AdScale’s Growth Formula For Ecommerce Stores
With the changes in privacy protection regulations, many online stores experienced a significant decrease in investment returns from sponsored advertising on Facebook Ads and Google Ads. Customer acquisition costs have jumped by tens of percent, bringing many merchants to the brink of profitability.
But many eCommerce businesses managed to maintain their growth despite the current climate. We were curious to learn what all successful websites have in common and what we can learn from them. Accordingly, we have analyzed hundreds of growing and profitable ecommerce businesses in the current era and found a growth formula that always works if you invest in it.
In this article, we will present our thesis.
The Death of the Third-Party Cookie Changed the Industry
In 1992, Netscape invented the cookie, a little piece of code enabling websites to remember user information and preferences. Cookies have been the lifeblood of the digital advertising ecosystem for decades. Today, the digital advertising industry is worth over $600 billion, and advertisers rely on cookies to track users across web properties. But the cookie is dying. In response to user privacy concerns, Apple, Google, and Mozilla are all phasing out the support for third-party cookies in their web browsers.
The impact on the digital advertising ecosystem is profound. The loss of third-party cookies made it much harder for advertisers to track users across the web and led to less precision in targeting, which means that the ad is likely irrelevant or annoying to users. In order words, it led to less effective advertising.
First-Party Data Advertising is the Key to Success
The critical element of future success is your first-party data. A strong understanding of your customers, products, and services unlocks their full potential to guide the marketing strategy for the entire brand.
Your first-party data is what you know about your customers, such as their purchase history and demographics. With this data, you can improve your advertising perforce by making Google and Facebook more accurate using data from your store that they don’t have.
BCG’s ‘Global Digital Marketing Maturity Survey’ found that companies that link their first-party data sources can generate double the revenue from a single ad, communication, or outreach and improve cost efficiency by 1.5 times.
When it comes to targeting-there are three primary types of audiences:
- New Traffic – People who have never yet visited your web store before
- Remarketing – People who visited your store but made no purchases
- Retention – Customers who completed at least one acquisition in the past.
New traffic and remarketing ads aim to generate new customers for the business, while retention campaigns aim to bring back existing customers and make them buy again.
Acquisition vs. Retention
Acquisition and retention are like the two wings of a bird: if either one is missing, then flight becomes impossible. In the same way, you need to both acquire and then retain customers to achieve success in the eCommerce world.
Acquisition grows your customer base; with customers to serve, there’s a reason for a business to exist in the first place. You had to acquire at least a few customers to launch your business. The ongoing customer acquisition process allows you to grow your customer base and obtain even more opportunities to conduct business.
Retention is vital to maximizing customer lifetime value. With a strong retention strategy, you can keep your loyal customers returning for more. The best way to maximize the CLV of customers is by encouraging them to repeatedly bring their business back to you.
New customers are always more expensive to acquire than those who have already bought from you before. You can only do a little about the cost of acquiring these new customers, but you can do a lot with your retention costs to ensure that you pay enough for customers you already purchased.
The Growth Formula for eCommerce Businesses
- Acquire new customers on Google and Facebook using first-party data advertising.
- Define a humble ROAS for first-time customer acquisition.
- Turn new customers into repeat customers with a 5x lower repurchase cost using other platforms.
Why Google and Facebook?
Google and Facebook are still the best platforms for acquiring new customers. Influencers, SEO, organic, etc., are all good, but these are the extras. The bread and butter are Google and Facebook – They help you target people that have never purchased from your store before in the most effective way. There isn’t even one store we analyzed that didn’t use Google and Facebook extensively in their new customer acquisition process.
Why a Humble Return on Investment?
ROAS (Return on Ad Spend) is the most commonly used metric to measure the effectiveness of a marketing campaign. And, it is often all that matters for many eCommerce businesses, who are solely focused on increasing that metric. However, it should not be all that matters. When you look at ROAS in isolation, you need to catch up on the main objective: Increasing your customer lifetime value.
The ratio of ROAS and the number of new customers is inversely proportional. The lower your initial ROAS, the more new customers you will get, and vice versa.
We aim to acquire as many new customers as possible for the business to turn them into repeat customers and increase lifetime value and profitability. Therefore a humble ROAS will help us increase the number of new customers. Suppose we learn how to turn them into repeat customers at meager repurchase costs. In that case, our customer lifetime value will increase, and the turnover of the entire business will increase as well.
How to Turn New Customers Into Repeat Customers at a Low Cost?
Google and Facebook are expensive, and the cost of acquisition is high. While it makes sense to use them for acquiring new customers, you should avoid acquiring the same customers again at a high price.
We recommend using first-party data to run hyper-personalized retention campaigns via SMS and email, both effective and low-cost media.
AdScale helps you easily create and manage first-party data advertising across multiple channels from one place, enabling your to acquire more customers and increase their lifetime value with automation and AI.
AdScale analyses your store data and create ad campaigns with increased conversion rates across all channels. From accurate audience targeting and product selection to AI ad copy with integrated Chat GPT, and AI magic video ads, AdScale provides you with everything you need to hit your targets and is also available through many ecommerce platforms such as the Shopify App Store and many others.
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