What Distinguishes Top-Performing E-commerce Companies?

According to Robert Moore, CEO of RJMetrics, venture capital firms and e-commerce companies have had a stormy relationship thus far. The online sector races on while investors struggle to identify new opportunities coming from those entering the arena, which means that no big wins are made.

RJMetrics has conducted a study where they analysed (1) trends in e-commerce funding from 2010-2015, (2) top KPIs, such as customer lifetime value and repeat purchase rate and how they vary among e-commerce firms, and (3) growth patterns to help investors find the best-performing organisations.

Given that being able to keep existing customers during such turbulent and highly competitive times is key if you want to be successful in e-commerce, it is crucial to know where you stand as an investor. The findings of the study are summarised below:

Top-performing companies:

• Generate 9X more revenue than their poorer-performing counterparts over 3 years.
• Have almost double the orders than everyone else after just 12 months.
• Have 2.5X more customers than the next-best group after 3 years.
• Have customers that make a second purchase 12 days faster than their peers.
• Have repeated customers making multiple purchases from the first order and spending 15% more than the average.
• Have almost 13.5k customers that buy from them for the 4th time (5,000 more customers than the other groups combined).

It has also become apparent that the number of investments continues to drop. At the same time, the size of investments has risen from $3 million to a stunning $9.4 million between years 2011 and the first half of 2016.

In detail (besides what’s mentioned in the key findings above):

From data collected from more than 2,300 district e-commerce US-based companies that went public or were acquired since 2011 (pharma and biotechnology-related excluded), it was obvious that funding has climbed to $45 million from $25 million with Airbnb and Groupon being among the e-commerce-related companies taking the lead. That said, investors feel much safer investing into the more mature startups, and investment patterns seem to remain as they were, at least for now. On the other hand, aggregate investment has dropped significantly. Clearly, investors want to spend the same amount of money as they did in the previous years, only to fewer firms, says Danielle Morrill, CEO of Mattermark. 

When it comes to the top e-commerce companies’ indicators, the report has shown that the companies have gained slightly less than $500/month by month six, leaving the next-best group bringing in $135/month. Their revenue skyrockets to $1 million in monthly revenue by month 15 as opposed to the 2nd quartile that clears $500/month. Also, by month 2, top-performing e-commerce companies have already acquired twice the new customers their peers have per month. But, besides fast acquisition, they also excel in retention. In around 30 days, they generate 20% of their revenue from returning customers (60% by year 3). Only 13% of the revenue of the poorer performing e-commerce companies comes from repeat customers. It should be noted, though, that this is not always a good thing unless you manage to combine the higher percentage of revenue from returning customers with high customer acquisition numbers. Customer lifetime value (CLV) is a metric that can help show the long-term value of a customer.

There are 3 customer retention patterns behind the impressive growth of the best performing e-commerce companies:

1. The speed at which these companies turn their new customers into loyal followers. From their first order till the second one only 12 days pass on average, and the repeat purchase probability steadily increases.
2. The ability to predict customer lifetime value. Managing this allows them to increase spend on campaigns with the highest marketing ROI. Their customers’ first purchase can give them valuable hints to help spot these predictors. The earlier in the customer lifecycle you can predict customer behaviour, the better decision you can make.
3. The rate they acquire new customers via word-of-mouth sources.

Although these growth patterns are not exhibited in every startup e-commerce company, having a guide to understand the growth patterns that have allowed others like you succeed is indeed valuable.

James Leighton Davis is a Customer Acquisition Consultant, Interim Digital Director and NED, primarily for PE-and-VC-backed companies across B2C, B2B and D2C markets in both the UK and Australia. Further information is available at leightondavis.com. 

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