Operations & Development

E-Commerce Benchmarking 101

Operations & Development
10 mın to read

E-Commerce Benchmarking Guide

If you are an e-commerce brand owner or marketer and you and your team have found some success in your current market, you have probably been well aware of what your competitors are doing since day 1. The real challenge comes from understanding where you stack up to your competitors beyond high level vanity metrics like general website feel and what products they sell. Benchmarking your website traffic, internal customer costs/profits, and sales data is an important piece to understanding where you stand as a brand and where you can improve.

In this guide I will cover:

  • Benchmarking metrics you should be paying attention to (website and market wide)
  • Why it is important to benchmark

Benchmarking Strategy and Metrics

Good news… you don’t have to be buff Spongebob to benchmark your business. A full e-commerce strategy can be broken down into 3 simple pieces. 

  1. Website traffic comparisons
  2. Internal data evaluated against the broader market
  3. Sales volume data

 Website Traffic Comparison

Website traffic can give you a solid baseline for understanding how you rank in comparison to your top competitors. To start simple, first check your traffic rank in comparison to your competitors. The most popular tool to access this data was Alexa rank, but as of May 1st 2022 Amazon Alexa rank tools will be sunsetted. Using a third party tool is now required to complete even the most basic comparisons. Some of the top tools that allow you to understand your traffic and website analytics are:

  1. Luz - Built for D2C brands to grow without the growing pains. Main features include website tools to understand your traffic rank and quickly benchmark against competitors. 
  2. Semrush - Deep dive into traffic, SEO, and keyword data. One of the most robust platforms for website information, but  no additional tools for a full marketing perspective. 
  3. Similarweb - Comparable to Semrush with a slightly broader reach across social and paid advertising. Still not a full functioning marketing tool.

While website traffic gives you a solid overview of where you stand from a broad perspective, using one of the tools listed above provides more useful metrics. Here is a breakdown of some of the most useful benchmarking metrics:

  • Traffic acquisition source - Your brand is likely running multiple marketing campaigns. Understanding which of your channels are driving traffic in comparison to your competitors can give you a solid foundation of where you are winning as a brand and where you may need to invest more marketing dollars to catch your competitors.
  • Paid vs Organic - Looking at the mix of paid vs organic traffic can give you a good idea of where you should focus your energy. If you have a higher percentage of paid traffic you may want to shift more focus to organic traffic. In a recent report by Similarweb the e-commerce segments overall distribution was: 
  • Free traffic - 87.6% 
  • Paid traffic – 12.5%.

These are good overall benchmarks but the numbers can change based on your industry and competition. Taking a deep dive into your specific brand will provide a greater level of insight.

  • General Website Usability - Metrics in this category measure the engagement/ease of use on your website. The main metrics to track here are:
  • Average Visit Duration - An average of how long each visitor stays on your website.
  • Average Pages per Visit - How many pages do each visitor view when they hit your website.
  • Average Bounce Rate - Number of users that leave your site after viewing just one page. 
  • Conversion Rate - The percentage of website visitors that are converting to customers. At the end of the day, the most important piece of the puzzle is how often you convert customers. According to a recent Similarweb report, the global average conversion rate for e-commerce is 7.7%, but you should keep in mind that your competitors or industry could have a higher or lower conversion rate. With this in mind, it is worth taking the time to compare yourself to your competitors to see if your website needs improvement.

Market Wide Benchmarking Metrics

Three metrics stick out as a quick way to understand where you stand as an e-commerce brand in the broader market. Lifetime value (LTV), cost acquisition cost (CAC), and the ratio between the two (LTV:CAC Ratio). 

  • Lifetime Value (LTV) - Lifetime value is the value of your customers over their lifetime calculated using a specific amount of time typically from 6, 12, 24, or 36 months of data. Calculating LTV can be complicated given the different time frames and ways to aggregate the data. For simplicity sake I will cover the basics of LTV here: 
  • First, find your gross margin: Gross Revenue - Costs 
  • Second, divide your gross margin by your total number of customers

Lifetime value tells you how profitable your customers are over the selected time period. This insight allows you to start to understand if your current business model will be profitable long term.

  • Customer acquisition Cost (CAC) - This is the cost associated with getting a new customer. Where it differs from cost per acquisition (CPA) is it also takes into account the non-variable costs of marketing. To calculate, take all the costs including both the variable (ad spend) and fixed costs (such as team salary, marketing tool budget, agency costs etc.) and divide it by the number of customers generated in a specific time period. For example, let’s say over the last month you spent $2,000 on digital advertising and had $4,000 in additional fixed costs. If you generated 500 customers from this spend, your CAC would be $12 (6000/500).
  • LTV:CAC Ratio - This metric is the best way to understand your brands profitability, and overall marketing health in the future. To calculate, take your customer lifetime value and divide that by the customer acquisition cost. This will give you a ratio of how much profit you are generating per customer and the spend that it takes to get the customer in the door. In terms of benchmarking, there are some industry norms that you can compare yourself to:
  • 1:1/Even LTV:CAC - If your ratio comes out to be even or 1:1 that basically means you are breaking even. At face value this may seem ok for the time being, but because it does not include product costs, most likely your brand will be losing money.
  • LTV is lower than CAC - This is where you don’t want to be. This means your customer over their lifetime is not worth more than the cost to get that customer in the door. In this scenario, you need to seriously adjust your marketing spend and goals to find a more cost effective way to get your customers, or work on campaigns to increase the value of your customers.
  • LTV:CAC is between 2:1-4:1 - This is the good zone. Generally a 3:1 LTV:CAC ratio is considered good by investors and industry wide. A 3:1 ratio means your customers over their lifetime will be 3x more valuable than it took to acquire them. 
  • LTV:CAC is higher than 4:1 - Intuitively this may feel like it is even better than a 3:1 ratio, but a ratio this high could mean there is additional room to grow efficiently. Consider ramping marketing spend to drive additional customers to your brand. 

Benchmarking across e-commerce as a whole is an important piece of the benchmarking puzzle. Oftentimes investors will look at metrics such as these to understand the overall brand health. Using LTV and CAC, you can see if your brand is on a path of sustainable long term growth. 

Unique Benchmarking

Competitor Benchmarking Made Simple with Luz

In the current state there are solutions to benchmark your brand based on website metrics and overall e-commerce brand metrics, but the biggest gap is comparing competitor sales. This is where Luz steps in. We built Luz to help you grow your ecommerce business without all the guesswork. Using the biggest D2C database in the world, you can easily benchmark your brand down to the specific sku to see how your products are selling compared to your competitors. Not only do we have one of a kind product benchmarking, we also simplify all the top metrics you need to grow your business at scale. Want to benchmark without all the extra work? Learn more here, or reach out to our team now. 

TLDR 

Benchmarking is using internal and external data to see where you stand in the market compared to your close competitors. Website analytics such as bounce rate, traffic source, and paid vs organic traffic gives you a strong base to see in comparison to your competitors how you are driving traffic. While this is an incredibly strong tactic, it does require a third party tool. More general metrics such as lifetime value (LTV) and customer acquisition cost (CAC) can be used to compare your business to the market as a whole. While less specific than website analytics, LTV and CAC does give you a view of how profitable and sustainable your brand is in comparison to the e-commerce space.  

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