Majed Masad of Mejuri, a direct-to-consumer jewelry company in Toronto, on Oct. 27.Peter Power/The Globe and Mail
Majed Masad, co-founder of jewellery retailer Mejuri Inc., gets a business metrics update once a day in his e-mail inbox. It covers the previous day’s revenue, average order value, units sold and other key figures.
“That’s typically my first e-mail I open in the morning,” says Mr. Masad, who is also president of the Toronto-based company that has both brick-and-mortar and e-commerce operations.
Each week, he meets with the company’s data team to further comb through the business data: They look at conversion rate (the percentage of web visitors who make a purchase) and compare average order values between new and repeat customers, those in different locations and between e-commerce and brick-and-mortar retail sales.
Above all, they analyze the total number of transactions, which Mr. Masad says is the most significant metric for his business.
”It’s ultimately what you’re trying to get the customer to do,” he says. “Revenue is a by-product of a transaction.”
Less often, about every month, Mr. Masad looks at more long-term indicators, such as lifetime-value-to-customer-acquisition cost, which compares the lifetime value from a customer to the cost to acquire that customer in the first place.
“It takes time for that metric to show how it’s performing,” he says, noting he’ll use it to compare cohorts of shoppers, for example, people who became new customers in a specific month.
“It’s about understanding how to keep customers coming back,” Mr. Masad says.
How to interpret the data
With endless metrics available to quantify a business, it can be easy for owners to get lost in the numbers or interpret them incorrectly.
Small businesses dipping their toes into the world of e-commerce key performance indicators (KPIs) should start by understanding the metrics most important to investors and those that reveal pain points for customers, says Jane Lee, co-founder of direct-to-consumer accelerator Launch Pop, which has offices in Toronto and Santa Monica, Cali.
”The analytical side of e-commerce is something that is daunting to founders,” says Ms. Lee, who also works as an adviser for Lyra Growth Partners, Vega founder Charles Chang’s venture firm. “But at the end of the day, numbers will give you an understanding of the business and what needs to be problem-solved.”
Developing a tailored approach to metrics is even more important now that iPhone users can opt out of allowing advertisers to track their activity across multiple apps – a change she says happened this spring. It’s made targeted mobile advertising much less effective and increased customer acquisition costs for companies relying on Facebook and Instagram ads.
While the change is great for user privacy, for businesses it often means “you don’t know where your customers are coming from,” Ms. Lee says.
Know your numbers
Ms. Lee tells founders they absolutely must understand the following five indicators – and be able to recite their company’s values for each on the spot: website conversion rate, lifetime value, average order value, margins and blended customer acquisition costs, which divides sales and marketing expenses by the number of new customers acquired.
”If a founder doesn’t know those five numbers, I don’t trust them,” she says. “You have to know them even if you’re not a numbers person. That’s the health of your business.”Ms. Lee typically encounters two types of entrepreneurs: those who are “super brand- and product-focused” and don’t really care about the metrics, and those who are “super-analytical and don’t care about brand, they just want to push product out and make a ton of money.”
Part of her job at Launch Pop, she says, is helping shift both types to a place somewhere in between.
Ms. Lee advises companies to focus on metrics that can help turn a one-time buyer into a repeat customer. For instance, low lifetime-value-to-customer-acquisition cost or high shopping cart abandonment rates can signal to a business that there are not enough new products to maintain a buyer’s interest over the long term.
”Gone are those days where you can have a beautiful brand and just hope and pray they’ll purchase again,” she says. “It’s about asking how you can [bolster] your product pipeline. If you drop products once a quarter, you can engage people more often.”
Low conversion rates can tell entrepreneurs that the purchase pathway isn’t clear, Ms. Lee says, adding that it’s always worth testing a change before rolling it out permanently to see if your interpretation is correct.
Don’t go data overboard
Rikia Saddy, a Vancouver-based business strategist and strategic adviser to C-suite executives, cautions entrepreneurs not to get so caught up in the data that they abandon qualitative user experience research.
While it’s important to measure areas such as how many people click on an ad and then don’t make it past the home page, Ms. Saddy says qualitative research – such as walking through several different customer journeys on a regular basis – is a crucial counterpoint.
”If you’re only measuring those who shop, you’re missing those who don’t,” she says. “There’s a wealth of data in the latter. It’s the only way you can grow the pie … Companies often think they are performing better than they are and they are actually leaving millions of dollars on the table because they aren’t focusing on user experience.”
Ms. Saddy also cautions against cherry-picking metrics that make the business look good to investors or support a manager’s promotion, for example, because they can create blind spots for the business.
”You do not have any sense of what those KPIs mean unless you put yourself in the shoes of the people working in customer service,” she says. “Without a strong user experience voice in the organization, that data may not be telling half the story.”