather seats, and USB add-ons are what are known as cross-sells and up-sells.
An up-sell is an upgrade to the current item the customers are viewing. For example, going from a regular meal to a large meal at McDonald's is considered an up-sell.
A cross-sell is when customers are shown complementary items to the core product. It’s the classic: “Would you like fries with that?”.
You can apply cross-sells and upsells to your e-commerce store through email marketing based on a customer's purchase history.
For example, Dollar Shave Club's email below offers a cross-sell for a customer that has just purchased The Executive Cartridges.
This email is great because it's actually an order confirmation email wrapped into a cross-sell email. They give the customer until the 9/10 (the date in the header of the email) to add more products to their cart before delivery.
Harry's use a similar approach by sending customers an up-sell email for one of their new products after the purchase of a shaver.
Product recommendation emails
Product recommendation emails let customers know about other products you have that may be of interest to them. The goal of product recommendation emails is to make customers aware of other products. The more products they buy, the more likely they are to buy them again, thus increasing your AOV and APF.
There are two ways you can set up these emails. The first is to include them in your transactional emails. In the email below, Amazon recommends books that other customers have bought who also bought an item the customer just ordered.
I'm sure this method increases Amazon's APF because they have millions of customers, and abandoned cart emails with product recommendations have a higher conversion rate and AOV. But I recommend product recommendation emails that solely focus the entire message of the email on the product, instead of merging it with a transactional email.
If customers have to pay delivery charges, not many customers will immediately place a second order and pay a second handling charge. Also, there are two key messages in the email, diluting your product recommendation. Based on your APF, I'd much rather go ahead and send a bespoke email with a single message, like this Amazon email.
Amazon used these exact emails to generate not 1, but 3 board game purchases out of me.
A refill email is best suited for products that need to be ordered on a regular basis, typically consumable products.
You want to time your refill emails approximately seven days before the customer is about to run out, as this gives them enough time to reorder and wait for shipping before they run out.
A refill email needs to offer the customer total convenience. Customers shouldn't have to trawl through your store, select their order quantity, and type in their details again. The email should be straight to the point, giving the user a simple action to make with an added touch of urgency.
This refill email from Rockin’ Wellness keeps it simple with a single call to action and no other elements that might distract the customer from the main goal of the email.
Use this method on your most reordered items.
Recent studies reveal that around 70% of subscribers within an email list are currently inactive.
Inactive customers need to be removed from all email segments and placed into a win-back campaign with a tailored message. You can't send them product recommendation or broadcast emails because due to their order history, they clearly aren't working.
Duolingo, who offer online courses and sell language books, use the simple "We miss you" subject line to gain customers' attention again.
This type of email is okay to send, but it doesn't really offer the customer any incentive to try them again; and in my opinion, it is a little weak.
I much rather prefer using an offer in win-back emails, like Reebok, because it gives the customer an incentive to try your brand again.
If you're not in the business of offering discounts, use a compelling and direct subject line like Duolingo. If that doesn't work, then consider following Reebok's route of offering a voucher or discount.
If both attempts fail, then there's little point keeping the customer on your email list as they will only negatively impact your email deliverability.
Manually remove them from your email list and send them a final email letting them know they have been removed and whether they want to be re-added.
Retention and engagement
The four email types above can all be automated based on customer behavior.
Automated emails are a must to drive sales, but I'm also a strong believer of using retention- and engagement-based emails to achieve the same thing.
Retention emails are quite simply broadcast emails that you send when you have a new item in stock or run a promotion.
Here's a Chewy email offering 30% off all American brands, which they sent to their list (this is not an automated email):
Teavana do the same, letting customers know about their new arrivals:
Customers love sales and want to know about new products in stock, so don't be afraid to let them know. You just have to be careful that you don't overload them with emails of every new item you get in stock.
Use the email frequency table to decide how many emails customers should receive each month.
Engagement and content emails aim to either educate your customer or provide them with value. The goal of engagement emails isn't to drive sales, but to keep engagement with customers and build stronger relationships, which as a secondary goal will end up driving more sales.
Here’s an order arrival email from Harry’s:
While each segment doesn’t directly sell a product, they no doubt lead into a natural (yet subtle) pitch for other products in Harry’s product line through product education.
Customers who are better educated about your brand and product benefits are more likely to stick around and order new things. Your turn
Customer acquisition is important to grow your business, but if you aren't following up with your new customers by using the email methods I've laid out above, your acquisition effort will be done in vain, as new customers will come in from one side and leave from the other.
Review your current email funnel and see where you can place more automated and broadcast emails to increase your customers' average order value and average purchase frequency.