Online retailers are very inconsistent with metrics for analysing profitability online – from their web site to specific products, customers and marketing activities, according to a new report.
The findings come from the latest Trading Intelligence Quarterly (TIQ) research report from ecommerce technology firm eCommera, which surveys 101 UK ecommerce directors.
“The purpose of this research was to understand how retailers are measuring their profitability online. What we’ve discovered is that the online retail industry is still too immature to know what good looks like. However, it is clear that higher performing online retailers are more sophisticated and focused in their measurement of profitability,” said Michael Ross, Director, eCommera.
Trading Intelligence Quarterly: Key findings
Almost half of respondents are growing at a rate of less than 20 percent.
Just 18 percent of respondents measure website profitability daily or once a week (taking into account margin, marketing and delivery cost/revenue). 42 percent evaluate it on a monthly basis, 22 percent quarterly and 12 percent annually. Staggeringly six percent never measure it at all.
Only 37 percent of respondents measure profitability of individual customers. 32 percent look at profit by recency-frequency-monetary (RFM) segments, 13 percent by non recency-frequency-monetary (RFM) segment and four percent use another (unspecified) metric. 15 percent don’t look at this measurement at all.
When measuring marketing channel profitability, only four percent of respondents are able to look at fully allocated spend. 25 percent analyse return on advertising spend, 40 percent review cost per customer acquisition and 19 percent measure cost per order. Eight percent don’t analyse this metric at all.
Understanding and measuring product profitability is a key challenge for respondents and is a better understood metric. Here 46 percent measure gross margin return on inventory, 30 percent look at gross margin achieved and 16 percent look at a fully allocated profit per product. Two percent use an alternative metric. Six percent don’t measure product profitability.
In terms of measuring customer satisfaction, 16 percent of respondents don’t analyse for this metric at all. Fortunately others fair better with 20 percent requesting feedback after every interaction, 16 percent running regular post purchase surveys to measure end to end customer experience and 48 percent said they carry out regular onsite surveys to measure onsite visitor experiences.
Peter Fitzgerald, Industry Director at Google UK commented: “It is clear from the findings that retailers who measure and value profitability measurement are doing well. The key is to focus efforts on the metrics that really matter. However, across the board there appears to be a blurring of indicators about what exactly should be measured and what the best indicators of online profitability actually are.”
Ross concludes. “Underlying a profitable online business is the need for rigorous measurement of profitability – understanding what happens to your business when you pull different levers; and understanding customer, marketing and product profitability in order to allocate spend to maximise returns. It is clear from our research that many organisations are thinking of online as just another store. They must harness the mass of ecommerce data available to them, and understand the need for a different profit model online.”
The data for this report is based on independent research from interviews with 101 UK ecommerce directors during September 2010. All companies had to have annual online turnover in excess of £3 Million – 51 companies had online turnover of £3-20 Million, and 50 companies had online turnover of over £20 Million. Respondents were Ecommerce Directors or the person in charge of ecommerce.