All That Ecommerce Startups Should Know About Analytics

One of the most common pitfalls that all startups, including those in the e-commerce space, are advised these days to avoid is ‘not measuring analytics’.

What Are Analytics?

In simple terms, analytics pertain to the logical analysis of data or past trends to predict future outcomes and gain actionable insights to make strategic business decisions.

Why Are Analytics Important?

Analytics help you to understand what is working and what is not. It answers questions like:

• How much you are earning per customer?
• What number of your social media followers or website visitors convert into customers?
• Which social media campaigns bring the most traffic and conversions?
• What is the burn rate on marketing spend?
• Which product or service on your website is getting the most clicks?
• Which customers return to your website?
• Who are the highest paying customers?
• Which location results in the highest sales?
• What are the demographics of your best customers?

Let’s say, you run an online fashion store. You allocate 50%, 30% and 20% of your marketing budget to facebook (1000 fans), twitter (700 tweeples) and instagram (500 followers) respectively to run an online campaign. The percentage of allocation is based on the assumption that more the number of followers, the higher the possibility of conversion rate on that social media platform. Post campaign analytics revealed that facebook, twitter and instagram yielded a conversation rate of 35%, 15% and 50% respectively. Now, you know which social media platform brings the most conversions and how to allocate your next marketing budget. That’s the power of analytics.

Analytics And Metrics

Technically, metrics are a standard of measurement. They help you to count and track how accurately your business processes are functioning. On the other hand, analytics draw internal insights from these metrics and forecast future trends. For example, how many customers uninstalled your app is a metric. But, the answer to why customers uninstalled, can be derived from analytics.

Analytics are in particular useful in understanding the following metrics for startups.

• Revenue
• Gross margin
• Cost of customer acquisition
• Lifetime value (retention and loyalty)
• Cash and customer churn
• Burn Rate
• Operational productivity

Stage of the Startup Matters in Analytics

In the initial stage, you focus on analytics that measure engagement. How many users / customers / visitors actively engage with your product or service on daily / weekly basis. You have the count of the number of clicks, visits, registrations, subscriptions or downloads. But, you also need to know whether they are deriving any significant value from it. If a user registers on Quikr website, but doesn’t buy or sell even once, there is no engagement.

In the growth stage, you start using analytics that show whether there is an increase in the number of users / customers / visitors on weekly / monthly basis. If yes, how many of them are repeaters? You also try to find out which feature of your product is a hit with them.

In the maturity stage, analytics that measure unit economics and Net Promoter Score (NPS) gain prominence. It should tell you what you are earning and spending per transaction or user, and which customers are loyal to you.

Analytics Based on Customer Life cycle

David McClure, the founder of 500 startups, developed the famous 5-step model called ‘Startup Metrics for Pirates (AARRR)’ for analytics framework. It shows how a startup can apply analytics to product and marketing efforts, while keeping the customer life cycle in mind.

Type of Analytics

The type of analytics differs from one industry to another, one segment to another and one company to another. However, since e-commerce is a component of the retail industry, the analytics will be largely same.

For instance,

• Paytm uses real time analytics to crunch data and personalise the shopping experiences of its 30 lakh visitors every day.
• Amazon uses highly sophisticated customer and predictive analytics to make relevant product recommendations, detect frauds and estimate future demand for products.
• Travel startups such as Yatra and Ibibo are using persona based analytics to not only study buying behaviour and personality of every traveller, but also to predict what kind of travel experience they are likely to undertake as per their preferences.

Must Have Analytical Tools

For ecommerce companies, following analytical tools are a must in their kitty:

1. Google Analytics: To get basic web analytics.
2. KISSmetrics: To get detailed reports on your metrics.
3. RJ Metrics: To get a detailed analysis of your website and recommendations to improve it.
4. Social Media Analytics: Facebook and Twitter have their own versions of page insights to help a brand study its effectiveness of social media presence.

Startups need to use analytics to answer the why, what and how of their business. It is like their Key Performance Indicator (KPI). It should start from the day one of the launch so that you know if you are on the right growth track and also to pitch to your investors the right way.