eCommerce: The Path Ahead

(recently published article)

Now that the ecommerce funding party seems to winding down, everyone is staring at each other to determine who danced with whom, and who will get invited to the next party! And what a party it’s been! 2011 saw $600+ million invested in a $10 billion market with 10 million customers. While there are already concerns of bubbles, consolidation and non-existent margins, the truth is that now is the time that real businesses are being built. It no longer matters how few days it took to close your round, or how many VC hearts you broke ;-). With eyes back on the real game, here are a few factors that we’ve learnt matter – in India as well as globally.

Let’s start with the prize – what might it take to IPO, assuming that most ecommerce companies dream of going public one day. Consider DangDang, the Chinese multi-category ecommerce company that IPO-ed on the Nasdaq in 2010. At that time, the company had 1.6 million daily unique visitors, 28 million registered users, 78% revenues from repeat customers and offered Cash-on-delivery in 750 cities in China.  Product offerings included 590,000 book titles and 460,000 SKU’s of general merchandise products – from beauty to apparel and electronics.  Truly aspirational numbers, but how do you get there?

Let’s start at the top – how to monitor your traffic. Two good metrics to consider are conversion and bounce rate. Bounce rate is the percentage of people who come to your site but leave without viewing any other page. So if your bounce rate is 25%, quarter of the visitor who came to your website left after viewing only the first page on which they landed. Bounce rate hurts especially when your paid traffic has a high bounce – you essentially paid for clicks that never converted. Cutting your Google Analytics data by source should help uncover and optimize the non-performing sources. Conversion is the % of users that eventually transacted on your site, a great end-to-end look at your business. While we see typical conversion rates of 0.5-0.8%, sites such as ProFlowers in the US have 30% peak monthly conversion rates! So examine your funnel closely, and try to understand where and why any drop-off might be happening.

Traffic is good, but revenue even better. Most sites monitor overall and per customer revenue closely; however looking at revenue without the corresponding costs to get that revenue is obviously misleading. So unit economics – or looking at profitability per product - makes it apparent what was spent to earn a dollar. Amazon has a “CRAP (Can’t Realize Any Profit)” program – where they measure cost of each shipped product. They used data to realize that a best-selling folding chair was taking 20 minutes to pack thus obliterating all margins. Getting the supplier to send pre-packaged chairs solved the issue!

Cultivating your users to become loyal customers is the final piece of the puzzle – it’s no coincidence that DangDang had 78% repeat revenues, or that Amazon reportedly has a 65%+ repeat rate. It’s one thing to get someone to buy once, another to get them to come again and again. So check your cohorts by month – are you seeing a steady increase in per user buying behavior?

Off to the races!