Many of the classic KPIs recommended by industry experts, and used by marketers and analysts are merely ineffective snapshots.
Why? Because they only consider small timeframes, and they don’t give any deep thought to customer or visitor types, or how they may have developed.
With such perspectives, a customer journey only looks at a time range between the first marketing contact and a conversion. Sometimes that’s further reduced by limitations like “30 days post click” or “30 days post view.”
But reporting and analytics are in the same boat as long-term business strategy – ultimately, no business can survive without some consideration given to long-term effects and developments. KPIs can, on the one hand, show good performance while, on the other, your revenue is stagnating or even sinking.
That is why customer analytics and customer development play a crucial role – they provide KPIs with a long-term perspective.
Here’s an example from one remarkable customer case of Mapp’s.
Shortly after Mapp developed its customer development KPIs, we got the chance to apply them to the following customer case. Unfortunately, we need to keep the name of the customer confidential, as well as their data. So, I will show you the case in an anonymised way. Regardless, I think this is still valuable in demonstrating the importance of customer analytics.
Our customer in the retail industry had an issue with shrinking revenues and market share. This downturn was happening despite the company making major investments in new traffic, and also in nurturing its existing customers.
The following graphs show the development of KPIs across a time range of two years. The percentages in the small boxes show the average of the yearly comparison on a monthly basis. The colour coding represents a rating of the development from green (no negative or positive development) to red (negative development).
Looking at the numbers above, they had a reduction in revenue of 12 per cent in one year. This was caused by a combined downturn in orders and in average order value.
The corrective actions (and related analyses) were very much focussed on improving click-through rate and CPO performance of the targeted marketing channels, optimising onsite CR, and analysing product popularity to increase up-selling and cross-selling. The challenge they had was that at least two KPIs were showing no significant change.
Their efforts in new visitors and conversion rates seemed to be successful. Other typical marketing metrics were also fine, such as onsite user behaviour. And yet the most important KPI – revenue – was in free fall.
Applying customer analytics
Marketers and analysts need clear indications outside the usual range of fluctuation – proper actionable insights. When Mapp checked the customer development KPIs, we already had a suspicion, but were still surprised by the results.
First, we looked at the Customer Conversion Rate that shows the relation between new customers and new visitors.
The website was generating new visitors and we wanted to see what happened with them. A reduction by 13 per cent was the first significant result. The expensive efforts aimed at bringing new visitors to the site were obviously fizzling out, since they had no impact on the revenue.
The typical retailer will not generate profit from one-time buyers. Two or even more orders are required to justify the marketing investment, due to Customer Acquisition Costs vs. Customer Lifetime Value. Therefore, our next step was to check that performance — and it got even worse.
The Repeated Order Rate shows the relation between the first and the second order, to find out how many customers repeat purchased. As you can see, within one year the share of new customers who bought again — and thus become profit-creators for the company — sank by 17 per cent. Not only this, but the time between orders went up by 23 per cent. With this long-term perspective, we could see that the result would obviously be dropping order numbers.
Since the main concern was revenue, the next KPI we checked was the Order Value Increase, this being the relation between the order values of the first and the second order. It showed a very negative development: the relation went from around 6 per cent plus, at the beginning of the two-year period to nearly 0 at the end.
This means that while in the past customers generated 6 per cent more revenue if they bought again, they stagnated now with a strong tendency towards reducing their basket size in returning orders. For a business which relies on customer loyalty, this is an alarming sign.
So what happened?
While the standard measurements showed some trends but gave no clear insights, customer development KPIs were pretty clear. Here’s the scenario Mapp identified:
Due to investments in prospecting and branding, the company was generating new traffic to the website. The new traffic even went up slightly in the two-year time frame.
But the ability to convert new users into new customers was declining.
The retailer generated a strongly reduced share of contacts from the new customers who bought a second time, or more often. This meant that the company was not just losing performance and revenue. The company was also losing the opportunity to turn traffic into profit.
Even if customers bought again, they were spending less money than before.
This whole trend resulted in reduced revenue, even though the typical daily performance measurements showed no big decline or other negative effects.
While investing money in new traffic and nurturing old customers, the retailer missed the important group in between – users on their way to becoming loyal customers – and with that threw away not just current revenue but future customer growth.
Working in a fast-moving business while under the influence of short-term performance KPIs is no basis for keeping an eye on long-term developments.
Typical web analytics tools do not provide KPIs that provide a long-term perspective. A CRM tool might be long-term oriented but still may not give the full picture about new users becoming loyal customers.
By selecting a useful customer insights dashboard, companies can easily gain a long-term perspective based on truly actionable insights.